Untitled

Nth Edition
Wall Street
Journal Articles
Me
Contents
Contents
Part One
28
The New Orleans Economy Ten Years

After Katrina
29
Feds Dudley: Case for September Rate

Increase Now Less Compelling
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Wall Street Journal Articles
TV Shooting Claims Lives of Reporter,

Cameraman; Gunman Kills Self
49
EPA Says It Underestimated Water

Buildup in Colorado Mine That Led to
Spill
59
In Opinions on Iran Deal, Democrats

Dont Lack for Words
61
Ben Carson Quietly Builds Support
68
State Contractors Aid Governors Campaigns
73
Abe Asks U.S. to Investigate Alleged

NSA Spying on Japanese Government
82
Caroline Kennedy Criticized for Using

Personal Email for Official Business
85
10 Planned
Parenthood
Unit
Sues
Louisiana Over Medicaid Funding
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11 Central Bankers to Confront StockMarket Turmoil at Feds Annual Jackson Hole Retreat
97
12 An Oasis in Midtowns Mayhem
104
13 NYC Mayor Bill de Blasio to Appoint

Second Panel on Panhandling
109
14 Accused White House Fence-Jumper

Killed by Police in Pennsylvania
116
15 More Americans Seen Returning to the

Job Market
120
16 U.S. Farm Income to Fall to Lowest

Level in Nine Years
125
17 Fannie Mae Unveils Mortgage Program

to Help Minority Borrowers
131
18 Biden to Meet With Jewish Leaders to

Make Case for Iran Nuclear Deal
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19 Greeces Alexis Tsipras Struggles to

Keep Syriza Party Together
144
20 India Stands to Benefit From China

Slowdown, Global Reaction
150
21 As War Closes In, Syrias Assad Puts

Emphasis on Living a Normal Life
158
22 Hungary Considers Using Army as Migrant Numbers Rise
166
23 Venezuelas Food Shortages Trigger

Long Lines, Hunger and Looting
172
24 North Korean Escapees Say They Perceive Solid Support for Dictator
181
25 South Sudans President Signs LongAwaited Peace Accord
187
26 Exiled Pakistani Separatist Says Government Has Reached Out to Him
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27 Man Arrested in 1996 Khobar Towers

Bombing
200
28 Protests Over Beiruts Garbage Crisis

Continue
203
29 Asian Markets Shake Off China Rout
207
30 China Remains a Key Commodities

Player, Despite Waning Appetites
213
31 The World Struggles to Adjust to

Chinas New Normal
222
32 Chinas Central Bank Cuts Interest Rates235

33 Serbia and Kosovo Take Step Toward
Reconciliation
243
34 Ukrainian Filmmaker Sentenced to 20

Years by Russian Court
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35 Train Gunman Watched Jihadist Video

Before Attack, French Prosecutor Says
256
36 14 People Arrested in Spain and Morocco Over Islamic State Links
261
37 Germany Eases Rules for Syrian Refugees265

38 Group Proposes Talks to Find Ways of
Averting Russia-NATO Military Mishaps 270
39 Turkey to Join Coalitions Airstrikes
Against ISIS
275
40 Migrants Mass at Serbia-Macedonia

Border
280
41 Galaxy S6 Edge+ and Note 5 Review:

A Choice Between Style and Stylus
287
42 Hong Kong Property Developer Invests

in Co-Working Space Company NeueHouse
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43 South Bronx Sours on Mayor Bill de

Blasio
301
44 New York City Office Construction

Heats Up
308
45 Dewey & LeBoeuf Inflated Key Financial Metrics, Witness Says
314
46 Port of New York and New Jersey Saw

Record Container Traffic in July
320
47 Congressional Democrats Face Political

Pressure on Iran Nuclear Deal
324
48 Bill Would Ban Synthetic Marijuana in

New York City
332
49 Judge Approves N.J.-Exxon Settlement 337

50 Newark Schools See Red Ink
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51 After Stormy Introduction, New Jersey

Club Takes Its Second Shot at Barclays 349
52 Male Escort Site CEO, Six Employees
Indicted
355
53 Should MLB Scrap Divisions for More

Playoff Fairness?
359
54 Catherine Belliss Teenage Dream

Moves Closer to the U.S. Open
368
55 How Long Can the Mets Keep Bartolo

Colon in the Rotation?
374
56 What Should Macys Do With Its Flagship Store?
377
57 The Puma Pack Gets Ripped Together
384
58 A Celebration of Ingrid Bergman, Plus

a Teenage Werewolf
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59 Elisabeth Moss, Going Kind of Crazy
398
60 A Tudor Castle in Connecticut
404
61 Athletes Jump Through Hoops to Host

Hamptons Event
406
62 Chris Brown in Jones Beach, Aaron

Neville in SoHo
412
63 Asia Society Appoints New Museum Director
418
64 Monsanto Drops $46 Billion Bid for

Syngenta
421
65 Schlumberger to Buy Cameron International for $12.7 Billion
428
66 Netflix Viewership Finally Gets a Yardstick
436
67 Winners, Losers in Chinas Upheaval
445
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68 Water, Water Everywherein Bottles
458
69 For Emerging Markets, 2015 Isnt 1997
466
70 U.S. Durable Orders Rose 2% in July
473
71 Boeing Settles Lawsuit Accusing Company of Mishandling 401(k) Plan
478
72 Paddy Power, Betfair Agree to Gambling Deal
484
73 Fiat Chrysler Boss Says Auto Maker

Can Survive With or Without Partner
490
74 Housing, Consumer Confidence Are

Bright Spots in U.S. Economy
495
75 Molycorp to Suspend Production at

California Mine
500
76 Wal-Mart to Stop Selling Semiautomatic Rifles, Citing Declining Demand
504
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77 Rovio to Cut Workforce By Over a

Third
508
78 Insurers Win Big Health-Rate Increases 513

79 General Mills Recalls Some of Its Green
Beans Due to Listeria
523
80 Report: VA Falls Short on MentalHealth Care Despite Hiring Push
526
81 FDA Grants Priority Review to Sarepta

Drug Candidate
531
82 Lilly: U.S. Court Rules in its Favor on

Alimta Patent
534
83 Former Morgan Stanley VP to Be Released on $2 Million Bond
536
84 Workers Get New Tools for Airing Their

Gripes
542
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85 Snapchat Names Former Mattel Executive Drew Vollero Its Finance Chief
552
86 Splenda Sweetener Getting a New Owner556

87 Accenture to Allow New Parents to
Travel Less for Job
561
88 Arizona Iced Tea Pops Open a Can-Do

Spirit
565
89 D.C. Regulators Reject Pepco-Exelon

Merger
572
90 Lixil Director Aims to Lead the Charge

Against Japans Glass Ceiling
575
91 Mexican Regulator Investigates Telmex

Over TV Agreements
582
92 BlackRock Embraces Robo Finance Advice with Acquisition of FutureAdvisor
585
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93 Cell Carriers Battle for Wi-Fi Airwaves 590

94 Back to School Shopping Is a Digital
Holdout
598
95 3-D Rarities Review: When the World

First Loved 3-D Movies
606
96 Manager at Video Game Maker Accused of Trade Secret Theft
612
97 Workdays Job Isnt Finished
616
98 Las Vegas Readies Airport for Possible

Uber, Lyft Rides
620
99 Is a Hacked Vehicle Also Defective?
622
100Connecting Your Car to Your Smartphone Can Make Auto Data Work for
You
630
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101Stocks Surge, Posting Strong Gains at

Close
640
102Emerging-Market Currency Risk Shifts

to Lenders
648
103A New Computer Glitch is Rocking the

Mutual Fund Industry
656
104Judge Dismisses Lawsuit Inspired by

Flash Boys
662
105Emerging Market Turbulence to Hit

Luxury London Property
668
106Got Losses? A Tax Break Could Soothe

the Pain
674
107Latest Victim of Chinas Pollution

Problem: Iron Ore
679
108With Yuan Down, Dim Sum Debt Loses

Favor
684
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109When Bad Things Happen to Expensive

Stocks
690
110Schlumberger Wants Camerons Company in Oil Slump
696
111Let the Bad Times Roll for Dollar General699

112European Banks Face More Pain From
Operational Errors
703
113China Has Big Eyes, Little Stomach for

Oil
707
114Betfairs Winning Hand in Paddy

Power Deal
711
115Big U.S. Banks Can Weather China Storm715

116Dialing Up Dividends With AT&T,
Verizon
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117Germanys Fate Doesnt Depend on

China
723
118China Eases but Stench of Crisis Remains727

119Restoration Hardware Makes a Play for
Teens
731
120Bulbs That Bloom in the Fall
737
121Southampton Home Lists for $42.5 Million
741
122Birding in the Digital Age: A Primer
744
123Berlins Waterfront Heats Up for Travelers751

124A Van Thats a Tribute to Surfink
762
125Pope Francis Memorabilia Gets Really

Cheesy; Mozzarella, Anyone?
765
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126The NFLs Best Practice: No Wasted

Time
773
127Carlos Correa Seeks to Avoid Hitting

the Rookie Wall
780
128U.S. Track Team Trips and Stumbles at

the Worlds
784
129Any Benefit of Weekly Home Mortgage

Payments?
789
130A History of Star-Crossed Lovers
795
131Practice Makes Some Perfect, Others

Maybe Not
800
132Guarding the City of Angels
805
133Forget the Ferrariat Concours

dLeMons, People Polish Up the Pintos 812
134Kerrys Invisible Bridge
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135More Minimum-Wage Backfires
827
136A Power Grab in Turkey
831
137Closing the Planned Parenthood Loophole835

138Gangsta Raps Grim Legacy for Comptons Everywhere
842
139Let Tim Cook Speak (About Business)
848
140In the Race for Arctic Energy, the U.S.

and Russia Are Polar Opposites
854
141Sixty Years? Must Be Some Kind of

World Record
861
142Obama Must Engage the Iran Deals

Critics
867
143The Seven Deadly Sins, Spread Across

Seven Museums
874
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144A French Film Mavericks California Sojourns
884
145The Lucerne Festival Is on the Threshold of Change
893
146Navigating the West: George Caleb

Bingham and the River Review
901
1471945Defeat. Liberation. New Beginning. and Till We Meet Again Reviews 908
148Discovering the Impressionists: Paul
Durand-Ruel and the New Painting
Review
916
149Painting on Paper: American Watercolors at Princeton Review
925
150Three Powerful Sets by Three Indie

Threats
933
151At Tanglewood, Premieres Aplenty
938
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152Corinthian Colleges Wins Approval for

Liquidation Plan
947
153TIAA-CREF Teams Up With Swedish

Pension Funds to Invest in European
Property
954
154McDonalds Lands in a Real-Estate

Dilemma
957
155Henry Silverman Creates New Property

Investment Firm
965
156Rent-to-Own Homes Make a Comeback 968

157In India, a GIFT Waiting to Be Opened 977
158Smaller Chinese Cities Miss Housing
Recovery
984
159Marijuana Producers Gobble Up Warehouse Space in Denver Area
991
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160Small-Business Owners Confidence in

Economy Wanes
998
161How Independent Baseball Teams Make

Money. Or Dont.
1006
162Personal Touch Makes Big Difference in
Small-Business Loans
1015
163A North Carolina Couple Quit Their
Jobsand Built a Dream Business in
Costa Rica
1021
164Chemist Concocts a Cure for Unwanted
Pills
1032
165How Fast-Food Chains Cook Up New
Menu Items
1035
166Startups in the Forefront of Battle
Against Hackers
1043
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167Sinclair Broadcast Pulls TV Signals

From Dish Network
1049
168Oshkosh Wins $6.75 Billion Military
Contract to Replace Humvee
1054
169USA Discounters Seeks Bankruptcy
Protection
1059
170Boeing Raises Its Estimate of Chinese
Aircraft Demand
1064
171Bankruptcy Judge Authorizes Sale of
Relativity Media
1071
172Glut of Chinese Steel Looms Large
1075
173Medtronic to Buy California Startup

Twelve Inc.
1081
174BHP Looks Past Travails, Remains Upbeat on China
1085
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175Transocean Seeks to Cancel Two Dividend Payments

1092
176Bankruptcy Judge Sets Sept 25 Auction
for Some ZTejas Restaurants
1095
177China Market Turmoil Dents Corporate
Germany
1099
178Commodity Traders Feel Unusual Pain
of a Market Rout
1107
179Boeing Fights Retirement-Plan Class
Action
1114
180Europe-to-Asia Freight Rates Fall as
Volume Forecasts Cut
1121
181Relativity Media Stung by Request to
Delay Key Hearing
1127
182The Best Way to Cheer for Your Child
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183Australian Military to Get Cozier With

U.S.
1140
184Oil Prices Fall on Less Gas Demand,
Growing Glut
1144
185Why Chinas Thirst for Oil Cant Lift
Prices
1150
186Stephen Hawking Offers New Theory on
How Information Might Escape Black
Holes
1157
187Stock-Market Tumult Exposes Flaws in
Modern Markets
1162
188Australia Treasurer Says Reaction to
China Slowdown Is Overblown
1172
189Late Tumble in U.S. Stocks Dashes
Hopes for Rebound
1178
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190In Shanghai, Investors Bemoan Stocks

Rout
1187
191China Reveals Guest List for Big Military Parade
1192
192In Beijings World War II Narrative,
Communists Get Starring Role
1198
193Oil Rebounds After Rout
1205
194Traders Increase Bets Against Yuan
1211
195U.S. Stocks Tumble at Close, Dashing

Hopes for Relief
1219
196For All Its Heft, Chinas Economy Is a
Black Box
1226
197Asia Consumer Spending Wont Come
to Rescue
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198China Shares Wipe Out All Gains This

Year
1244
199Market Mess Throws Deals Into Doubt
1253
200Chinese Entrepreneurs Seek Investments Abroad to Avoid Local Obstacles 1259

201Warner Bros. in Talks to Make Movies
in China
1266
202Markets Rebound As China Cuts Interest Rates
1272
203China Stocks Tumble
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Part I
Part One
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Chapter
The New Orleans

Economy Ten Years
After Katrina
NEW ORLEANSFor Paul McGoey, Hurricane
Katrina delivered the unlikely opportunity of a
lifetime.
A month into the flood, Mr. McGoey heard
from the owners of three suburban hamburger
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joints: Their managing partner had left town for

good. Would Mr. McGoey run the chain in exchange for an ownership stake?
Mr. McGoey, at the time a restaurant consultant, took the deal and now employs 600 people
at 15 restaurants and cafes across the metropolitan region.
I say proudly but not braggadociously that
we are the largest-growth restaurant company
in the city, post Katrina, said the 50-year-old
Mr. McGoey, wearing jeans, Prada glasses and a
mulberry-colored blazer at the bar of his Legacy
Kitchen on Tchoupitoulas Street in the citys hip
warehouse district.
Mr. McGoeys good fortune reflects the citys
resurgence in the decade since Katrinaas well
as its shortcomings. Many say New Orleans
has emerged more entrepreneurial and energetic.
Along the Mississippi River, crowds fill city
streets, even in the soggy summer heat.
In the years since the storm forced out about
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lation has rebounded to 1.25 million people, 90%

of its pre-Katrina level.
But as the $135 billion rebuilding winds down,
federal employment data reveal a local economy
increasingly skewed to low-wage jobs, especially
restaurant work, one of the few sectors now employing more people than before Katrina. Those
jobs drag down average incomes, analysts say,
widening the economic divide between whites,
who are generally richer than before, and blacks,
who arent.
The number of jobs in the metropolitan region
is close to 91% of pre-storm levels. But the region
lost 3,800 jobs in the year that ended in July,
while most U.S. metropolitan areas of more than
a million residents gained jobs, federal data show.
In the city, meanwhile, there are almost
100,000 fewer black residents, who now make
up 59% of the population, down from 67%, according to the local Data Center analysis group.
And there are now proportionally more poor
black households44% compared with 42% in
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1999with incomes below $21,000.

The poverty level is just as high as preKatrina, said Allison Plyer, the demographer
who runs the nonprofit Data Center.
The city now has a greater proportion of white
residentsabout 31% compared with 27% before the stormand the percentage of white families with top-tier annual incomesmore than
$105,000has risen to 30% from 25% a decade
ago, according to the Data Center.
New Orleans hasnt yet become the high-tech
mecca promised by the hopeful sobriquet Silicon Bayou or an economy transformed by entrepreneurs and artisans, among the dreams leaders espoused after Katrina.
Civic boosters these days trumpet the citys
new levees, revamped educational system and a
new medical center that they hope will anchor a
biotech corridor on Canal Street, the citys main
drag.
But even the most sanguine admit that the
magnitude of change needed to fix an economy
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ailing even before the storm takes generations,

not a decade. One of the most concerning facets
of the new New Orleans is its shortage of middleclass work.
Creating a diversity of jobs is kind of the
fundamental challenge, over time, said Michael
Hecht, president of Greater New Orleans Inc., the
local economic development agency. Well-paying
jobs are needed, he said, to keep New Orleans
from returning to the days when it risked becoming, essentially, Key West, beloved but not
important.
For now, the economy is driven largely by waiters and others in food services. Restaurants employ nearly 60,000 people, according to federal
data, making up more than 10% of the 558,000
jobs in the region, a higher proportion than in
2005.
Restaurant employees in Louisiana eligible for
tips make a minimum of $2.13 an hour in base
pay, though their bosses are supposed to make
up the difference to the federal minimum wage
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of $7.25 an hour if customers are stingy. These

workers in and around New Orleans made an average of $17,378 last year, not including cash
tips, less than half of the regions average pay
of $48,437, said Raymond Brady, an economist
and vice president of the New Orleans Regional
Council of Business Economics.
The local economic challenges predate Katrina
and echo those in other U.S. cities that have lost
manufacturing and industrial jobs. New Orleans
never recovered from the oil bust of the 1980s, as
the energy business shifted to Houston. By the
time Katrina hit, the local economy depended on
tourism, government, small business and colleges;
the two largest private employers were hospital
chains.
Regional employment peaked in 2001 at just
under 635,000. New Orleans has since experienced a decline, made worse in recent years after
the loss of a shipyard and its thousands of wellpaying jobs. The port is bustling but water transportation jobs have dwindled. So has government
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work. The one major public company with a New

Orleans headquarters is Entergy Corp., a regional
utility.
For a while, many doubted that medical facilities would recover after the storm forced the
closure of nursing homes and hospitals. Dr. Ricardo Febry, an internist, said the citys medical
society had lost about a third of its members by
the time he was president in 2007.
The medical community has since stabilized,
Dr. Febry said, though the remaining hospitals
compete for insured patients with medical centers in Houston and elsewhere. Attracting young
doctors is tough, he said, though if you dont
mind potholes and broken sidewalks, everything
else is delicious.
Employment losses have been masked somewhat by the boom in construction after Katrina.
While the number of workers employed in homerebuilding projects are hard to track, those hired
for major projects rose to 34,000 in 2006; the
number has since dropped to 28,600, below pre35
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storm levels.
The rebuilding created local opportunities in
environmental remediation, shoring up levees and
restoring wetlands. The government tallied more
than 33,000 jobs in scientific and technical services, which tend here to be in engineering and
architecture, experts here say.
While those jobs may dwindle as rebuilding
ends, some firms are finding new workin the
northeast, for example, after Hurricane Sandy.
And local firms are likely to benefit from the billions of dollars BP PLC has agreed to pay for wetland restoration after the 2010 Deepwater Horizon disaster.
The city also is home to a budding tech industry, though the number of new jobs so far is small.
Among the pioneers is Barrett Conrad, the 35year-old owner of software engineering company
CotingaSoft. He graduated from Tulane University in 2002 with a degree in computer science,
and though he interviewed for West Coast jobs
in 2005, he decided after the storm to stay.
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Mr. Conrad has three employees and anticipates hiring more. Were in a growth phase, he
said. Its for real now.
New Orleans tourism remains an economic anchor. Leisure and hospitality accounted for more
than 86,000 jobs in the region the summer before
the storm, when floodwaters inundated about
80% of the city, including many of the poorand middle-class neighborhoods where hospitality workers lived.
The number of visitors in 2006 fell to 3.7 million from 10 million in 2004, according to the
tourism and convention board. Mardi Gras drew
a third of its usual one million revelers.
State and federal governments responded to
the crisis by shelling out $30 million to re-image
the city, focusing on the French Quarterand
food. Led by a convention of librarians in
June 2006, visitors began returning to the city.
Even the financial crisis and recession didnt stop
tourists. Last year, 9.5 million visitors spent a
record $6.8 billion, according to the New Orleans
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Convention and Visitors Bureau.

Despite the crowds of visitors, there are about
2,000 fewer hotel jobs, which generally pay better
than restaurants, despite hundreds more rooms,
according to federal data. John A. Williams,
dean of the College of Business Administration at
the University of New Orleans, said hotels have
become more efficient with their staff.
Food service has made one of the biggest employment rebounds, which makes sense in this
dining-obsessed region. The number of fullservice sit-down restaurants has grown to 1,408
from 809 before Katrina hit, according to Tom
Fitzmorris, a radio host and local dining authority. Only in the past eight months has the boom
showed signs of leveling off, he said: Quite a few
new restaurants have opened, but an equal number have quit the business.
In prospering neighborhoods from the Garden
District to Bywater, new restaurants offer Brazilian, Vietnamese, Cuban, tapas, Indian and vegetarian cuisine, just to name a few.
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Stan Harris, president of the Louisiana Restaurant Association, said that people who complain
that the city is becoming too dependent on the
industry dont understand New Orleans food culture.
Shipbuilding, manufacturing, theyre not
here, he said. The people are still here and
they need to have jobs. The hospitality industry
filled that void.
Matthew Fultz, a 36-year-old chef at Marcellos
Restaurant & Wine Bar isnt sure how long the
boom will last. Not to be a pessimist but the
bubbles got to burst at some point, he said. I
mean, how many restaurants can you have? But
youll drive around some times and everybodys
packed.
There is also the question of wages. The
Brookings Institution in a new report found that
New Orleans and its suburbs added close to
50,000 new jobs from 2010 to 2014. But 70%
were in industries that paid less than the average
annual wage in the region. Leisure and hospital39
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ity created the most jobsmore than 10,000and

had the lowest wages, about $25,000 a year.
William Parker, 28 years old, grew up in the
city and worked as a waiter at a restaurant in the
French Quarter. He said a good week earned him
about $150 to $200 in wages and another $500 to
$600 in tips.
Mr. Parker, who has a high school diploma, got
no health benefits and is obligated to pay child
support for four children. During a slow week in
July, he made a total of about $300, which he
described as nothing but a smile. He recently
left to become a cook at another restaurant.
The financial squeeze also has an impact
on workers in neighborhoods gone chic since
Katrina. Robert Barnard is the 32-year-old
sous chef at the Press Street Station restaurant
that opened this year on the boundary of the
Faubourg Marigny and Bywater neighborhoods.
He said he couldnt afford to rent where he works,
citing the whole hipster gentrification thing.
Restaurants have opened even in the citys
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hardest-hit areas, though success is more of a

struggle. Tia Henry, age 36, studied biology at
Xavier University, but with her contractor husband and his sister, she borrowed money to buy
an old corner store in the Ninth Ward, near where
her husbands grandmother lived. It is now Cafe
Dauphine, the only restaurant in the neighborhood.
Permits alone took four years, Ms. Henry said,
in a break from her late-lunch customers. I love
it, its hard, she said of the business, which is
open seven days a week in a neighborhood where
freshly painted houses square off with wrecked
buildings and vacant lots.
Many of Ms. Henrys 12 employees bicycle
to work from nearby. Her own house is in New
Orleans East, the storm-slammed neighborhood
that had been home to much of the black middle class before Katrina. The cafe covers costs
but is yet to provide Ms. Henry with a steady
paycheck, she said.
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built better than it is, Ms. Henry said.

Life is rosier for Mr. McGoey, who worked
years for the Brennan restaurant clan. He got
the phone call from the owners of the New Orleans Hamburger & Seafood Co. chain, clients of
his consulting work, asking for help a month after
the storm.
A few weeks later, he and his team reopened
one of the chains restaurants in Metairie, offering up gumbo and fried-shrimp sandwiches. At
10 a.m., there were 100 people in line before we
unlocked the door, he said.
By 2008, he had raised money from friends
and investors to open more restaurants in suburbs booming with folks displaced from the city.
Two years later he established his first New Orleans location, on St. Charles Avenue, including a
coffee bar serving chocolate versions of the traditional fried beignets. His latest venture, Legacy
Kitchen, offers a lobster roll made with Creole
remoulade sauce.
Mr. McGoeys waiters get base pay of $2.13 an
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hour that with tips, he said, can total $15 to $40

an hour. They can leave with $200 cash and go
their merry way, and do that day after day after
day, he said.
Restaurants, he said, are leading an economic
revival in many neighborhoods. Three days after
the storm, I said, Man, its going to take 10 years
for the city to come back, he said. It came
back for the average citizen five years ago. Its
exploding now.
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Chapter
Feds Dudley: Case for

September Rate
Increase Now Less
Compelling
NEW YORKFederal Reserve Bank of New
York President William Dudley said Wednesday
that prospects of a U.S. central-bank rate rise
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next month have dimmed amid rising concerns

about events happening outside of U.S. borders.
In light of market volatility and foreign developments, at this moment, the decision to begin
the normalization process at the September [Federal Open Market Committee] meeting seems less
compelling to me than it did several weeks ago.
But normalization could become more compelling
by the time of the meeting as we get additional
information about the state of the economy, he
told reporters.
Mr. Dudley is an influential voice on the
FOMC, serves as its vice chairman and is a close
ally of Fed Chairwoman Janet Yellen. He has
been an infrequent voice on monetary-policy issues over the summer, however. His comments
Wednesday come just ahead of the Kansas City
Feds annual research conference in Jackson Hole,
Wyo., where questions of whats next for the Fed
will be at the forefront.
Mr. Dudley spoke in response to reporters
questions following a briefing at the New York
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Fed on regional economic conditions. He weighed

in at a time of unsettled markets, rising uncertainty about the economic outlook and mounting
questions about the Feds ability to raise shortterm interest rates this year.
Fed officials long have looked to this year as the
time they would be able to boost short-term rates
off the near-zero levels they have rested at since
the end of 2008. Over recent weeks and months,
some officials had indicated it was likely that a
rate rise would take place at the Feds upcoming
mid-September policy meeting.
But overseas events, most notably in Chinas
giant economy, have rattled the outlook. A slowdown there and heavy stock-market losses have
reverberated across the globe and called into
question whether the Fed will be able to raise
rates.
Mr. Dudley was upbeat about the state of the
economy, and he said the uncertainty now facing
the nation is almost all foreign-made.
Incoming data suggest the economy continues
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to grow at a moderate pace sufficient to cause

a gradual tightening of the U.S. labor market,
and recent data on the economy has looked pretty
good, Mr. Dudley said. That said, international
developments have increased the downside risk
to U.S. economic growth and the Fed needs to
understand how this environment will affect what
lies ahead for the U.S., he said.
I really do hope we can raise interest rates this
year, Mr. Dudley said. But he added, Lets see
the data unfold before we make any statements
when that might occur. The official also pushed
back at those who said the Fed will have to provide more stimulus to the economy via a renewed
campaign of bond buying.
Im a long way from quantitative easing. The
U.S. economy is performing quite well, the official said.
Mr. Dudley warned about tying the stock markets woes to the broader economy.
I dont have a view on why the stock market is doing what its doing, Mr. Dudley said.
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Stock-market movements have to be persistent

to affect the economy, and short-term volatility
doesnt have much implication for either growth
trends or policy makers decisions.
Mr. Dudley expressed optimism that China
will be able to deal with its troubles. The good
news there is that the people there are very capable and have the tools to put things back on
track, he said.
Write
to
Michael
S.
Derby
at
michael.derby@wsj.com
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Chapter
TV Shooting Claims
Lives of Reporter,
Cameraman; Gunman
Kills Self
HARDY, Va. A television reporter and her
cameraman were fatally shot during a live news
broadcast Wednesday morning by a disgrun49
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tled former station employee, who apparently

recorded the killings and then posted it online.
The killings sparked an intense manhunt that
ended hours later when the suspect shot himself
as police closed in, officials said.
The shooting occurred as reporter Alison
Parker, 24 years old, and her videographer, Adam
Ward, 27, were interviewing Vicki Gardner, a local chamber of commerce official.
The gunman walked up behind the cameraman, pointed a semiautomatic pistol at Ms.
Parker, and began firing. Ms. Parker and Mr.
Ward were killed; Ms. Gardner was shot but survived and is hospitalized in stable condition, officials said.
50 miles
md.
ohio
Washington,
D.C.
w.va.
virginia
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ky.
Lynchburg
Richmond
Roanoke
Moneta
tenn.
n.c.
Officials believe the gunman, Vester Flanagan,
41, using his on-air name Bryce Williams, posted
online a video he took of the shooting, saying he
was angry at the station, WDBJ, for what he said
was racial discrimination. The station, a CBS
CBS.A 1.12 % affiliate, is located in suburban
Roanoke, Va., a town of about 100,000 people in
the Blue Ridge Mountains.
Station officials said Mr. Flanagan, who is
black, was fired because he was a problem employee and he wasnt mistreated.
A fax sent to ABC News Wednesday morning,
believed to be from the gunman, said the attack
was revenge for a racially motivated shooting in
Charleston, S.C., in June that killed nine African51
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Americans, including the pastor.

The 23-page statement, which is being reviewed by investigators, said Mr. Flanagan put
down a deposit for his gun two days after the
Charleston attack. Dylann Roof, a 21-year-old
white man who has been charged in that melee
allegedly told police he wanted to start a race
war.
What sent me over the top was the church
shooting, the letter said, according to ABC.
And my hollow point bullets have the victims
initials on them.
Franklin County Sheriff Bill Overton said:
This gentlemen was disturbed. . . At some point
in his life, it would appear things were spiraling
out of control. But were still looking into that.
The hunt for Mr. Flanagan came to an end at
about 11:30 a.m., when the automated licenseplate reader of a Virginia state trooper on Interstate 66 identified the suspects car. She gave
chase, and Mr. Flanagan tried to speed away,
officials said.
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He then crashed his car, and when police approached the vehicle they realized he had shot
himself. He was taken to a hospital, where he
died, police said.
In an extraordinary convergence of violence
and the world of social media and online communication, the gunmans video, which he apparently posted on Twitter TWTR 2.67 % and
Facebook, FB 5.05 % showed a gun being pointed
at Ms. Parker and a shot being fired at her.
Ms. Parkers father, Andy Parker, said in a
statement: I find my grief unbearable. Alison
was our bright, shining light and it was cruelly
extinguished by yet another crazy person with a
gun.
Ms. Parkers boyfriend, Chris Hurst, who
works at the station as an anchor, said in a tweet
that the couple were very much in love. We just
moved in together. I am numb. He added: She
was the most radiant woman I ever met. And for
some reason she loved me back.
The slain cameraman, Mr. Ward, was engaged
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to a producer at the television station, who was

working there on the broadcast Wednesday morning, station employees said.
Bouquets of flowers and red, white and blue
balloons were placed at the base of a tree at the
entrance to the WDBJ parking lot on Wednesday
afternoon. A handful of employees with station
badges embraced, some wiping tears.
Longtime station viewer Karen Via, 50, said
she was in shock at the loss of Alison and Adam,
two people she watched every morning starting
at 6 a.m. She always had a smile from here to
here, Ms. Via said of Ms. Parker, gesturing at
her ears. To be that young, you could tell she
was good at what she did.
Yvonne Wright, 66, of Roanoke, laid a bouquet
of brightly-colored flowers at the tree. This thing
has really touched my heart, she said. I havent
felt like this since 9/11.
Ms. Wright said she was praying for all the
families, including the alleged shooters: I know
they need it, too.
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The killings occurred at Bridgewater Plazaa

row of shops, restaurants and businesses on Smith
Mountain Lakea retirement and vacation destination with 500 miles of shoreline. Most of the
establishments near the shooting site were closed
Wednesday afternoon, as law enforcement officers
directed traffic and secured the plaza, which was
surrounded by yellow crime-scene tape.
Mr. Flanagan had lodged racial discrimination
claims against a previous employer, a television
station in Tallahassee, Fla. He worked there from
1999 to 2000 and filed a discrimination lawsuit
against the station in 2000.
The station denied the accusations, saying Mr.
Flanagans contract wasnt renewed because of
poor conduct in the workplace. The two sides
reached a settlement on undisclosed terms a year
later. Mr. Flanagans lawyer in that case didnt
immediately respond to a request for comment.
Television executives have become increasingly
concerned about the safety of their personnel
when reporting in the field due to passersby ha55
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rassing or interfering with live broadcasts. Those

concerns have prompted some networks to send
security guards with national television personalities on some reporting assignments involving
unpredictable protests or in high-crime areas.
In New York, police officials added security
outside news organizations until they better understood the motive behind Wednesdays shooting.
White House press secretary Josh Earnest offered the thoughts and prayers of the White
House for Wednesdays victims and reiterated
calls for Congress to take up the issue of gun legislation. This is another example of gun violence
that is becoming all too common in communities large and small, all across the country, Mr.
Earnest said.
Troy Keaton, a white pastor and chairman of
the Smith Mountain Lake Regional Chamber of
Commerce in Virginia, said the killings roiled the
tightknit community. He said he was already on
his heels as he was presiding Thursday at a fu56
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neral for a three-year-old killed in a gun accident. He said he was saddened by reports that
the shooter may have acted in retaliation for the
Charleston shootings.
We have to all understand our responsibility
to our community, our country and each other,
Mr. Keaton said. Weve got to stop trying to
lash out, to take revenge.
Write
to
Devlin
Barrett
at
devlin.barrett@wsj.com and Valerie Bauerlein at
valerie.bauerlein@wsj.com
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Chapter
EPA Says It
Underestimated Water
Buildup in Colorado
Mine That Led to Spill
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DENVERThe
Environmental
Protection
Agency said Wednesday it had underestimated
the amount of water built up in an abandoned
Colorado mine, a miscalculation that led to a
massive release of toxic sludge into the Animas
River earlier this month.
In its initial review of the spill, the EPA said a
specialized EPA team had erred in its assessment
of water pressure in the Gold King Mine near
Silverton, Colo., despite being familiar with the
areas topography and having analyzed waterflow data.
An estimated three million gallons of toxic water inside the mine burst out on Aug. 5, turning the river a yellowish-orange and tainting water supplies used by numerous downstream interests, including farmers and the Navajo Nation,
for days.
There was in fact high enough water pressure
to cause a blowout, said Stan Meiburg, acting
deputy administrator for the EPA, noting that
the misjudgment was the most significant cause
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of the spill.
Mr. Meiburg also noted that provisions for a
worst-case scenario werent incorporated into
the agencys plan to deal with the mine, which
had long been the subject of state and federal
cleanup efforts.
The initial EPA report also concluded that
a spill from the unstable mine was likely inevitable, pointing out that a prior work plan
on cleaning up the mine had raised the prospect
of a blowout. The agencys report said drilling
into the mine, while difficult because of Southwest Colorados rugged terrain, could have more
accurately identified the high water levels that
caused the spill.
Both the EPAs inspector general and the Interior Department have launched investigations
into the accident.
Environmental officials have said the water
quality in the Animas River has since returned
to pre-spill levels.
Write to Dan Frosch at dan.frosch@wsj.com
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Chapter
In Opinions on Iran
Deal, Democrats Dont
Lack for Words
WASHINGTONAt roughly 1,000 words, Senate Minority Leader Harry Reids Sunday announcement that he would support the nuclear
accord with Iran was the blunt Nevada Democrats longest statement of the year.
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New York Democratic Sen. Charles Schumers

statement that he would break with the White
House to oppose the deal came in even longer, at
more than 1,600 wordsfar more than his typical
paragraph or two. But both appeared practically
terse compared with the nearly 5,200-word opus
that Rep. Jerrold Nadler, a New York Democrat,
used last Friday to explain why he would back the
agreement with Iran.
Even for loquacious lawmakers, the unusual
length and detail of their formal announcements on the Iran deal reflect a desire among
Democrats to publicly chronicle a wrenching
decision-making process. Their responses also
show how this debate has dwelled on some of
the most granular details of a long and technical agreement shaped by global nuclear experts.
Irans future enrichment of uranium will be
limited to 3.67%, far below the 90% necessary
for weapons-grade material, and they will be not
be permitted to exceed 300kg far less than is
needed for one nuclear bomb for 15 years, Mr.
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Nadler wrote in his statement.

The agreement reached in Vienna last month
between Iran and six global powers establishes
curbs on Irans nuclear program, including a contentious monitoring program, in exchange for easing international sanctions.
This is one of the most significant issues were
going to face this decade, and so members want a
chance to articulate not only what their decision
is, but how they reached that conclusion, said
Rep. Adam Schiff (D., Calif.), who said he wrote
his own 1,700-word analysis on why he is supporting the deal in a single sitting. Having spent
hours poring through intelligence on Iran, sitting
through briefings and talking with experts, I felt
free to take the time and space I needed to put
my thoughts on paper, he said.
Opponents of the deal said its supporters are
simply using more words to justify their decision.
Many Democrats, particularly in New York, New
Jersey and Connecticut, have sizable numbers of
Jewish voters and donors, some of whom have
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warned the accord could endanger Israel by empowering Iran.

Vice President Joe Biden plans to meet with
American Jewish leaders next week in Florida to
make the case for the deal. The meeting was organized by Rep. Debbie Wasserman Schultz (D.,
Fla.), who represents a large Jewish constituency
and who hasnt yet said whether she will back
the deal.
No Republicans have backed the agreement.
It is a difficult decision for Democrats because
the deal is flawed, said Senate Foreign Relations
Committee Chairman Bob Corker (R., Tenn.),
who opposes the accord. He noted that his own
decision, announced in a roughly 900-word Washington Post op-ed, was lengthy as well, even after
being trimmed to fit into the newspaper.
Many Democrats agreed that reaching their decisions required some grappling with the agreements shortcomings. Sen. Chris Murphy (D.,
Conn.) said he wanted to explain to his constituents, who polls indicate are divided on the
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issue, which portions of the highly complicated

deal he found unsatisfying, as well as why he
thought it trumped any alternative.
Our constituents are really plugged into this
debate, and so they want to see our thought
process, said Mr. Murphy, whose statement of
more than 900 words was the longest he had ever
penned. Sen. Patty Murray (D., Wash.) said she
lost sleep before deciding to support the accord.
Even with their open wrestling over the deals
merits, a steady stream of Democratic endorsements this month has almost guaranteed that the
White House will ensure the U.S. complies with
the deal.
Although both chambers of the GOPcontrolled Congress could pass a resolution
disapproving the deal when lawmakers return
to Washington in September, President Barack
Obama would veto that measure, and he is close
to having enough support to ensure his veto
would be sustained.
In the Senate, Mr. Obama needs 34 supporters
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to prevent a two-thirds majority from overriding

his veto. In the House, he needs 146 lawmakers
when the chamber is at full capacity.
A steady stream of Democratic endorsements
this month has almost guaranteed that the White
House will be able to implement the deal.
Ms. Murray on Tuesday became the 29th Senate Democrat to back the agreement. So far only
two Senate DemocratsMr. Schumer as well as
Bob Menendez of New Jerseyhave said they will
oppose the deal. Mr. Obama is widely expected
to win over at least five of the 15 Democrats who
havent yet taken an official position on the accord.
At this point, the bigger question has become
whether the deals critics will be able to find the
60 votes needed for the disapproval resolution to
clear procedural hurdles in the Senate. If the
agreement can secure 41 supporters in the Senate,
Mr. Obama wouldnt have to deploy a veto at all.
Avoiding a veto fight would be a very important message to re-instill confidence in the ability
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of the U.S. to broker such a complex and critical

deal and to stick with it, said Rep. Gerry Connolly (D., Va.).
The agreements critics, meanwhile, said passing a resolution of disapproval would make their
hesitations clear to the global community.
It would make people aware that there is
strong skepticism in Congress around the terms
of the deal, Mr. Corker said.
Write
to
Kristina
Peterson
at
kristina.peterson@wsj.com
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Chapter
Ben Carson Quietly

Builds Support
Dont forget Ben Carson.
The retired pediatric neurosurgeon isnt generating the headlines or drawing the crowds of
Donald Trump, but his numbers in some surveys
suggest the appetite for his presidential candidacy might be just as great, if not greater.
Consider a recent survey by TargetPoint Con68
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sulting, a top Republican polling and dataresearch firm. Roughly two-thirds of likely Republican primary voters polled said they would
consider backing Mr. Carson, the highest level of
support for any candidate in the field. Just 16%
said they wouldnt, the lowest such tally. Those
results include voters who didnt know who Mr.
Carson is.
By comparison, 54% of GOP primary voters
would consider voting for Mr. Trumpa big
jump from the 20% who said that in Maybut a
third said they wouldnt, twice the level of resistance as for Mr. Carson.
Republicans were about as open to backing
Florida Sen. Marco Rubio, former HewlettPackard Co. Chief Executive Carly Fiorina and
former Florida Gov. Jeb Bush.
That doesnt mean Mr. Carson will overtake
Mr. Trump in the pollsor, for that matter, be
the nomineebut it does suggest that Republicans eager to elect someone without political experience rank the doctor high on their list. In
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other words, it looks like there is plenty of oxygen available for the low-key Mr. Carson to catch
fire, should other candidates flame out.
Mr. Carson is in third place in the GOP nominating contest, behind Mr. Trump and Mr.
Bush, according to an average of national polls
compiled by Real Clear Politics.
The nationwide TargetPoint survey of 742
likely Republican primary voters, conducted
Aug. 17-18, offers more evidence that many voters are more receptive to candidates without political experience than those who do have it. The
survey was done for TargetPoints internal use,
not for any candidate or associated organization.
The polls margin of error is plus or minus 3.6
percentage points.
The results seem to divide the contenders into
three categories: those whose numbers are on the
rise (Mr. Carson, Ms. Fiorina, Mr. Trump and,
to a lesser extent, Ohio Gov. John Kasich); the
initial top tier whose numbers are flat or down
(Messrs. Bush and Rubio, Wisconsin Gov. Scott
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Walker, former Arkansas Gov. Mike Huckabee

and Texas Sen. Ted Cruz); and everyone else.
Mr. Bushs numbers remain sturdy but unremarkable, while Mr. Walker has lost ground and
risks falling out of the top tier.
This poll, like just about every other done since
mid-July, testifies to Mr. Trumps swift rise. He
leads the field among voters with the clearest
sense of whom they will support, at 18%, ahead
of Mr. Carson, at 12%, and more than double
the support for Mr. Bush. Messrs. Bush, Rubio and Walker have all lost a lot of ground on
that front. But roughly a third of the electorate
remains more or less undecided.
The TargetPoint survey suggests one of every
three Republicans who would consider voting for
Mr. Trump said he was their clear favorite to be
the nominee, a much higher conversion rate than
for anyone else in the field. Thats something
of a mixed blessing for the celebrity real-estate
magnate: On the one hand, voters open to Mr.
Trump have a clear preference for him; on the
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other, there isnt as much room for him to grow.

By comparison, more than half of all GOP primary voters would consider backing Messrs. Carson and Rubioin addition to those voters who
already name either as their clear favorite. For
Mr. Carson, three of every four Republicans who
know who he is would consider nominating him
for president.
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Chapter
State Contractors Aid

Governors Campaigns
Campaigns and super PACs supporting four Republican governors running for president raised at
least $2.5 million in legal donations from companies with state contracts or taxpayer subsidies, illustrating potential conflicts of interest that may
emerge when candidates exit the primary and return home.
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Government contractors gave more than

$500,000 to the super PAC backing Gov. Chris
Christiedonations that would have been banned
by New Jersey law if he were running for a state
office. Those companies won at least $227 million
in government contracts last year, according to
an analysis of state records.
The political committee backing Gov. John
Kasich in Ohio raised $1.5 million from contractors and companies that received business subsidies from the state.
In Louisiana, 20% of the largest 100 contributors to Gov. Bobby Jindals campaign work
for corporate outlets that received $30 million in
state tax subsidies, while the super PAC backing
Mr. Jindal received $75,000 from such businesses.
More than $580,000 of the $20 million raised
by Wisconsin Gov. Scott Walkers friendly super
PAC came from companies that benefited from
state contracts, or tax credits and loans from the
Wisconsin Economic Development Corp., state
records show. Mr. Walker pushed to form the
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public-private entity in 2011 and headed it until

earlier this year.
There arent federal or state laws banning state
contractors or recipients of business subsidies
from donating to independent groups or campaigns backing presidential candidates. The super political-action committees can accept unlimited funds; campaigns are barred from coordinating with their affiliated super PACs.
Companies that are government contractors
have First Amendment rights, said Craig Engle, a partner at Arent Fox LLP in Washington,
D.C., and former counsel to the National Republican Senatorial Committee.
Still, the giving may provide fodder for rivals.
An intern working for former Florida Gov. Jeb
Bushs campaign last week filed a public-records
request in Ohio seeking a list of companies given
business incentives during Mr. Kasichs tenure.
A spokesman for the Bush campaign said interns
are collecting information on every candidates
record.
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Democrats dont have a governor seeking

the presidency, though Democratic front-runner
Hillary Clinton has faced criticism from both
parties for her family foundations acceptance of
contributions from corporations with government
ties and foreign entities, particularly while she
was secretary of state.
More than a dozen states, including New Jersey, have imposed stricter rules to prevent political contributions from influencing decisions by
lawmakers about who is awarded taxpayer business.
Craig Holman of Public Citizen, an advocacy
group, said the donations from state contractors
to the pro-Christie super PAC undermine a New
Jersey law he helped write. Its very much a
conflict of interest, he said.
At least three of the governors will return to
their state capitols when their primary bids end.
Messrs. Christie and Kasich serve through 2017.
Gov. Walker is in his second term, which ends in
January 2019, and doesnt face a term limit. Mr.
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Jindal serves through 2015.

Representatives for several companies that donated to the committees said the contributions
were unrelated to contracts or money they received from the state.
David Baum, chief executive of SSI Technologies Inc. in Wisconsin, said his companys
$50,000 contribution to the super PAC backing
Mr. Walker was prompted by his desire to see
the governor take on Washington, not because
his company received $1.3 million in tax credits
during his administration. I get nothing for my
contributions, Ive asked for nothing, Mr. Baum
said.
Richard Zuschlag, a businessman who gave
$25,000 to the super PAC backing Mr. Jindal,
said that as the head of a Lousiana company
that serves more than half the state he prioritizes
maintaining a good relationship with the governor, regardless of the governors political leanings. I make it a point to be sure that we are
friends and close to any governor thats in office,
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he said.
Mr. Zuschlag is chief executive of Acadian
Cos., a health-care business whose subsidiary received a state subsidy during Mr. Jindals first
term. A company spokeswoman said the application for the subsidy was an objective process.
Mr. Zuschlag said he likes what Mr. Jindal
has done for the state. There are probably some
governors that I would give very little money to,
he said. State records show that he gave a total of $24,000 since 1999 to the state campaigns
of Louisianas last three governorstwo Republicans and one Democrat.
Representatives of the committees said they
are following the law. Brad Todd, an adviser to
the pro-Jindal super PAC, said donations from
companies doing business with the state are common in Louisiana.
Only a person who is completely ignorant of
Bobby Jindal would suggest that there is any connection between donations and official action,
said Curt Anderson, a senior strategist on Mr.
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Jindals campaign. Over the course of his career

in Louisiana, Mr. Jindal has raised money from
pretty much every potential donor in the state
who is not a liberal Democrat, Mr. Anderson
added.
America Leads, the Christie super PAC, is operating well within the established rules and regulations regarding donations to super PACs, a
spokesman said.
The pro-Walker committee, Unintimidated,
said it had no role in the tax-credit awards, and
referred inquiries to the governors office. Political contributions are in no way tied to tax incentives provided by WEDC, a spokeswoman for
Mr. Walkers official office said. Decisions related to investments or awards are contractually
required to meet certain objectives.
Rob Nichols, a spokesman for Mr. Kasichs
campaign, said the governors proposal to raise
taxes on the oil and gas industry after receiving
a record number of contributions from that sector
showed he isnt beholden to anyone.
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The Wall Street Journal analysis, which included data provided by the liberal watchdog
Common Cause, focused on companies that received public contracts, tax credits or other state
assistance from agencies with appointees made
during the administrations of the four governors.
Mr. Jindal is the only candidate required to file
a federal election disclosure report so far. For the
three others the analysis focused on their friendly
super PACs or other outside groups.
In some cases, donations came from companies that are actively seeking to do business with
the state. The Christie super PAC raised $1 million from a Nevada company associated with Paul
Fireman, former chairman and chief executive of
Reebok. Mr. Fireman is seeking to open a casino
in Jersey City, N.J., a process that requires state
legislative approval before it goes to the voters.
Mr. Christie has publicly supported putting the
issue on the ballot.
Mr. Fireman declined to comment through a
spokesman.
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A limited liability company with ties to Jon

Hammes, a finance chairman for Mr. Walkers
campaign and a minority owner in the Milwaukee
Bucks, donated $150,000 to the pro-Walker super
PAC. Mr. Walker earlier this month approved
$250 million in public financing for a new arena
for the basketball team. Mr. Hammes didnt
respond to requests for comment.
The Walker spokeswoman said that the decision to award funding to the Bucks arena was
the result of the hard work and cooperation of a
diverse and bipartisan group of leaders focusing
on whats best for the people of Wisconsin.
Write
to
Heather
Haddon
at
heather.haddon@wsj.com and Rebecca Ballhaus
at Rebecca.Ballhaus@wsj.com
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Chapter
Abe Asks U.S. to

Investigate Alleged
NSA Spying on
Japanese Government
TOKYOPrime Minister Shinzo Abe on
Wednesday asked U.S. President Barack Obama
to investigate alleged spying by the National
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Security Agency on the Japanese government

and companies, Mr. Abes spokesman said.
Documents posted online by WikiLeaks last
month suggested that conversations involving government officials, central bankers and
Japanese companies had been secretly intercepted by the U.S. agency. In a phone conversation Wednesday morning Tokyo time, Mr.
Obama expressed regret that the issue has caused
trouble for Mr. Abe and the government, according to Chief Cabinet Secretary Yoshihide Suga.
Prime Minister Abe replied that ties between
Japan and the U.S. could be shaken if the leaked
documents prove to be true, Mr. Suga said. Mr.
Abe asked that Washington investigate the case
and convey the results to Japan, Mr. Suga said.
Mr. Suga didnt say whether the U.S. confirmed or denied spying. According to a news
release from Mr. Abes office, the president said
that at present, the U.S. isnt engaged in activities that would damage trust between the allies.
During the 40-minute talk, which took place at
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Mr. Obamas request, the two sides also spoke

about Chinese President Xi Jinpings scheduled
visit to the U.S. next month, in addition to tensions in the Korean peninsula, Mr. Suga said.
Mr. Obama said he welcomed Mr. Abes statement commemorating the 70th year since the end
of World War II, according to Mr. Suga.
In a statement, the White House said Mr.
Obama reassured the prime minister that our
intelligence collection is focused on national security interests and is as narrowly tailored as possible.
Write to Jun Hongo at jun.hongo@wsj.com
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Chapter
Caroline Kennedy
Criticized for Using
Personal Email for
Official Business
WASHINGTONA new report from the State
Departments internal watchdog criticizes the use
of a personal email account for official business by
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Caroline Kennedy, the U.S. ambassador to Japan.

In a report made public on Tuesday, the State
Departments inspector general found that senior
diplomats in the U.S. embassy in Tokyo, including Ms. Kennedy, were using personal email accounts to send or receive messages concerning official department business.
In some cases, employees were found transmitting sensitive but unclassified information
on personal accounts, even though department
protocols call for secure methods of transmitting
such information.
Department policy is that employees generally should not use private email accounts (for
example, Gmail, AOL, Yahoo, and so forth) for
official business, the inspector general said. He
cited data loss, hacking, phishing, and spoofing
of email accounts, as well as inadequate protections for personally identifiable information as
reasons to avoid personal email accounts.
The issue of government officials use of private email has been in the spotlight for several
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months, since it emerged that former Secretary

of State Hillary Clinton sent and received official
emails exclusively using a personal email account
on a private server.
Mrs. Clinton, the Democratic front-runner for
president, used that server while serving as secretary between 2009 and 2013. Her campaign
team has repeatedly said that such an arrangement was permitted, and noted that other former
secretaries of state used personal accounts while
in office.
What I did was legally permitted, number one,
first and foremost, Mrs. Clinton said in a news
conference earlier this month.
Ms. Kennedys practices appear less farreaching. She used a government email account
as well as a private one. The inspector general
is questioning whether she used the private account for some correspondence that should have
gone through the government account.
A representative for the U.S. embassy in Tokyo
couldnt immediately be reached for comment.
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The report was issued as part of a routine examination by the inspector general of the embassy.
State Department spokesman John Kirby said
Ms. Kennedy didnt violate State Department
policy, and that she used her government email
account for official business.
The use of private email is allowed for some
government purposes as long as certain rules are
followed, Mr. Kirby said.
He added, It is not prohibited to use private
email, it is discouraged, obviously. And we recognize there are instances when there may be no
other choice.
State Department policy says employees can
use private email if they can make sure the traffic is being preserved and recorded in the government system, he said.
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Chapter
10
Planned Parenthood
Unit Sues Louisiana
Over Medicaid
Funding
Planned Parenthood Gulf Coast Inc. Tuesday
asked a federal court to block Louisiana from
cutting off Medicaid funding to the organization
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following the release of videos on fetal tissue research.

The organization and three patient co-plaintiffs
filed for an injunction to stop enforcement of
an order by Louisiana Gov. Bobby Jindal that
would bar Medicaid funds from going to Planned
Parenthood facilities in the state beginning Sept.
2.
The state moved to cut off funds after Mr.
Jindal, a Republican presidential candidate, said
this month he was giving the organization a 30day notice that he was canceling the states contract with Planned Parenthood.
Along with Louisiana, Arkansas, Alabama,
New Hampshire, and Utah have all moved to restrict or cut off funding for Planned Parenthood
after an antiabortion group, the Center for Medical Progress, released undercover videos it said
showed Planned Parenthood profited from providing fetal tissue to researchers. Planned Parenthood has denied those claims.
Planned Parenthood at this point doesnt pro90
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vide abortions in Louisiana. When cutting funding, Mr. Jindal referred in a news release to
the undercover videos and said he was terminating the contract because Planned Parenthood
doesnt represent the values of the state in regards to respecting human life.
The latest video, released Tuesday, apparently
shows the CEO of a company that sells fetal tissue to researchers discussing obtaining the tissue
from Planned Parenthood clinics.
Planned Parenthood said the video provides
no evidence to back up false and outrageous
claims.
Were in court today to protect over 5,200
peoples access to cancer screenings, well-woman
exams and basic health care in Louisiana, said
Cecile Richards, president of Planned Parenthood Federation of America said in a statement.
Many of these folks would have nowhere else to
turn for health care.
Mike Reed, a spokesman for Mr. Jindal, said
the suit is without merit and that the state will
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aggressively defend its position.

The Medicaid provider contract between the
Louisiana Department of Health and Hospitals
and Planned Parenthood gives either party the
right to cancel the contract at will with a 30day notice. Governor Jindal and DHH chose to
exercise that right to cancel, he said.
The lawsuit was filed in federal court in Baton
Rouge, La.
Courts have sided with Planned Parenthood in
the past when states have curbed Medicaid funding, such as when Indiana and Arizona sought to
sever part or all of their Medicaid money. New
Hampshire blocked state funding, which isnt
subject to federal oversight.
Planned Parenthood says it only procures tissue for donation in two states, California and
Washington state, and that women want to donate it to further medical science. In Oregon,
only first-trimester placental tissue is provided.
During a protest last week to support Planned
Parenthood outside the governors mansion in
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Baton Rouge, Mr. Jindals office set up a movie

screen and speakers and played the Center for
Medical Progresss videos.
Antiabortion groups applauded efforts by
Louisiana and other states to cut funding and
said Planned Parenthood is unlikely to prevail in
its lawsuit.
Medicaid allows states to decide who are qualified providers and states can determine that
Planned Parenthoods actions are so contrary to
public values and medical ethics that no woman
or teenage girl should be consigned to such a
program of exploitation and abuse, said Mallory Quigley, a spokeswoman for the Susan B.
Anthony List, which supports antiabortion candidates.
Republicans in Congress, along with a number of states, are investigating Planned Parenthood. So far, state investigations have turned up
no wrongdoing with Planned Parenthoods procurement of fetal tissue.
Presidential candidates such as Mr. Jindal
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have jumped into the political fray in the wake

of the videos, with Republican candidates largely
blasting the organization and calling for its defunding in Congressa measure that was blocked
before legislators left for their August recess.
Democratic candidates Hillary Clinton and
Sen. Bernie Sanders (I., Vt.) have said they support Planned Parenthood. Donald Trump initially called for defunding the organization but
later suggested some support.
Carrie Flaxman, senior staff attorney for
Planned Parenthood, said the organization is also
looking at possible legal action in other states
such as Alabama that moved to cut funding.
Planned Parenthood Gulf Coast received
$730,000 last year in Medicaid funding, the organization said in a press call with reporters.
The state health department said it reimbursed
Planned Parenthood for about $287,000 for services provided to Medicaid recipients.
The organization is seeking a temporary restraining order and a permanent injunction in the
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Louisiana court and has asked for relief by Sept.

2.
Write
to
Stephanie
Armour
at
stephanie.armour@wsj.com
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Chapter
11
Central Bankers to
Confront Stock-Market
Turmoil at Feds
Annual Jackson Hole
Retreat
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Global central bankers are preparing to converge

this week for the Federal Reserves annual retreat
in Jackson Hole, Wyo., with a new economic mess
on their hands.
Gathering at the mountain getaway in recent
Augusts, the stewards of global currency have
contended with the looming collapse of Lehman
Brothers in 2008, global deflation worries in 2010,
serial Greek fiscal meltdowns and other dramas.
This time, they confront a big disparity between
the worlds two largest economies, the U.S. and
China.
The U.S. has recovered enough from the last financial crisis that Fed officials have been preparing to raise interest rates to prevent overheating down the road. But China appears to have
lost economic momentum, driving the Peoples
Bank of China to cut rates and take other measures to boost growth. Markets have responded
to these conflicting forces with turbulence, creating new uncertainties for policy makers about
the economic outlook.
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Before this weeks turmoil, Fed officials had signaled they might move as soon as next month to
start lifting their benchmark interest rate from
near zero, where it has been since December
2008. It was shaping up to be a tough decision
even before the stock-market corrections around
the globe. Now, the odds of a rate increase in
September appear to have diminished, though
a move is still possible if markets stabilize and
new economic data show the U.S. economy is
strengthening despite threats abroad.
New reports on Tuesday showed increases in
U.S. consumer confidence and new home sales in
August and July, respectively, reasons for Fed officials not to become too glum about the U.S.
outlook.
Prior to these market events in the last few
days, I thought that this was about as close to a
50/50 call as you can get, said former Fed Vice
Chairman Alan Blinder of the odds that the central bank would raise U.S. rates in September. If
markets dont stabilize, he said, the Fed would
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likely hold off on a rate increase.

If the markets are in anything close to the sort
of tizzy they have been in the last few days, then
the Fed will not throw a match into the fire when
it meets September 16-17, said Mr. Blinder, a
Princeton University professor and friend of Fed
Chairwoman Janet Yellen.
Ms. Yellen will not be attending this years
Jackson Hole conference, but Vice Chairman
Stanley Fischer is scheduled to deliver remarks
there Saturday on inflation. European Central
Bank President Mario Draghi wont be there, but
the ECB and many of the worlds other central
banks will be represented by senior officials. The
meeting has included top central bankers from
Turkey, Malta, Sweden, South Korea and beyond
in the past.
It is a fraught moment for all of the worlds
central banks. Chinas repeated efforts to stimulate growth dont seem to be working. Chinas
central bank cut interest rates by a quarter percentage point on Tuesday and its stock market
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fell.
Many other economies are trapped in the middle of a global monetary tug of war between the
two economic giants, especially emerging markets and commodity-producing countries. Their
economies have been hit by Chinas slowdown.
At the same time, their currencies have been declining against the dollar as the Fed prepares for
higher rates. If central banks in places such as
Brazil, South Africa or Russia try to stimulate
their economies by cutting interest rates, they
risk capital flight and potentially destabilizing
currency depreciation. If they dont, they risk
deep recessions.
One potential fault line that Fed officials are
watching carefully: Heavy loads of U.S. dollar
debt accumulated by local companies in emerging markets. Total corporate bonds outstanding
in emerging markets have almost doubled since
2008 to $6.8 trillion, according to Institute of International Finance estimates. The share of this
debt issued in U.S. dollars rose from less than
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15% in 2008 to more than 40% in the first five

months of 2015.
Those debts become harder to pay off as the
dollar appreciates. It is up more than 7% against
a broad basket of other currencies so far this year.
The central banks also face skepticism about
the paths they are charting. Our global economy is fixated on central banks and the latest utterance of the monetary authorities, said Judy
Shelton, senior fellow of the Atlas Network, a
free-market think tank participating in a parallel conference critical of the Fed this week, also in
Wyoming. The title of her panel, What Happens
if Central Bankers are Wrong?
Central banks for the major developed
economies, including the Fed, responded to
the post-financial crisis period of slow economic
growth and low inflation by pushing short-term
interest rates to near zero and launching bondbuying programs to drive long-term interest rates
down, too.
Many central bankers say the economy would
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have been in much worse shape, possibly a repeat of the Great Depression, without the support. Critics like Ms. Shelton say the policies
failed to produce the higher inflation or faster
growth desired.
As the Fed considers when to start raising
rates, officials are getting pressure from several
sides. While many free-market advocates would
like the central bank to move, liberal activists
plan to press the Fed this week to hold rates near
zero to promote economic growth and more hiring.
The economy is too weak to warrant interestrate hikes, said Shawn Sebastian, policy analyst at the Center for Popular Democracy, a leftleaning group, in a statement on Tuesday.
Academics dont provide clear direction.
In competing newspaper opinion pieces this
week, Harvard professors Martin Feldstein and
Lawrence Summers, who have served as economic advisers to Republicans and Democrats,
respectively, argued for and against a Fed rate
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increase in September.
From the maelstrom, Fed officials are trying to
respond to the unfolding economic outlook.
Atlanta Fed President Dennis Lockhart on
Monday said he still expects the central bank
to raise rates this year, but he didnt say when.
That marked a subtle shift since Aug. 4, when
he told The Wall Street Journal he believed the
economy was ready for a rate increase in September.
Current developments like the appreciation of
the dollar, the devaluation of the Chinese currency and the further decline of oil prices are
complicating factors in predicting the pace of
growth, Mr. Lockhart said Monday. But, he
noted, our baseline forecast at the Atlanta Fed
is for moderate growth with continuing employment gains and a gradually rising rate of inflation.
Michael S. Derby contributed to this article.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
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Chapter
12
An Oasis in Midtowns
Mayhem
The area around Penn Plaza has long been one
of the citys grittiest and most crowded, thanks
largely to the presence of Pennsylvania Station.
Now, theres a refuge from the pedestrian herd.
Plaza 33, a pilot project open until Oct. 11,
temporarily closes off 33rd Street between Seventh Avenue and Madison Square Gardens load104
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ing dock, replacing vehicle traffic with shaded

lunch tables, folding chairs and planter benches.
The plaza is part of a neighborhood-revitalization
plan spearheaded by Vornado Realty Trust, VNO
3.92 % which owns most of the nearby high-rises
and hopes to upgrade what is now regarded as a
second-tier location, real estate-wise.
That effort includes improving the pedestrian
experience.
Theres a lot of pedestrian flow, and its nice
for people to get out of that flow, said Barbara Wilks, founder and principal of W Architecture & Landscape Architecture LLC, which
designed Plaza 33, as well as the Edge park on
the Williamsburg waterfront.
The project ran on a short timeline, starting
in April with talks among Vornado, the city, the
city Department of Transportation and community boards. The community boards approved
the project in June, the transportation department closed the street on July 25, and the plaza
was opened on Aug. 10.
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Vornado agreed to foot the bill, though it declined to discuss costs, said spokesman Bud Perrone.
While a central design goal was to provide a
respite for pedestrians, a large bleacher staircase
also permits a detached view of the street-level
activity, which from up high seems calmer and
quieter.
You want to be able to see people moving,
but you dont want to feel like youre constantly
in the way, Ms. Wilks said.
The bleacher steps, made of the same durable
cumaru wood as the planter benches fixed around
the space, are multi-functional. A wide bottom
step becomes a stage for local music talent, including David Belmont and Gerry McCord, a
New Age blues duo that played on the steps last
week as part of series of summer activities at the
plaza.
During their set, the audience behind them put
multi-use to the test. Some read books during
the performance, while others chatted or people106
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watched. Before a security officer asked him to sit

up, one man rested his head against a backpack
just inches from the duo. The musicians didnt
mind.
It was part of the vibe, said Mr. Belmont,
63 years old. This [space] sort of slows things
down. Its refreshing.
Other nights, the street tables were moved
aside to make way for salsa lessons, which 57year-old Bronxite Richie Hernandez and his fiancee, Maribel, happened upon last week.
This is good therapy, Mr. Hernandez said.
Other forms of art also adorn the plaza, among
them Roy Lichtensteins 33-foot-tall Brushstroke
Group and Keith Harings S-Man, a light-blue
figure of more human proportions.
Before it was closed, traffic volume on 33rd
Street ranged from 200 to 300 cars an hour during weekday peaks, less than half the average for
crosstown streets, said the transportation department. Foot traffic averaged about 6,700 pedestrians on the west crosswalk of 33rd Street and
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Seventh Avenue in peak hours.

Aside from removing foot traffic from sidewalks
and intersections, the plaza makes the area look
safer, said Dan Biederman, chairman of the The
34th Street Partnership, a neighborhood business nonprofit that advised on the plazas design.
Specifically, he spoke of unsavory characters who
tend to scare away some people.
Without any everyday police work, weve just
civilized those spaces, Mr. Biederman said.
The partnership is soliciting feedback from
users of the plaza, he said. If everything works
out, it could stay, or a permanent one like it will
be developed in the future.
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Chapter
13
NYC Mayor Bill de

Blasio to Appoint
Second Panel on
Panhandling
This copy is for your personal, non-commercial
use only. To order presentation-ready copies for
distribution to your colleagues, clients or cus109
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tomers visit http://www.djreprints.com.

http://www.wsj.com/articles/nyc-mayorbill-de-blasio-to-appoint-second-panel-onpanhandling-1440621246
New York City Mayor Bill de Blasio plans to
appoint a second panel to address panhandling
by costumed characters and topless women, with
the new group focusing on the issue beyond the
flash point of Times Square.
Complaints have arisen this summer about the
bare-breasted women who pose for photos with
Times Square passerby then seek tips. Their
presence follows earlier concerns about sometimeaggressive panhandlers colorfully garbed as childrens characters such as Elmo. Earlier this
month, the mayor appointed a task force to look
at the issue and report back to him by Oct. 1.
In a separate development, a senior official with
the New York Police Department outlined details Wednesday of the new unit it announced
last week to patrol Times Square and address socalled quality of life issues there.
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Chief of Department James ONeill said it

would be a new unit that will replace the impact
unit that now patrols Times Square. It will grow
from 50 to 100 officers, and will operate as an
extension of the neighborhood policing program,
which is being piloted in four precincts.
Were looking to put the same people on the
same post during the same time period every
day, Chief ONeill said. This way theres a familiarity with the people coming through Times
Square.
Meanwhile,the second City Hall panel will focus beyond Times Squareand Coney Island,
Battery Park, and other parts of the city where
the panhandlers also have been soliciting tips
from tourists and others.
Brooklyn Borough President Eric Adams said
the idea for a second task force came together
late last week, after he and other elected officials expressed concerns to Mr. de Blasio that
the panhandlers had spread to Coney Island. Mr.
Adams, a Democrat and a former New York City
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Police Department officer, said he feared a crackdown in Times Square would push the performers
further into Brooklyn.
We dont want Brooklyn Bridge Park,
Prospect Park to become a victim of this too,
Mr. Adams said Wednesday.
This becomes like a bad cold.
Phil Walzak, a senior aide to Mr. de Blasio, described the new effort as more like a subgroup of
the original task force. Mr. Walzak said the administration would be engaging a working group
of officials and stakeholders from areas with high
levels of tourism to make sure the issue was addressed from a citywide perspective.
Mr. de Blasio has made clear he isnt fond
of the topless women and the panhandlers in the
character costumes, saying last week that the city
would consider removing the pedestrian plazas in
Times Squareamong other solutionsto rid the
tourist destination of them.
As a human being and a parent, I dont think
its appropriate in the middle of one of the busi112
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est squares in New York City that women should

display themselves that way, Mr. de Blasio said
last week.
It is legal for women to be topless in New York
City, though not for commercial purposes. Mr.
de Blasio has framed the issue as the city seeking
to regulate a business.
City Councilman Andy King, the sponsor of
a bill that would require costumed characters to
be licensed in New York City, said he planned to
amend the legislation to address toplessness.
Mr. King said any legislation would include
men as well as women so it wasnt sexist. And he
said legal concerns about his bill, which he said
has 21 supporters in the 51-member City Council,
were overblown.
I do not think were violating any constitutional laws, he said. There are all these people
saying, Well lets be free nilly. We have to keep
certain standards. We cant just let the genie out
of the bottle.
New York state Sen. Diane Savino, a Demo113
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crat who represents Staten Island and parts of

Brooklyn, said she had seen the costumed characters in Coney Island. She said that while she
had heard the topless woman had been there as
well, half naked people on the boardwalk isnt
so rare in the summer.
But Ms. Savino said the issue was serious.
You intimidate people, especially with small
children, she said. Its not just a Times Square
problem, its a problem everywhere you have
tourists.
Write to Mara Gay at mara.gay@wsj.com
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Goodbye to a Family Summer House
The Most Affordable Place in the U.S. to Raise
a Family
Glut of Chinese Steel Looms Large
Practice Makes Perfect? Some Brains Get a
Musical Head Start
114
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Me
How to Salvage a Bad Vacation

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Chapter
14
Accused White House

Fence-Jumper Killed
by Police in
Pennsylvania
A sheriffs deputy fatally shot a man in a Pennsylvania courthouse Tuesday after he attacked
another officer with a knife, according to local
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officials, who said the suspect also was accused

of climbing a White House wall in March.
Curtis Smith, 34 years old, walked into the
lobby of the Chester County Justice Center in
West Chester, Pa., at about 11 a.m., pulled out
a knife and started slashing at a deputy, Chester
County District Attorney Thomas Hogan said at
a news conference Tuesday afternoon.
Another deputy immediately shot Mr. Smith,
who was transported to a hospital where he died,
Mr. Hogan said. The injured officer was treated
for wounds to his hand and arm.
Mr. Hogan didnt offer a motive for the attack
by Mr. Smith, who is from Coatesville, Pa.
Mr. Hogan praised the quick response by
the deputies, who werent immediately identified. Unfortunately, because of incidents like this
across the nation, weve learned how to deal with
an attack at the courthouse, he said.
In March, Mr. Smith was arrested after he
climbed a stone perimeter wall on the east side
of the White House, according to the Secret Ser117
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vice. He was charged with unlawful entry and

was one of three men arrested within a 24-hour
span for illegally entering White House property,
the Secret Service said at the time.
Martin Rosendorf, a Washington, D.C., attorney who represented Mr. Smith, said he was
shocked by Tuesdays incident. I dont know
what triggered him, he said.
Earlier this year, Mr. Smith worked for about
two months as a truck driver for AmeriGas,
a propane company, according to a company
spokeswoman.
At the time Mr. Smith said he climbed the
wall around the White House, bypassing signs
that read Restricted area and Do not enter,
because he wanted to deliver a message to President Barack Obama, according to a police report.
Mr. Rosendorf recalled that Mr. Smith later acknowledged he was wrong.
Mr. Smith had no prior convictions, and the
case in the Superior Court of the District of
Columbia was scheduled to be dismissed at a
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court hearing in early October, as long as he

met certain requirements, including staying away
from the White House during the six-month period, Mr. Rosendorf said.
Corrections & Amplifications: Earlier this
year, Curtis Smith worked for about two months
as a truck driver for AmeriGas, a propane company. An earlier version of this article incorrectly
stated that Mr. Smith worked for AmeriGas for
12 years.
Write to Kris Maher at kris.maher@wsj.com
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Chapter
15
More Americans Seen

Returning to the Job
Market
One of the biggest mysteries of the current U.S.
expansion has centered on why wages have been
so slow to rise despite strong hiring gains.
Economists at the Congressional Budget Office
have a possible answer: The U.S. labor market
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may contain more people than previously thought

who dont have jobs and havent been looking,
which means they arent counted in the official
unemployment statistics.
A new CBO report published Tuesday now
projects that more Americans who left the workforce temporarily or who stayed out because of
weak job prospects will return in the coming
years as demand for labor builds in the economy.
The CBO said evidence shows that jobless spells
have caused a less permanent stigma and erosion
of skills than it previously estimated.
Were actually finding people who are returning to the labor force a little bit faster than
we would have anticipated, said CBO Director
Keith Hall. So it makes us think that the cyclical impact on the labor force is bigger than we
thought before.
The labor-force participation rate, already at
its lowest level since the late 1970s, is still expected to decline over the rest of the decade as
more baby boomers retire. But the CBO boosted
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its estimate of the potential participation rate by

around a half a percentage point, to 63.4%, from
its forecast in January.
This has been the big debate, said Ernie
Tedeschi, head of fiscal analysis at Evercore ISI,
a private research firm. If youre an employer
and you think you have a whole host of potential
hires you can draw from, you have less reason to
give your current employees raises.
The CBO also revised down its estimate of the
rate of unemployment at which slack disappears,
which also indicates more spare capacity in the
labor market, to 5.1% from 5.4% in its January
forecast.
The revisions are notable because the nonpartisan budget offices estimates are far and away
the most transparent, detailed and cited among
economists, Mr. Tedeschi said.
Tuesdays report also said the government
would run its narrowest budget deficit since 2007
this fiscal year because of a surprise boost in tax
revenue. The deficit for the fiscal year ending
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Sept. 30 is likely to be $60 billion less than in its

March forecast, or about 2.4% of gross domestic
product. The deficit was 2.8% of GDP last year.
The CBO projects revenue will rise 8% this
year, while spending will rise 5%.
The revenue bump also prompted the CBO to
push back its estimate of when Congress would
need to raise the governments borrowing limit.
The Treasury has been using emergency measures since mid-March to avoid breaching the ceiling. The CBO said it now expected those would
be exhausted between mid-November and early
December; previously it had said the debt limit
would be reached in October or November.
Tax receipts have surged even though the economy has grown less than expected. The CBO revised down its GDP projections after a weak first
quarter. It now expects 2% growth in economic
output this year, down from a January estimate
of 2.9%. Growth forecasts for the coming two
years were revised up slightly to 3.1% and 2.7%,
respectively.
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Those revisions did little to change the longterm deficit outlook, which shows the national
debt rising to about 77% of GDP over the next
decade from its current level of 74% of GDP.
The CBO said the U.S. was on pace to add $7
trillion to the federal debt held by the public over
the next decade, down $200 billion from its prior
forecast due to lower interest-rate projections.
Under current law, the growth in debt is not
sustainable, said Mr. Hall. Obviously you cant
predict tipping points, but at some point this becomes a problem.
Deficits have been narrower in part because the
government has enjoyed ultralow borrowing costs
over the past five years. The U.S. debt held by
the public has increased nearly $7 trillion since
2008, or 120%, but debt-service costs for the U.S.
last year were around $20 billion below their 2008
level.
The report made several other adjustments to
the economic outlook:
Write to Nick Timiraos at nick.timiraos@wsj.com
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Chapter
16
U.S. Farm Income to

Fall to Lowest Level in
Nine Years
U.S. farm incomes will decline 36% this year to
the lowest level in nine years, the U.S. Department of Agriculture projected Tuesday, reflecting a continued slump in crop prices and recent
weakness in the dairy and hog markets.
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Net farm income will drop to $58.3 billion from

$91.1 billion in 2014, marking the largest percentage decline since 1983, including when figures
are adjusted for inflation. The projected decrease
would mark the second consecutive drop after incomes reached nominal record highs in 2013, according to the USDA.
The USDA revised lower its February estimate
for a 32% decline in farm income, mainly due to
a diminished outlook for livestock farmers. The
government said their revenues could drop more
than 9%, wider than its February forecast for
a 5% decrease, because of lower milk and hog
prices.
The softening outlook for farm incomes comes
amid a continued downturn in the U.S. agricultural economy triggered by record corn and soybean crops in the past few years. U.S. growers this autumn are expected to produce bumper
harvests again, which has kept prices depressed
for the two commodities.
The downdraft in the Farm Belt follows a boom
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during much of the past decade as crop prices

and land values soared thanks to drought and
rising demand for corn, the biggest U.S. crop by
value, from the ethanol industry and overseas
buyers. Net farm income almost doubled from
2006 through 2011.
This year, futures prices for corn already have
fallen 7% since the end of 2014, while soybean
prices are down nearly 12% and trading at the
lowest levels in about six years.
I think we have a couple of tough years coming, said Illinois farmer David Justison, 59 years
old, as he hauled grain to a river terminal in St.
Louis.
Mr. Justison said falling crop prices have significantly reduced cash flow for many Midwestern
growers, forcing them to carefully scrutinize what
once were regular purchases. Weve pretty much
stopped buying machinery, he said.
The farm-industry slump is hurting large
agricultural-equipment suppliers and seed makers. Last week, Deere & Co., the worlds largest
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seller of tractors and harvesting combines, said

its profit in its July-ended third quarter tumbled
40% as weak crop prices curb farmers appetite
for new equipment.
Largely favorable weather this summer has led
to expectations that U.S. farmers will harvest
big crops, though smaller than last years record
hauls. The USDA earlier this month estimated
that the nations corn crop will reach 13.7 billion bushels, the third-largest crop in U.S. history. Government forecasters also estimated the
soybean crop would be the second-largest ever.
With ample grain supplies and concerns over
demand for U.S. crops weighing on prices, the
USDA on Tuesday projected that annual crop receipts would fall to $195 billion this year from
$207.9 billion last year. That includes a $7.1
billion decline in cash receipts for corn. The
USDA said corn receipts have fallen 35% since
they reached record highs in 2012.
The agency forecast a more than 9% decrease
in livestock receipts, thanks largely to a decline
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in dairy and hog revenues amid increasing production of both milk and pork and lower prices.
Revenue from broiler chickens is also expected to
decline as export bans linked to a highly contagious strain of bird flu increase U.S. inventories
and push prices lower, the government said.
Government forecasters expect a 29% drop in
dairy receipts in 2015, as well as a 27% decline
for hogs.
The USDA on Tuesday also revised lower its
estimate for net farm income in 2014, pegging
last years figure at $91.1 billion, versus the governments February estimate of $108 billion.
Federal forecasters said after years of prosperity in the farm sector, debt-to-asset ratios among
farmers are expected to rise this year, a sign of
increasing financial strain on agricultural operators. Still, the ratios remain at relatively low
levels.
One bright spot in the Farm Belt is the USDAs
prediction that production expenses will fall this
year for the first time since 2009, with decreased
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energy costs among the largest expected declines.

Fuel and oil costs likely will decline by almost
28%, according to the USDA, while expenses related to the three main crop inputsseeds, fertilizer and pesticidesalso will decrease.
Write to Jesse Newman at jesse.newman@wsj.com
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Chapter
17
Fannie Mae Unveils

Mortgage Program to
Help Minority
Borrowers
Fannie Mae wants to make it easier for workingclass and multigenerational households to get a
mortgage.
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The mortgage-finance company said Tuesday

it would roll out a program this year that lets
lenders include income from nonborrowers within
a household, such as extended-family members,
toward qualifying for a loan.
The move is expected to open up mortgage access to a segment of the population that doesnt
fit the typical family structure and has had trouble obtaining mortgages. In households of some
minority groups, such as Hispanics, it is common
to have extended-family members contributing
income toward the cost of housing, though until
now that income couldnt be used to help qualify
for a loan.
The new program, which is open only to lowincome borrowers or those living in low-income
or minority-dominated areas, will also in some
cases let borrowers who dont live in the home,
such as parents, contribute income. Families with
boarders will also be allowed to count that rent
toward qualifying.
Fannie officials said their research indicated
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that extended households have incomes as stable

or more stable than other kinds of households at
similar income levels.
A spokeswoman for Fannie Maes regulator,
the Federal Housing Finance Agency, said in an
email that the program reflects todays economic
reality, where many people live in non-traditional
households with multi-generational family members, friends, and/or boarders but that it is
structured with safeguards that maintain high
standards of safety and soundness.
Critics of the program said that counting
nontraditional income could lead borrowers into
mortgages they ultimately cant afford and therefore increase the risk of default.
I dont think this is a step forward for borrowers. These other incomes that theyre adding
are not of the same quality as traditional forms
of income, said Edward Pinto, co-director of the
conservative American Enterprise Institutes International Center on Housing Risk.
Mr. Pinto said income from sources such as
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boarders is difficult to verify and that he hasnt

yet seen evidence that income from nonborrower
occupants is stable enough to be safely counted
when underwriting a mortgage.
Fannie Mae and competitor Freddie Mac dont
make loans. They buy them from lenders, package them into securities and provide guarantees
to make investors whole in case of default.
After the financial crisis, Fannie, Freddie and
lenders strengthened the requirements borrowers
had to meet to get a loan. The moves, such as increasing down-payment and credit-score requirements, had the effect of lowering default rates for
homeowners but also shut out of the mortgage
market many borrowers who previously qualified.
Over the past couple of years, Fannie, Freddie and lenders have loosened some of those restrictions. In late 2014 and early 2015, Fannie
and Freddie, for example, reintroduced programs
that allow down payments of as little as 3%, down
from the previous 5% minimum.
However, some advocates for increased minor134
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ity homeownership have argued that the companies should also make changes reflecting the
unique characteristics of the minority groups that
are making up an increasing share of new households.
Gary Acosta, chief executive of the National
Association of Hispanic Real Estate Professionals, a trade association, said he thought Fannies
program could change mortgage availability for
tens of thousands of Hispanic families.
Its very encouraging. It certainly demonstrates that Fannie has done a lot of work on
the issue of identifying ways to qualify more people who have the means but somehow are falling
through the cracks, Mr. Acosta said.
Some groups have also pushed the FHFA to
adopt more modern credit-scoring models that
can take into account rent or utility payments,
which would help minority borrowers with scant
credit histories.
Some lenders believe that such changes are critical to addressing the countrys changing demo135
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graphics. In the next decade, three in four new

households will be formed by minorities, according to researchers at the Urban Institute.
Brad Blackwell, an executive vice president at
Wells Fargo Home Mortgage, said the company
planned to implement the new program and that
he expected its impact on mortgage lending overall to be incremental but meaningful.
We know that the tighter guidelines that have
happened since 2008 and 2009 have excluded people that probably should be homeowners and its
our intent to keep looking for solutions, said
Mr. Blackwell, adding that he thought Fannies
new guidelines dont introduce new risk into the
mortgage-finance system.
To qualify for loans under Fannies new program, borrowers must make less than 80% of
their areas median income, buy a home in a lowincome census tract, or make less than 100% of
the areas median and buy a home in a highminority census tract or designated natural disaster area.
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Fannie said the new program, which also requires borrowers to undergo credit counseling,
will allow down payments of as little as 3%.
Write to Joe Light at joe.light@wsj.com
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Chapter
18
Biden to Meet With

Jewish Leaders to
Make Case for Iran
Nuclear Deal
WASHINGTONVice President Joe Biden plans
to meet with American Jewish leaders next week
in Florida to make the case for the Iran nuclear
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deal, with hopes of winning support from a key

lawmaker who remains undecided.
The Sept. 3 meeting in Miami comes as the
vice president considers launching a 2016 presidential campaign and is part of Mr. Bidens
two-day trip to the nations largest battleground
state.
Florida Rep. Debbie Wasserman Schultz, the
chairwoman of the Democratic National Committee who represents a large Jewish constituency,
asked Mr. Biden several weeks ago to meet with
some of them, people familiar with the meeting
said. Ms. Wasserman Schultz hasnt yet announced whether she will vote for or against the
Iran deal next month.
Mr. Bidens office said in a statement that he
will participate in a discussion organized by Congresswoman Debbie Wasserman Schultz to discuss the Iran deal with leaders in the Jewish community.
During a meeting on a host of issues the vice
president offered to be helpful, and so as the Con139
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gresswoman continues to review the deal and talk

with experts and constituents she invited him to
South Florida to meet with key leaders in the
community, Sean Bartlett, a spokesman for Ms.
Wasserman Schultz said in a statement.
Mr. Biden plans to argue in favor of the July
14 deal during the small round table event, which
will be held the morning after he headlines a
fundraiser for the Democratic Senatorial Campaign Committee.
The vice president has a long and strong history with the Jewish community, and he is considered to be incredibly well respected by many
members of the community, said Andrew Weinstein, a South Florida lawyer who is active
in Jewish causes and a longtime Democratic
fundraiser.
Mr. Weinstein, who supports the Iran deal and
has attended two of President Barack Obamas
meetings with American Jewish leaders on the
issue, said Mr. Bidens Florida appearance will
be an important step in the White Houses out140
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reach that will be nothing but helpful.

Mr. Biden has become a top fixture in the
White Houses efforts to win support for the Iran
nuclear deal. His outreach on the deal, and his
overall role as vice president, are increasingly
overlapping with his presidential campaign deliberations.
Some major Democratic fundraisers, including
Mr. Weinstein, are expected to attend the round
table event in Miami.
Mr. Biden is also scheduled to host an event in
Washington after Labor Day to mark the Jewish
holiday Rosh Hashana, which will be attended by
some of the Democratic Partys top donors.
On Wednesday, the vice president held a call
with DNC members to pitch the Iran deal.
Earlier this month, Mr. Biden joined Mr.
Obama in his lengthy meeting with Jewish American leaders in the Roosevelt Room. He has also
attended a series of gatherings where Mr. Obama
has tried to persuade lawmakers to support the
deal and has personally spoken to more than a
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dozen members of Congress, his office said.

The vice president has in a variety of settings
made a very forceful case for this agreement to
prevent Iran from obtaining a nuclear weapon,
White House press secretary Josh Earnest said
Wednesday.
The White House is closely watching the decision of Ms. Wasserman Schultz. As a leading
Jewish lawmaker and head of the DNC, her vote
is seen as influential with other Democrats. Supporters of the Iran deal hope Mr. Bidens Miami
round table is part of her segue to announcing
her support for the deal.
Such a vote is potentially fraught, as a vast
majority of Florida voters61%oppose the Iran
deal and believe it would make the world less
safe, according to a Quinnipiac University poll
released this week.
The poll showed roughly a quarter of Florida
voters support the agreement and believe it
would make the world safer. The poll also found
a majority oppose the deal in Ohio and Pennsyl142
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vania.
Write to Carol E. Lee at carol.lee@wsj.com
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Chapter
19
Greeces Alexis Tsipras

Struggles to Keep
Syriza Party Together
ATHENSGreek Prime Minister Alexis Tsipras
faces the growing challenge of warding off the
disintegration of his Syriza party even before
a September election is officially called. Many
lawmakers and party members havent decided
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whether they will run.

Last week, 25 of Syrizas 149 members of Parliament completed a divorce that has been looming since July, when Mr. Tsipras agreed to the
austerity-heavy terms of Greeces European creditors, despite his partys long-standing campaign
to put an end to the harsh measures.
The partys so-called Left Platform faction,
led by ex-Energy Minister Panagiotis Lafazanis,
formed a new party called Popular Unity to run
against Syriza in the election.
It is a sad outcome, but not an unexpected
one, Mr. Tsipras told local Alpha TV on
Wednesday, in his first interview since Syrizas
split.
What makes me sad is the attempt by the inner enemy to become the main enemy, he said,
adding that he was hurt that many of his exSyriza colleagues, who a few weeks ago feared a
banking collapse, are now criticizing him.
Apart from Syrizas hard-liners, members of
another faction within Syriza, the Group of 53,
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were considering this week whether to stand

aside in the forthcoming electoral battle. Finance Minister Euclid Tsakalotos and former
government spokesman Gabriel Sakellaridis, who
worked closely with Mr.
Tsipras in recent
months, are members of this group.
The Greek premier said both of them will be
included in the partys electorate ballot papers,
after Syriza officials earlier on Wednesday said
the two hadnt yet decided.
Euclid Tsakalotos has done a tremendous job;
without him we would not have an agreement,
Mr. Tsipras said.
The Group of 53, formed in mid-2014, stands
ideologically between the hard-line Left Platform
and Mr. Tsiprass relatively pragmatic group of
core backers. Many of its members have been
close aides to the party leader, but some abstained during the mid-August vote on Greeces
third bailout deal with the countrys international creditors. Even if the group finally decides
to stick with Syriza, it is expected to act as an
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opposition faction within the party in the future.

Analysts say the impending elections are expected to redefine Greeces left and new groups
are being created.
The one group is Syrizas pragmatic left,
which keeps elements of its rhetoric, adapted to
the harsh reality of Greeces tough bailout deal,
says John Dimakis, a political analyst at STR,
an Athens-based communications consultancy.
There is another group [that] seems to realize
the new reality, but they want to keep the ideologies with which they have been nurtured, he
added.
Two MPs belonging to the group of 53 have already announced they dont want to be included
on Syrizas ballot. According to officials, two others havent made up their minds yet.
Another member of the group, Syriza central
committee Secretary-General Tassos Koronakis,
submitted his resignation on Monday, questioning Mr. Tsiprass decision to call a snap election
and claiming the leader has ignored the party
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when taking important decisions.

Speaker of Parliament and Syriza member Zoe
Konstantopoulou is expected to officially announce she is leaving the party. Mrs. Konstantopoulou, a high-profile opponent of the bailout
program, is expected either to join the Popular
Unity party or to announce the formation of her
own political movement that could ally with Popular Unity in the elections.
The return to the drachma was never an
option for me or Syriza, because I know well
that drachma is no Left or revolutionary action,
Mr. Tsipras said, adding that those who think
drachma is an option should say that honestly to
the Greek voters.
Mr. Tsipras said that if he achieves a slim majority of 151 MPs in the countrys 300-seat parliament, he will still look for coalition with other
parties. But he added that he wont remain prime
minister if he has to cooperate with Greeces old,
systemic political parties.
Write to Nektaria Stamouli at nek148
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Me
taria.stamouli@wsj.com
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Chapter
20
India Stands to Benefit

From China Slowdown,
Global Reaction
NEW DELHIIndias economy has been insulated from the turmoil in emerging markets by a
long-standing handicap: It isnt an export powerhouse.
For years, growth in India has been fueled more
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by domestic demandnot, as in China, by manufacturing goods for sale abroad.

Now Indias resilient consumer spending is an
advantage as demand decelerates almost everywhere else. It is luring companies to produce in
India and, the government hopes, can help spark
a belated industrial revolution in the country of
1.2 billion.
Jayant Sinha, Indias minister of state for finance, said this week the Chinese slowdown and
its world-wide fallout could provide a chance for
India to take the baton of global growth.
Mumbais benchmark stock index ended
Wednesday down 1.2%, having slid 8.5% in
total since the Peoples Bank of China moved to
devalue the yuan on Aug. 11. The rupee has lost
3.4% since then.
India hasnt been rattled as badly as Brazil,
Russia or South Africa. Its international reserves
are ample, and it isnt highly dependent on foreign capital to fund imports.
It also doesnt rely on exporting resources,
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which means ebbing Chinese demand for minerals and metals isnt serious. And it doesnt have
many companies competing head-to-head in third
markets against Chinese exporters that benefit
from a weaker yuan.
India does, however, have a large number of
people who are buying more stuff than they used
to. That is a hook for growth-hungry companies and investors, even if Indias output is still
too small and its people too poor to become a
replacement engine for the world economy.
Inflation, once a stubborn drain on households
incomes, has eased. As more of the population
is connected with electricity, bank accounts and
roads, aspirations are getting reset, said Neelkanth Mishra of Credit Suisse.
Strong production of consumer goods propelled
factory-output growth in June to 4.6% from 2%
the month before. International Data Corporation, a market-research group, expects India to
overtake the U.S. as the worlds second-largest
smartphone market by 2017.
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Overall domestic demand grew by 7.8% in the

three months that ended in March, well above the
pace in most other Asian economies, according to
J.P. Morgan economists.
That helped India earlier this year usurp China
as the worlds fastest-growing large economyat
least according to recently revised Indiangovernment data that investors and economists
still arent sure whether to trust. Output expanded by 7.5% in the first quarter, according
to the new calculations. Chinas growth was 7%.
That perky expansion has tempted the likes of
Foxconn Technology Group, 2354 2.47 % the Taiwanese contract manufacturer that makes most
of the worlds Apple Inc. iPhones, which said
this month it wants to invest billions of dollars
to build new Indian factories.
Days later, a Foxconn client, Chinese cellphone
maker Xiaomi Corp., said it had begun assembling handsets in India.
Ongoing weakness in other developing countries could be just enough extra enticement for
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some manufacturers to Make in India, as Prime

Minister Narendra Modi has dubbed his flagship
economic program.
Make in India, for India is the bigger theme
that I think Foxconn is going after, said Bhavya
Sehgal, a Singapore-based managing director at
Frontier Strategy Group, a research firm that advises multinational companies.
Nearly $31 billion in foreign direct investment
entered India in the year that ended in March,
up 27% from a year earlier. April through June,
it was $9.5 billion, or 31% higher compared with
the same period last year.
The money has come despite Mr. Modis struggles to take forward key overhauls of taxes and
eminent-domain laws. Everybody understands
that the execution has been poor, Mr. Sehgal
said. Now theyre saying that, irrespective of
the pace of reforms, lets reconsider India and
then take a decision.
New Delhi wants to take advantage of the
global slump and turn India into a sought-after
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destination for investments, Finance Minister

Arun Jaitley said Monday.
Raghuram Rajan, governor of Indias central
bank, said this week that todays global headwinds mean producing more for consumers at
home is Indias only way to grow.
At a time when trade across the world is
falling, we will have to strengthen the domestic market so as to absorb much of the increased
production until the global market recovers, Mr.
Rajan told an audience in Mumbai.
For the long haul, though, it is only by becoming, as China did, a hub for low-cost manufacturing exports that India can sustain its recent
mojo.
You can get a burst of growth in the near term
without doing very much, said Shilan Shah of
Capital Economics. The key, he said, is picking
up the pace of investments in factories and equipment.
Exporting will also help generate the production volumes that can spur assemblers like Fox155
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conn to cultivate ecosystems of local vendors supplying components and raw materials. Those
suppliers are critical to creating more of the
factory jobs that India needs. The countrys
working-age population grows by a million each
month.
Xiaomi says it will initially need to import
all the parts it needs for its Indian-made smartphones. Indias trade deficit with China has
swelled to 2.4% of Indian gross domestic product from 0.3% a decade ago. A third of that is
electronics and electronic parts.
Ajay Bhagwats company, Renu Electronics,
makes factory-automation equipment in the western city of Pune. Most of his business comes
from exports, to places like Germany and the U.S.
But he needs to buy many key components from
China or Taiwan. That complicates his supply
chain and requires him to keep much bigger inventories than he would like.
Theres nobody making LCDs here, Mr.
Bhagwat lamented. Im really looking forward
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to somebody putting up an LCD plant in India.

I would be happy to invest in that.
Rajesh Roy contributed to this article.
Write to Raymond Zhong at raymond.zhong@wsj.com
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Chapter
21
As War Closes In,

Syrias Assad Puts
Emphasis on Living a
Normal Life
On the day in May when Islamic State militants
raised their black flag above the ancient city of
Palmyra, the Damascus Opera House featured a
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singer in a rumpled black suit belting out traditional Arabic ballads.

Members of the audience were herded together
so the half-empty auditorium appeared full on
state television, and the crowd whistled, clapped
and danced in the aisles for the benefit of the
cameras. This week, as the extremist militants
blew up a 2,000-year-old temple in Palmyra, the
opera house in the capital 150 miles to the west
prepared to open an art exhibit.
It is great that we still have these activities
despite the war, a man in his 50s was overheard
telling his wife during the performance in May.
Syria is always strong.
As much of Syria slips out of the control of
President Bashar al-Assad, his ability to persuade his people that the country will remain
normal as long as he is in power has become indispensable to his regimes survival.
In a rare admission last month, Mr. Assad
said his regime could no longer continue fighting
throughout the country and would focus its forces
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on areas it deemed vital. The government now

only controls one-sixth of Syrias territory, the
IHS Conflict Monitor said in a report issued last
week, and maintaining a semblance of ordinary
life in that area has become more necessary than
ever.
In Damascus, Tuesday is now ladies night at
Z-Bar, featuring DJ Tareq.
The government continues to host events such
as a conference in May to mark World Migratory Bird Day, even though half the countrys
human population, or some 11.5 million people,
have been forced from their homes.
Weekend pool parties, a summer ritual, go on
as usual despite a water crisis plaguing much of
the country.
Were hearing of these over-the-top parties. It
is almost manic in the sense of theyre going over
the top to pretend that everything is fine, said
Amr al-Azm, a professor of Middle East history
and anthropology at Shawnee State University in
Portsmouth, Ohio.
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You know how on the Titanic, as it is sinking,

you have the band playing the last few songs? It
is sort of like that.
As the threat from Islamic State and other
groups grows, the regime has seized on any opportunity to project itself as a protector of minorities, a bulwark against Islamic extremism and the
sole guarantor of a liberal, secular Syria.
While Christians have been threatened and
killed elsewhere in the country, this years Easter
celebration outside the al-Salib Church in the
capital was the largest ever, attendees said. Progovernment television channels covered the Good
Friday procession, describing it as a symbol of
Christian defiance of terrorism.
On Mr. Assads Instagram account, the Syrian leader is pictured meeting with soldiers and
clerics while his wife Asma greets top students,
mothers and members of the countrys Special
Olympics team.
Although few foreign tourists now dare visit
Syria, state media gave daily coverage to a week161
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long visit in April by a delegation of French

tourists.
Photos of crowded clubs and art exhibits in
regime-controlled areas posted on social media
contrast with images from the rest of Syria: limp
bodies being pulled from rubble, barefoot children in tent cities and corpses of Islamic State
victims hung from crosses.
Showing Damascus as still living a normal life
was one of its goals from the beginning, a resident of the capital said of the regime. It is focused on activities and parties and other things
that are far from our reality.
Hotel rooms and chalets in the coastal cities of
Latakia and Tartous had to be booked a month in
advance this summer, as vacationers from Damascus and Homs flooded to the Mediterranean
coast beaches to swim and sunbathe as in years
past.
In the city of Aleppo, some residents still take
to the sidewalks at night to picnic and barbecue,
a city tradition that survives despite the perils of
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rocket and artillery fire from rebel groups.

After an attack in June that state media said
killed 23 and wounded dozens of people, Aleppos
governor said life was normal in the citys markets.
The government has to maintain this facade of
everything is OK. Otherwise, these people dont
feel safe, Mr. Azm said. Already the credibility of the regime has been questioned repeatedly
every time the regime loses an important battle.
Nowhere is the regimes portrait of life in Syria
more skewed than on social media, especially the
Twitter feed for SANA, Syrias state news agency.
Between tweets about government forces
killing terroriststhe catchall term for all government opponentsare posts about disco and salsa
parties.
But a Twitter campaign by SANA in June that
urged followers to snap us your moments of summer in #Syria using the hashtag #SummerInSyria was used by opposition groups and activists to tweet photos showing child victims of
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government airstrikes, burning buildings and destroyed markets.

Yet the Assad government remains unflagging
in its determination to convey a sense of business
as usual, despite a death toll that now exceeds
240,000 and the apparent resolve of pro-regime
forces to fulfill the pledge they have left scrawled
on the walls of opposition-controlled towns and
neighborhoodsAssad, or we burn the country.
In May, the government hosted a Reconstruct
Syria conference that promoted green and other
forms of renewable energy, even though outside
the convention center much of Syrian territory
was in darkness because of damage to the power
grid.
And while generators work to ensure the lights
stay on all the time at the opera house, performers such as the rumple-suited balladeer dont
measure up to the legendary Lebanese singer
Fairuz and productions of Carmen that once
were staged there.
Nevertheless, theater officials have introduced
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a new dress code. Jeans and T-shirts are out,

and men are now required to wear neckties. A
selection of ties is available for those who arrive
at the opera house without one.
A special correspondent in Damascus contributed to this article.
Write
to
Raja
Abdulrahim
at
raja.abdulrahim@wsj.com
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Chapter
22
Hungary Considers
Using Army as
Migrant Numbers Rise
BUDAPESTHungarys government said it was

considering deploying the army alongside special
new police forces at the border to reduce the in166
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flux of asylum seekers from war-torn regions of

the Middle East and North Africa seeking to traverse the country.
Police said Wednesday they had detained a
record 2,533 people for crossing Hungarys borders illegally the day before, most of whom
claimed to have come from Afghanistan, Syria
and Pakistan. As of Monday, Hungary had registered 130,379 asylum requests this year, more
than three times the amount for the whole of
2014.
Nearly all entered Hungary through woods
and meadows on its 110-mile border with nonEuropean Union member, Serbia. Once in Hungarywhich is inside the generally border-free
Schengen zonethe majority travel on to richer
EU countries such as Austria and Germany.
But Hungary is nevertheless making efforts to
prevent refugees from entering its territory.
Government spokesman Zoltan Kovacs said
Wednesday that the cabinet had discussed the
use of the army to protect its bordersa move
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that would require parliamentary approval.

The police are already preparing a 2,105strong special-protection forcecalled border
hunterswhich should be deployed to reinforce
border controls by Sept. 15, police Commissioner
Karoly Papp said Wednesday.
The special force will have helicopters and dogs
at its disposal. It is tasked with reducing security risks and managing situations where there
are massive inflows, Mr. Papp said.
They dont and wont have an order to fire
at the migrants, he said.
According to the state news agency, police used
tear gas to restore order when some 200 people
got into a fight over talking with a visiting television crew at a refugee camp in Roszke, a village
near the Serbian-Hungarian border, on Wednesday.
The police are also preparing action plans for
how to handle situations such as the one seen
in nearby Macedonia last week when thousands
of refugees gathered at the border with Serbia,
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leading to clashes and rising tensions. Hungary

doesnt have a border fence between the railway
tracks and roads it shares with Serbia, making
them potentially easy entry points.
We may use any tool legally at our disposal
to perform our duty efficiently, including water
cannons, Mr. Papp said.
Hungary is already in the process of erecting
a razor-wire fence by the end of this month on
its Serbian border, with a second, taller fence
planned to be built behind it by the end of
November.
Lawmakers will gather next week for a special session to debate a tightening of immigration
laws that would punish any damage to the border
fence and for people trafficking, at which the use
of the army could be discussed.
The governing Fidesz party is led by Prime
Minister Viktor Orban, who has previously said
Europes existence is at risk from the asylum
seekers.
Fidesz wants to make it possible to use the de169
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fense forces for border control and duties related

to immigration, said Szilard Nemeth, deputy
head of parliaments national security committee
and a Fidesz member.
The far-right Jobbik party, which isnt part of
the government coalition, was planning to submit
a bill Thursday to seek a modification to the constitution allowing the army to be used for border
control.
Hungary isnt capable of providing for the
hundreds of thousands of migrants because that
would put the safety, livelihood and health of
Hungarians at threat, Fidesz party said this
week.
We maintain that only an order-minded immigration policy may protect the country, it
said, adding that Hungary must protect its own
as well as the European Unions borders.
The German government said Tuesday it would
allow Syrian refugees to stay in Germany, regardless of where they first entered the EU.
Write
to
Margit
Feher
at
mar170
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git.feher@wsj.com
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Chapter
23
Venezuelas Food
Shortages Trigger
Long Lines, Hunger
and Looting
LA SIBUCARA, VenezuelaHours after they
looted and set fire to a National Guard command
post in this sun-baked corner of Venezuela earlier
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this month, a mob infuriated by worsening food

shortages rammed trucks into the smoldering edifice, reducing it mostly to rubble.
The incident was just one of numerous violent clashes that have flared in pockets around
the country in recent weeks as Venezuelans wait
for hours in long supermarket lines for basics like
milk and rice. Shortages have made hunger a palpable concern for many Wayuu Indians who live
here at the northern tip of Venezuelas 1,300-mile
border with Colombia.
We are going very hungry here and the children are suffering a lot.
The soldiers had been deployed to stem rampant food smuggling and price speculation, which
President Nicolas Maduro blames for triple-digit
inflation and scarcity. But after they seize contraband goods, the troops themselves often become
targets of increasingly desperate people.
Whats certain is that we are going very hungry here and the children are suffering a lot, said
Mara Palma, a 55-year-old grandmother who on
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a recent blistering hot day had been standing in

line at the grocery store since 3 a.m. before walking away empty-handed at midday.
In a national survey, the pollster Consultores
21 found 30% of Venezuelans eating two or fewer
meals a day during the second quarter of this
year, up from 20% in the first quarter. Around
70% of people in the study also said they had
stopped buying some basic food item because it
had become unavailable or too expensive.
If people arent outside protesting, theyre
outside standing in line for goods.
Food-supply problems in Venezuela underscore the increasingly precarious situation for Mr.
Maduros socialist government, which according
to the latest poll by Datanalisis is preferred by
less than 20% of voters ahead of Dec. 6 parliamentary elections. The critical situation threatens to plunge South Americas largest oil exporter into a wave of civil unrest reminiscent
of last years nationwide demonstrations seeking
Mr. Maduros ouster.
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Its a national crisis, said Marco Ponce, head

of the Venezuela Observatory of Social Conflict,
noting that unlike the political protests of last
year, residents are now taking to the streets demanding social rights.
The nonprofit group recorded 500 protests over
food shortages during the first half of 2015, 56
looting incidents and dozens of attempted lootings at grocery stores, pharmacies and warehouses. Even delivery trucks are frequently
targeted. If people arent outside protesting,
theyre outside standing in line for goods, Mr.
Ponce said.
The unrest is a response to dramatically worsening living conditions for Venezuelans as the
economy reels from oils slump following more
than a decade of populist spending that left the
government broke.
Theyre committing treason against our country, taking food and crossing the border.
In past years, when oil prices were high,
Venezuelas leftist government flooded markets
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with subsidized goods ranging from cooking oil

to diapers. It gave citizens in border towns
like La Sibucara not only access to cheap supplies, but also a source of income as many people
trafficked productsincluding nearly free gasolineto neighboring Colombia, drawing handsome profits.
With the government now struggling to pay
for imports, there is less inventory to go around.
In recent days, Mr. Maduro upped the ante by
ordering troops along the border to seize contraband, deporting hundreds of Colombians whom
the government blames for smuggling and shortages.
Armed soldiers monitor supermarkets as part
of an effort the president calls Operation Peoples Liberation. More than 6,000 alleged smugglers have been arrested this year, according to
the attorney generals office. Images of soldiers
posing with handcuffed suspects and stacks of decommissioned goods are splashed on state media.
Were going to get to the root of the problem,
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Mr. Maduro said in a national address last week

after a shootout with smugglers in the frontier
state of Tachira left three National Guard troops
injured and pushed Venezuela to shut key border
crossings.
The smugglers targeted by the government
crackdown are called bachaqueros, named after
a leaf-cutter ant that can carry many times its
weight. The word, first used here in the northwestern state of Zulia, has become part of daily
national parlance as a label for Venezuelans who
buy price-controlled goods and resell them for
profit on the black market.
While the government blames the shortages on
bachaqueros, economists say they are the consequence of price controls and a broken economic
model that has left average Venezuelans with diminishing employment options.
The people that used to give us workthe private companies, the richhave all gone, said Ms.
Palma in La Sibucara, adding that she also occasionally traffics goods to get by. Its not the
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greatest business but we dont have work and we

have to find a way to eat.
Earlier this month, Venezuelas military raided
homes and warehouse around the town, seizing
tons of allegedly hoarded goods that were destined to leave Venezuela or be resold on the black
market for well above the state-set price.
Lisandro Uriana, who had a black eye and a
bandaged leg, said he and two friends were badly
beaten up when a neighbors house was raided.
They didnt say or ask us anything, recalled the
46-year-old Wayuu father of four, who lives in a
tin-roofed house of two rooms. They just beat
us and we couldnt defend ourselves because they
were armed and were many. I dont even smuggle. . . and now I cant even get up to work.
The day of the raids, neighbors said residents
pleaded with troops at the National Guard command post to distribute seized food to nonsmugglers but were turned away. An angry mob
soon formed, sending soldiers fleeing before they
attacked the office and even stripped it of scrap
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metal.
We are very peaceful people, but what happened was an act of desperation. I think this is
going to get worse.
These are just some isolated cases, Manuel
Graterol, a National Guard general overseeing
operations in La Sibucara on a recent day, said,
blaming the unrest and the bachaquero phenomenon on opponents of Mr. Maduros government.
Many of them are being shameless, said Gen.
Graterol. Theyre committing treason against
our country, taking food and crossing the border.
But such food fights have broken out in numerous small municipalities around the state of Zulia. In the nearby town of Sinamaica, the ground
floor of the mayors office was set on fire in early
August following a wave of unrest that included
gangs looting delivery trucks. The unrest, locals
said, began after police detained a truck loaded
with rice.
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Street vendor Robert Guzman, wearing a red

pro-government T-shirt, said the sacking was
justified. We are very peaceful people, Mr.
Guzman said of his Wayuu community, but what
happened was an act of desperation. I think this
is going to get worse.
Resident Yusleidy Marquez said she too fears
the worst. The basket of subsidized food the
government gives her mother every 15 days only
feeds her family for two days. Lately, she only
eats a cornmeal patty for lunch because she cant
afford more.
I think were going to die of hunger, she said.
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Chapter
24
North Korean
Escapees Say They
Perceive Solid Support
for Dictator
SEOULA new report on North Koreans who
fled the country in recent years suggests grassroots capitalism continues to spread to substi181
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tute for the failed state distribution system and

is likely to continue its uncomfortable coexistence
with the nations repressive regime.
The report, based on annual surveys, also
showed that defectors think public support for
dictator Kim Jong Un appears solid in North Korea despite citizens frustrations about the poor
state of the economy.
The Seoul National University Institute for
Peace and Unification Studies annually surveys
more than 100 North Koreans who defected in
the prior calendar year. The results provide firsthand insight into developments in the isolated
state, though its researchers said they shouldnt
be read as generalized facts due to the small pool
of respondents.
While the results dont prove a majority actually supports Mr. Kim, defectors said such perceptions help the Pyongyang leadership tighten
its grip on power. North Korea observers said
Pyongyang uses tensions with South Korea and
the U.S. for a similar reason.
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Pyongyang has long claimed that South Korea,

masterminded by the U.S., will invade the North,
and therefore contends its nuclear arms are designed to deter any aggression. North Korea tells
its people it was invaded in 1950 by South Korea,
triggering the Korean War. Historians outside
the country agree the war started when North
Korea invaded South Korea.
The latest survey, of 146 North Koreans who
escaped in 2014, shows significant growth from
the previous year in the number of people saying they conducted private business activities and
paid bribes to enable them. A little more than
half said they received no money from the state,
down from last years survey but up from the one
released in 2013.
Experts say between half and three-quarters of
North Koreans income comes from quasi-illegal
market activities, such as trade of basic goods
smuggled in from China, but sporadic crackdowns by national or regional security officials
lead to irregular business and bribery. Defectors
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say officials often collect fees when they set up a

booth at a market.
Most in the survey blamed the regime for economic hardship, including more than 70% who
held Mr. Kim as the most responsible.
But combined with respondents who fled from
2010 to 2013, nearly 63% of the 656 people that
answered said they believe a majority of North
Koreans support Mr. Kim. The researchers
didnt provide a year-by-year breakdown.
The release of the report comes as a military
standoff between the Koreas ended Tuesday following a crisis that included artillery strikes and
mine blasts.
Some defectors, including one that participated in the survey, say many people assume the
regime heightens tension with the U.S. and South
Korea for internal control, having lived through
repeated cycles of buildup and diffusion of tensions. They say they believe a vast state spy network prevents organized protests.
Every time the regime does this [initiating
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conflict and bringing the country to an emergency state], we say theyre doing it again. We
just hope the situation ends quickly and we can
go back to our normal lives, one North Korean
defector who fled the country last year said in
an interview with The Wall Street Journal. This
person said he believes one in three North Koreans is a government spy.
Mr. Kim, who took power in late 2011 and is
in his early 30s, has defied outside concerns about
inexperience, ruling with authority and purging
several senior officials without signs of instability. But his projects for economic development,
including agricultural and economic overhauls,
have yielded few positive results. Since he came
to power, he has tightened border controls to curb
the defector flow, activists said.
In a sign that Pyongyangs anti-American and
anti-South Korean propaganda may be working, the latest survey of escapees showed about
half supported North Koreas pursuit of nuclear
weapons. Nearly 55% said they believe a South185
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led invasion of the North could take place.

More than 28,000 North Koreans have escaped and settled down in the South, according
to South Koreas Unification Ministry, its main
agency for inter-Korean affairs. Since Mr. Kim
came to power in late 2011, defector numbers
have fallen, which activists attribute to harsher
crackdowns on the China-North Korea border.
Just 614 North Koreans made it to the South
in the first half of this year, compared with 2,706
in the 2011 calendar year, according to the most
recent ministry data.
Write
to
Jeyup
S.
Kwaak
at
jeyup.kwaak@wsj.com
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Chapter
25
South Sudans
President Signs
Long-Awaited Peace
Accord
NAIROBI, KenyaSouth Sudans president
signed a long-awaited peace deal with the countrys rebel leader, but cautioned that he had
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serious reservations with the document and suggested it would need major changes.
In a ceremony in South Sudans capital city of
Juba on Wednesday, President Salva Kiir signed
the document in front of regional leaders. But he
made it clear that he saw it more as a first draft
than a final compromise.
By signing the resolution, Mr. Kiir will likely
sidestep an arms embargo and targeted sanctions
threatened by Western powers including the U.S.
and the U.K.
It is not a bible, it is not a Quran, Mr. Kiir
said of the deal. He added that South Sudan
would need the support of regional leaders to
make the peace succeed, saying South Sudans
warring parties might spoil the deal if left to their
own devices.
Regional powers and South Sudans international backers have called this truce the best
chance to end 20 months of fighting. The compromise deal is expected to reinstate rebel leader
Riek Machar as vice president, institute other
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power-sharing measures and set forth a plan to

demilitarize the capital city.
But the new deal rests on unsteady foundations: At least seven previous pacts have also
been touted as answers for a lasting peace in the
worlds youngest country, only to collapse into
fighting within days of signing. Even if Wednesdays deal holds, it is unclear if it will help resolve the power struggle between Messrs. Kiir
and Machar, a principal cause of the conflict, or
whether other rebel leaders would abide by the
pact.
Violence has continued unabated through more
than a year of negotiations. Minutes before signing the deal, Mr. Kiir accused Mr. Machars
forces of attacking government forces near the
northern city of Bentiu on Wednesday, even
though Mr. Machar signed the document last
week. A spokesman for Mr. Machar didnt respond to calls seeking comment.
South Sudan erupted into violence in December 2013 when fighting broke out in the capital
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and Mr. Kiir accused Mr. Macharthen his recently fired vice presidentof fomenting a coup.
Since then, more than 10,000 people have been
killed and more than two million have fled their
homes. Nearly 200,000 people are currently sheltering in United Nations camps inside the country.
Neither humanitarian workers nor journalists
have been immune. Doctors Without Borders on
Wednesday said two of its workers were killed last
week in attacks in Unity statean oil-rich state
that has been the site of frequent clashes. Last
week, gunmen shot and killed a South Sudanese
journalist in Juba a few days after Mr. Kiir made
threatening comments about reporters.
There has been immense pressure on Messrs.
Kiir and Machar in recent months to sign the
new agreementand on regional leaders to back
it.
The U.S.which was key in helping create
South Sudanhas been one of the major parties
applying that pressure. On Tuesday, U.S. Am190
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bassador to the U.N. Samantha Power tweeted

that the U.S. will hold those who violate cease
fire or undermine peace agreement accountable.
This month, Ugandan President Yoweri Museveni attempted to persuade regional leaders to
reject the compromise deal, saying it had been
too influenced by Western powers.
Let us work as Africans to have peace on our
own terms, not U.S.A. and EU terms, Mr. Museveni told leaders at a regional summit in Kampala this month. Uganda has 3,500 troops fighting alongside South Sudanese forces.
This week, Mr. Museveni softened his stance
and advised Mr. Kiir to sign the deal to avoid
U.N. sanctions, diplomats said. On Wednesday,
Mr. Museveni commended the deal and said the
region would support it.
Even if fully implemented, the new pact may
simply re-create the tenuous power-sharing situation that led to the current conflict.
The tension between Messrs. Kiir and Machar
goes back well before South Sudans indepen191
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dence. They were both rebel leaders during the

two decades of fighting before South Sudan won
independence, often fighting against each other.
It was independence in 2011 that brought the two
men together in the same government.
And both men have allies who may be even
less willing to compromise than Messrs. Kiir and
Machar.
Both sides contain hard-line factions and interests that openly oppose the signing of the compromise agreement and continue to benefit financially from the misery of the South Sudanese people, said Lindsey Hutchison, a policy analyst
with advocacy group Enough. There will be winners and losers as a result of this deal, and the
losers could very well attempt to undermine the
agreement, potentially through further violence.
Nicholas Bariyo in Kampala, Uganda, contributed to this article.
Write to Heidi Vogt at heidi.vogt@wsj.com
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Chapter
26
Exiled Pakistani
Separatist Says
Government Has
Reached Out to Him
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http://www.wsj.com/articles/exiledpakistani-separatist-says-government-hasreached-out-to-him-1440625276
ISLAMABADThe exiled alleged leader of a
long-running separatist insurgency in Pakistans
western Balochistan province said he is willing to
enter peace talks after he said the countrys prime
minister and army chief reached out to him.
Brahumdagh Bugti, a wanted man in Pakistan who has lived in Switzerland since 2010,
on Wednesday said Prime Minister Nawaz Sharif
and army chief Gen. Raheel Sharif had made
overtures over the past two weeks.
A low-intensity conflict has simmered in
sparsely populated Balochistan since 2006, the
latest in a series of revolts that have erupted in
the province since Pakistan was formed in 1947.
The Baloch say the rest of Pakistan exploits the
provinces natural resourceswhich include gas
and metal depositsand tramples their rights.
The fight has distracted Pakistans armed forces
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from its battle with Islamist militants.

A peaceful Balochistan is also key to Pakistans
plans for a $46 billion economic corridor with
China. The project is centered on Balochistans
Gwadar port.
I am ready to talk, Mr. Bugti, 34 years old,
told The Wall Street Journal. But, in the last
10, 15 years, no one taken a practical step to ask
us to sit down and air our grievances.
There was no immediate response from the
prime minister or army chief. The provincial government of Balochistan, however, welcomed Mr.
Bugtis stance.
After this statement from Brahumdagh
[Bugti], which I think is a major statement, this
needs to be taken forward, said Jan Buledi, a
spokesman for Balochistans government. Now,
to put out this fire, the entire leadership of
Balochistan will have to play its role.
Mr. Bugti said the behavior of Pakistans
armed forces in Balochistan had to change in order for a peaceful resolution and for the Baloch
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to scrap their demand for independence.

As things stand, it is impossible for us to remain in a country that kills us daily, dumps the
bodies of our women and children, he said.
Human-rights groups accuse Pakistans security forces of widespread abuses in Balochistan,
including forced disappearances and extrajudicial
executions of hundreds of separatists and their
sympathizers. Pakistan denies the charge.
Rights groups also accuse Baloch separatists of
killing and intimidating people from other parts
of Pakistan who have settled or work in Balochistan. Mr. Bugti said such actions were wrong.
The revolt in Balochistan started when Pakistani forces killed Akbar Bugti, the head of the
Bugti tribe and Mr. Bugtis grandfather, in 2006.
Mr. Bugti said a settlement would require Pakistani military forces to return to their barracks
and the missing Baloch activists set free. He also
said Pakistan must apologize for launching the
operation against the Baloch.
Pakistani authorities allege he leads one of four
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major Baloch insurgent groups. Islamabad also

accuses the Baloch rebels of getting aid from India, a charge the insurgents and New Delhi deny.
Mr. Bugti insisted that he leads a political party, the Baloch Republican Party, not an
armed group. He acknowledged contacts with
rebels and said he believed they shared similar
beliefs.
Analysts give the Baloch insurgents, estimated
at a few thousand at most, little chance against
Pakistans army, one of the worlds largest.
Pakistan is also battling jihadist groups, including the Pakistani Taliban, in the northwest
and across the country, after an unrelated Islamist insurgency erupted in 2007.
Qasim Nauman in Islamabad and Syed
Shoaib Hasan in Karachi contributed to this article.
Write to Saeed Shah at saeed.shah@wsj.com
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Chapter
27
Man Arrested in 1996

Khobar Towers
Bombing
WASHINGTONA man suspected in the 1996
bombing of the Khobar Towers residence at a
U.S. military base in Saudi Arabia has been captured, a U.S. official said Wednesday.
Ahmed al-Mughassil, described by the Federal
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Bureau of Investigation in 2001 as the head of the

military wing of Saudi Hezbollah, is suspected of
leading the attack that killed 19 U.S. service personnel and wounded almost 500 people. The June
25, 1996, bombing was the deadliest such attack
targeting U.S. forces since the 1983 bombing of
the U.S. Marines barracks in Beirut that killed
241 American servicemen.
Saudi-owned paper Asharq Al-Awsat, which
first reported the development, said he was arrested in Beirut and transferred to Riyadh.
The Saudi Interior Ministry had no immediate
comment.
Mr. Al-Mughassil, also known as Abu Omran,
is one of 13 people named in a 2001 indictment
in Alexandria, Va., in connection with the bombing. Charges include murder of federal employees
and bombing resulting in death. None of the 13
has yet been brought to court to face charges,
according to court documents.
In the Khobar attack, militants parked a fuel
trailer truck just outside the shallow perimeter of
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the apartment complex, 85 feet away from one of

the eight-story buildings. The blast demolished
one side of the building, leaving a crater.
The U.S. later moved its Air Force contingent
to the Prince Sultan Air Base, a compound in a
remote stretch of desert south of the Saudi capital, Riyadh.
Copyright 2015 the Associated Press.
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Chapter
28
Protests Over Beiruts

Garbage Crisis
Continue
distribution to your colleagues, clients or customers visit http://www.djreprints.com.
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beiruts-garbage-crisis-continue-1440631026
BEIRUTHundreds of people have kept up
protests in Beirut as the crisis over garbage collection worsened with fresh piles of trash accumulating in streets of the capital.
Beirut has been jolted by daily protests for the
past week, including two massive demonstrations
that turned violent over the weekend.
The protests were sparked by the trash crisis
but now target the countrys entire political class
and dysfunctional sectarian-based political system.
Organizers of the main protest movement,
known as You Stink, are calling on all Lebanese
to take part in a huge rally planned for Saturday.
On Wednesday, a few hundred people protested
in downtown Beirut.
The crisis began last month after the government closed down Beiruts main landfill without
providing an alternative for the capital and its
suburbs.
Copyright 2015 The Associated Press. All
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Chapter
29
Asian Markets Shake

Off China Rout
The reach of Chinas stock crash, and the global
rout it sparked, started to recede from Asian markets Wednesday, though shares on the mainland
remained volatile.
Chinas main stock index has now lost nearly
a fourth of its value in the past five sessions,
even after its central bank late Tuesday cut in207
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terest rates for the fifth time since last November

and lowered the amount of deposits banks are required to hold to boost lending.
The response to Chinas easing has been inconsistent: Some markets were relieved that Beijing
had finally stepped in to help its economy, while
others continued to focus on the dimming growth
prospects for the worlds No 2. economy.
Tokyo shares posted their biggest percentage
point gain since last October, with the Nikkei
Stock Average finishing up 3.2%. The Stoxx Europe 600 index opened 2% lower but U.S. futures
were up 1.4% late in the Asia trading day.
In China, the Shanghai Composite Index fell
nearly 4% in the morning, before rising more than
4% just before the close. The benchmark then
dropped again, finishing down 1.3% at 2927.29.
The smaller Shenzhen Composite Index fell 3.1%
to 1695.76.
The market has become less sensitive to policy
stimulus, said Li Lei, analyst at China Minzu
Securities, of the Shanghai market. It is still
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searching for the bottom.

In recent days, the Peoples Bank of China has
taken steps to flood banks with liquidity to increase lending. On Wednesday, Chinas central
bank also introduced an additional liquidity measure by injecting 140 billion yuan ($21.8 billion)
into the banking system through its short-term
liquidity operationsa move it hasnt taken since
January.
But investors are concerned that even measures
like the cuts to interest rates and banks reserve
requirements arent enough to arrest a selloff that
has roiled markets from currencies to commodities and stocks. Chinas surprise decision two
weeks ago to devalue its currency has magnified
worries about the countrys economic slowdown,
and many expect the yuan to fall further in coming months. It has fallen more than 3% since the
devaluation.
The market would have significantly more
confidence if [China introduced] fiscal incentives
on top of monetary easing, says Rahul Chadha,
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co-chief investment officer of Mirae Assets Global

Investments, which manages $73 billion. You
need a lot more firepower.
The Shanghai Composite Index is up less than
18% from late November when Beijing began its
current easing cycle and state-media rallied investors to buy stocks. It is down 43% from its
June peak.
On Wednesday, all sectors in Shanghai were
down except consumer stocks. An index of small
cap tech stocks, the ChiNext Price Index, fell
5.1%.
Although Wednesdays turnover edged up to
893 billion yuan ($193 billion), up from 645 billion yuan Tuesday, it is still less than a third of
the daily turnover at Junes market peak, indicating investors are staying on the sidelines.
The amount of margin lending, or borrowed
money used to buy stocks, in the Chinese market, has fallen by more than half since the end of
June, as brokerages forced investors to sell their
positions to cover losses. Tuesday was the sixth
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consecutive day of declines, with margin balances

down to 1.16 trillion yuan.
Elsewhere in the region, Hong Kongs Hang
Seng Index, which waffled between positive and
negative territory, finished down 1.5%. South Koreas Kospi rose 2.6%. Australias S&P/ ASX
ASX 0.61 % 200 gained 0.7%.
Performance in currencies and commodities
was uneven, amid lingering worries that slowing
Chinese demand will hurt Asias exporters, including commodity producers like Australia.
The Malaysian ringgit hit a fresh 17-year low
against the dollar for the fifth-straight session,
trading at 4.2950 against the U.S. dollar earlier Wednesday. The ringgit was last at 4.2740
against the U.S. dollar, down 1.5% from its level
late in Asia Tuesday.
The Australian dollar and South Korean won
were steadier, roughly flat from Tuesdays close
in Asia, after hitting multiyear lows recently.
Gold was last down 0.1% at $1,137.20 an
ounce, with investors continuing to seek the yel211
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low metal as a haven asset.

The Japanese yen was 0.6% weaker against the
U.S. dollar at 119.40 compared with late Tuesday in Asia. Earlier in the week, the yen traded
as strong as 116.46, as investors tend to flock
to the currency in periods of volatility.
Brent crude, the international oil benchmark,
fell 0.2% to $43.13 a barrel. Oil fell to its lowest
level in over six years earlier in the week.
Yifan Xie and Gregor Stuart Hunter contributed to this article.
Write to Chao Deng at Chao.Deng@wsj.com
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Chapter
30
China Remains a Key

Commodities Player,
Despite Waning
Appetites
The fear that Chinas appetite for commodities,
from copper to coal, is falling after a decade of
breakneck growth has sent prices tumbling, but
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the countrys sheer scale in these markets means

that China will continue to shape them in the
long term, even if at a slower speed.
China now buys about an eighth of the worlds
oil, a quarter of its gold, almost a third of its
cotton and up to half of all the major base metals. Its buying power has made the country integral to global commodities trading, influencing
everything from prices to the hours traders work.
While analysts predict a slowdown in the growth
of Chinese commodity demand, they believe the
countrys clout in the market isnt likely to wane.
Commodities have fallen sharply in recent
days, extending a summer of declines, amid
concerns that a slowdown in Chinas economic
growth will sap the demand that drove markets
through more than a decade of gains. Chinas
voracious consumption amid double-digit annual
economic growth also encouraged a glut of new
supply, from fertilizers to gold.
Earlier this week, oil fell to its lowest levels in
over six years. Industrial metals, such as copper
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and aluminum, have lost about 20% of their value

this year, as has iron ore.
Many analysts say the market is wrong: Chinese demand for commodities isnt falling.
If you look at Chinese commodity imports
over the last few months, theyve actually been
quite strong, said Tom Pugh, a commodities
economist at Capital Economics. A lot of it is
just that people thought China would continue to
grow at 10% a year, ad infinitum, and now people
are just realizing thats not going to happen.
Chinese gross-domestic-product growth is
slowing, and economists widely doubt China
achieved the 7% annual pace reflected in its official figures for the second quarter, with some
thinking the rate might be as little as half that.
The drop is cutting into a key source of expected
demand.
The U.S. Energy Information Administration
believes that, despite a recent slowdown in Chinese oil-consumption growth, the country will
still account for more than a quarter of the in215
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crease in global oil demand this year. China accounts for 46% of copper consumption currently,
after notching some 7.5% in compound growth in
demand every year from 2010 to 2014. Deutsche
Bank AG DB 2.72 % now estimates this will fall
to 3% a year up to 2020. Growth in its annual
consumption of aluminum will slow to around 5%
or 6% in the next 10 to 15 years, down from the
8% to 10% growth of recent years, the bank says.
Miners, refiners and drillers overestimated
global demand growth, in particular from China,
and went on an expansion spree that has thrown
extra capacity onto the market.
Between 2015 and 2020, China is expected to
drive the near-10% increase in demand expected
for potash, a fertilizer with a $20 billion-plus market. But potash supply is expected to grow by
over 30% during that period, according to Scotiabank.
As China moves from a manufacturing- and
export-based economy to one that relies more
on consumption, analysts are working out which
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commodities will benefit and which will suffer.

So-called soft commodity imports, such as coffee and cocoa, could be winners, thanks to a rise
in average wealth among the Chinese people and
subsequent shift toward higher-quality consumer
goods.
Chinas influence on commodities prices will
also come through its exports. The countrys
slackening demand for some metals and its falling
currencywhich makes Chinese goods cheaper
internationallywill encourage more commodity
exports from a country more typically associated
with bringing them in. In the first seven months
of the year, Chinese aluminum exports climbed
28% to 2.87 million metric tons, while exports of
steel products were up 27% to 62.13 million tons,
according to figures from Citi Research.
In recent years, China has come to shape the
very way in which commodities are bought and
sold, traditionally the preserve of financial centers such as London and New York.
Late last month, the price of gold fell sharply,
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to a five-year low, within minutes of Asian markets opening. That came after almost five metric tons of goldclose to $200 million of the
metalwas sold on the Shanghai Gold Exchange,
according to ANZ Bank. ANZBY 2.03 % The
trade was seen by market participants as a key
moment reflecting how China had moved Asian
commodity markets away from just following the
overnight pattern of U.S. and European trading.
Activity on Chinese exchanges has jumped.
Trading in commodities such as steel, zinc and
aluminum drove volumes on the Shanghai Futures Exchange up 31% last year from 2013,
according to the Futures Industry Magazine, a
trade publication. Gold volumes on the Shanghai
Gold Exchange rose 44% year-on-year in July, to
316 tons, precious metals dealer Anthem Vault
said.
China is also pushing its way into commodities
trading in the centers that have long dominated
it. This June, Bank of China Ltd. BACHY -0.34
% , one of Chinas big-four state-owned lenders,
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became part of the century-old daily rate-setting

program known as the Gold Fix, in which a group
of banks set the London Bullion Market Association gold price, a benchmark for the industry.
In 2012, the London Metal Exchange was sold
to Hong Kong Exchanges & Clearing Ltd. 0388 0.83 % , muscling out U.S.-based Intercontinental
Exchange Inc. ICE 3.06 %
Banks and funds across Europe are acknowledging the increased action in China by dedicating staffers to stay up late to monitor those markets.
Theres a lot more trading going on at night,
said a London-based trader at Sucden Financial.
In London, investors are also paying more attention to trading between 2 and 6 p.m. London
time, when China-based night traders log on to
the London Metal Exchange.
The volumes are 20 times higher than what
youd see the rest of the day, said Vivienne
Lloyd, a metals analyst at Macquarie Group.
MQBKY 3.00 % Were saying to our clients:
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Youve got to be active at that time.

The effects of Chinese demand for commodities
will be felt far beyond financial markets. Billions
are expected to be spent in Canada, as the country rolls out energy infrastructure, like pipes and
terminals, to send its oil and gas to China and
the rest of Asia. Commodities account for eight
of Australias 10 biggest exports, much of which
goes to its largest trading partner, China.
Earlier this month, Steve Letwin, the chief executive of gold miner Iamgold Corp. IAG -10.49
% , was reading through his emails when he saw
an analyst report saying Chinese gold demand
had fallen by 1.4% in the first half of this year.
While this number bothered him, Mr. Letwin
said the worlds biggest buyer of gold will remain
hard to ignore.
China is there for the long term. They are
pretty entrenched, he said.
Alistair MacDonald and Katherine Dunn
contributed to this article.
Write
to
Biman
Mukherji
at
bi220
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Me
man.mukherji@wsj.com
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Chapter
31
The World Struggles

to Adjust to Chinas
New Normal
Chinas leaders have warned their people they
need to accommodate a new normal of economic growth far slower than the rate that
propelled the economy into the worlds secondlargest in the past two decades.
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Now, the rest of the world also needs to get

used to the new normal: a China in the midst
of a tectonic shift in its giant economy that is
rattling markets world-wide.
The slowdown deepening this year is part of
a bumpy transition away from an era when
smokestack industries, huge exports and massive
infrastructure spendingunderpinned by trillions
in state-backed debtpowered Chinas seemingly
unstoppable rise. Today, debt has swelled to
more than twice the size of the economy, and
some of those industries, such as construction and
steel, are reeling.
Instead of them, China is pushing services, consumer spending and private entrepreneurship as
new drivers of growth that rely less on debt and
more on the stock market for funding.
Reorienting Chinas massive economy, however, is proving challenging, and the difficulties
are testing Chinese leaders with something they
have been unaccustomed to in recent decades: a
troubled economy that undermines their reputa223
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tion for strong management.

Chinas faltering stock market sank further on
Tuesday, with the Shanghai Composite Index
closing down a sharp 7.6%. The central bank,
seeking to invigorate borrowing and spending,
cut benchmark interest rates for a fifth time in 10
months and reduced the amount of money banks
need to hold in reserve.
Amid these financial shocks, some things continue to go right in the Chinese economy. Retail
sales are still climbing, up 10.5% in July from
a year earlier, although the rate of growth has
slowed. A string of U.S. companies, from Apple Inc. to Gap Inc., have singled out China as
a growth market in an otherwise sluggish world.
Chinese consumers are spending like never before
on movie tickets, toothpaste, jeans and cars.
My life is actually getting better, said Zhu
Baolian, a retired package-handler at Beijings
Capital International Airport. The 58-year-old
said the government recently fattened his pension by 250 yuan a month, about $40, giving him
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more spending money. I eat well. The quality of

our food and other things is improving, he said.
The problem is that consumer spending isnt
robust enough to replace the heavy industry
and investment in infrastructure and property
that powered Chinas nearly 10% average annual
growth for the past three decades. For that to
happen, a series of wrenching changes would have
to take place, from giving migrants better access
to social services to breaking the dominance of
state-run banks and companies in many industries.
Two years ago, the government of President Xi
Jinping unveiled a long list of planned initiatives
designed to achieve many of those goals. But
some of the reform plans have been left untouched
as Mr. Xi has focused on a major anticorruption
campaign and expanding Chinas influence overseas.
As economic growth slowswith some
economists predicting rates around 4% this
year, well below the official target of 7%the
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government has been scrambling to shore things

up.
Its becoming a more difficult job to stabilize
the economy, thats for sure, said an economic
adviser to the government. Earlier this year, we
were expecting the economy to bottom out by
now, and didnt expect it to keep getting worse.
Premier Li Keqiang said on Tuesday that the
fundamentals of the Chinese economy have not
changed, economic growth is still within a reasonable range, and positive factors supporting the
real economy are increasing.
At times, the government has appeared to lose
its nerve, falling back on the same tactics it used
to juice growth a decade ago, such as ordering
state banks to boost lending for infrastructure
projects, both in China and in neighboring countries.
Earlier this month, the central bank issued a
surprise devaluation of the currency, the yuan, in
a move that was read by some as a sign of desperation. When the government set out to arrest a
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stock-market slide in June, it first called for limiting the borrowing of money to buy shares, only
to reverse itself to encourage more borrowing.
The results have been dramatic swings in the
stock market and currency, amid concerns among
global investors that Chinas leaders dont have
control of the situation. The Shanghai Composite Index has fallen 22% in the past four trading
days, on top of a slide in June and July, erasing
all of its gains for the year.
The state company leading the charge to stabilize the markets has in recent days pulled back
from aggressive buying of shares, according to officials close to the securities regulator. That has
allowed Beijing to focus on a more urgent issue:
preventing a free fall of the yuan. Sharp depreciation could trigger massive capital outflows that
might further dent investors confidence and drag
down the economy.
In recent days, officials at the Peoples Bank of
China have worked around the clock to monitor
the yuans trading, both within mainland China
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and in Hong Kongs market, according to people

close to the central bank.
A question for many businesspeople is how attuned Beijing officials are to the risk if they fail in
their quest to stabilize markets and restore confidence that they are in control.
Has China lost control of the situation? asked
CLSA economist Eric Fishwick. He added: The
short answer is no.
Beijings missteps in recent months have
shaken a world that has looked to China over
the past two decades as a dependable source of
growth and careful economic management.
China stayed above the fray in the Asian financial crisis in the late 1990s, holding the yuan
steady and avoiding competitive devaluations
tried by other economies. A massive stimulus
program by Beijing after the 2008 global financial crisis helped to pull the rest of the world out
of the slump.
China now is exporting volatility. The CBOE
CBOE 3.62 % Volatility Index, a measure of risk
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in the U.S. stock markets sometimes called the

fear gauge, has surged over the past week, tracking the cratering Shanghai market. This is in contrast to previous Chinese share routs that barely
registered abroad.
It has been five years since Chinas economy
last grew at a double-digit rate. Todays economic drag reflects how Mr. Xis administration
inherited weighty problems that all seemed to call
for a further downshift in growth: heavy debt
built up by government entities, endemic corruption and worsening pollution by aging industries.
Economists were initially hopeful that Mr. Xi
would emerge as a business-minded leader intent
on restructuring the economy more along Western lines. But he has used his political clout to
wage a campaign against corruption, expand the
military and rally support for party power.
Unlike his predecessors, Mr. Xi assumed control of the economy, traditionally the domain of
the premier. But his thoughts about it have
emerged mostly in policy pronouncements that
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have lacked follow-up. He promised markets

would become decisive in allocating resources
and said that slowerbut better and more sustainablegrowth was the new normal.
The simple reality is that China does not have
a grand master plan for economic reform that it
is steadily executing step by step, wrote Andrew
Batson of the economics consultancy Gavekal
Dragonomics in a recent report.
As troubles mounted this summer, divisions
within the party elite began to rise, according
to Chinese officials and government-connected
scholars. Chinas central-bank governor, Zhou
Xiaochuan, and its finance minister, Lou Jiwei, preferred more-limited stock-market intervention, said officials with knowledge of the situation, but were overruled by Premier Li, who
demanded forceful actions to support the tumbling market.
Senior party members close to one of Mr. Xis
predecessors urged him to pay renewed attention
to the economy, these people said. An unusually
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blunt commentary in Peoples Daily, the partys

main newspaper, this month criticized unnamed
retired leaders for interfering in the government
and sowing division. Their attempt to retain influence not only puts new leaders in a bind but
hinders them from having a free rein to do bold
work, it said.
Investors who during good times saw Beijings
tight control of economic levers as assurance their
business interests were safe now worry that authorities could be understating problems.
Mr. Li, in his statement on Tuesday, said that
as the government takes more reform measures
to encourage market vitality and improve peoples living conditions, China has the ability and
conditions to achieve its annual economic growth
target, which will be a big contribution to the
global economy.
Doubt about the accuracy of Chinese statistics has produced a cottage industry in developing alternative economic indicators. A measure
produced by London research firm Capital Eco231
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nomics put growth in July from a year earlier at

4.1%, although it said once consumption is factored in, growth could be between 5% and 6%.
All of the figures are well below the most recent
7% official reading of GDP growth.
Mr. Li has been quoted in a 2007 cable exposed by WikiLeaks as having his own measures
for growth, such as cargo movement and loan disbursement, at a time before he became premier.
One of his indicators, overall electricity demand,
has risen less than 1% this year, largely because
of slower manufacturing and construction; that
compares with growth of more than 5% a year
earlier.
Some of the slowdown reflects Beijings efforts to close heavy and polluting industries. By
contrast, power demand from servicesincluding
real estate, financial services and transporthas
grown 7.5% this year.
Demand for gasoline by Chinas growing legions of drivers is part of the reason for continued
growth in China, though it, too, has begun slow232
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ing as car sales also weaken.

Not many economists are backing off projections that China will overtake the U.S. in terms
of total GDP, possibly within the current decade.
But China also finds itself somewhere between
a poor and rich country. This is a historically difficult positiondubbed the middle-income trap
by economiststhat South Korea escaped but
that has held back much of Latin America.
China is right there, where a lot of countries start to struggle, said Peter Robertson, an
economist at the University of Western Australia,
adding that the trap often features conflict between a political system and economic reality
over how a nations wealth is distributed.
As leaders wrangle in Beijing, one effect of the
turmoil has been a tightening of wallets for many
of Chinas budding entrepreneurs.
In January, when Jerry Dai founded a crowdfunding startup in Shenzhen, he said there
was nothing but optimism.
Entrepreneurs
around him said just about any business idea
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was getting financing from so-called angel investorsindividuals or funds that provide capital for early-stage firms before formal investment
rounds. Now, things are looking tougher. There
are still many angel investors, but they are getting more selective, he said.
Heatherm Huang, a co-founder of MailTime, a
San Francisco-based startup with a way to make
emails easier to use on smartphones, raised much
of its early funds from Chinese investors. Last
year was crazy. There was so much money in
China, said Mr. Huang. In some ways, things
are going back to normal now.
Laurie Burkitt, Mark Magnier and Juro Osawa contributed to this article.
Write
to
James
T.
Areddy
at
james.areddy@wsj.com and Lingling Wei at
lingling.wei@wsj.com
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Chapter
32
Chinas Central Bank

Cuts Interest Rates
BEIJINGChina stepped up its credit-easing efforts by slashing interest rates and flooding its
banking system with new liquidity, its second
such combo move in two months aimed at battling a deepening economic slowdown and its
worst stock-market selloff in decades.
The Peoples Bank of China announced the
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one-two punch late Tuesday after the countrys

main stock index fell another 7.6%, bring losses
to more than $1 trillion in market value over the
past four trading days. The stock rout was triggered by growing doubts among investors over
the governments ability to avoid a hard landing
of the worlds No. 2 economy.
Concerns over Chinas economic health have
also roiled global markets in recent days, prompting the Chinese central bank to take action.
In a statement posted on its website, the
PBOCdubbed Yang Ma, or Big Mama, within
Chinanoted the big fluctuations in financial
markets around the world, which prompted it to
make flexible use of monetary-policy tools to
ensure steady growth.
China has targeted year-over-year economy
growth of about 7% for 2015, which already
would be the slowest pace in a quarter century.
New data since July has called its ability to hit
that target into question. In particular, a privatesector gauge of factory activity fell to a 77-month
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low in August. Meanwhile, a surprise 2% devaluation earlier this month of the countrys currency,
the yuan, was interpreted by investors as a sign
that economic growth is slowing more than Beijing had anticipated.
Chinas economy will get worse before it gets
better, said Yu Yongding, a prominent Chinese
economist and a former adviser to the central
bank.
Chinese companies are struggling with high
debt loads and low prices, said Mr. Yu. Persistently low factory-output prices and still-low
consumer prices have put disinflationary pressure
on the Chinese economy and led to worries that
China could enter deflation, which pushes up borrowing costs and makes it more difficult for businesses to service debt.
China has entered a stage of deflation, he
said, pointing to the factory and consumer-price
data. To maintain economic stability in the short
run, Mr. Yu said, its inevitable for the Chinese
central bank to ease credit.
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The issue for investors is whether the latest easing steps will help restoreor further hurttheir
confidence in Beijings handling of the economy
and markets. One key question is whether these
measures will gain much traction at a time of slipping confidence and weakening growth momentum, said Eswar Prasad, a Cornell University
professor and former China head for the International Monetary Fund.
With Tuesdays moves, the Chinese central
bank has cut interest rates for the fifth time since
November and broadly lowered for the third time
the amount of deposits banks are required to hold
in reserve. It is rare for the PBOC to simultaneously cut interest rates and banks reserve requirements. The last time it made the combo
move was June 27, soon after Chinese stocks
started to sell off.
In the past two months, China has accelerated monetary easing to shore up stock prices
and stabilize the economy. But some of its
effortsespecially its heavy intervention in the
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stock market and recent currency moveshave

also called into question the governments ability
to effectively manage the economy.
So far, the steps have largely failed to lift market sentiment as investors kept pushing down
share prices. The central banks recent handling
of the Chinese yuan also raised eyebrows among
investors and economists.
On Aug. 11, the PBOC unexpectedly devalued the yuan by setting its official rate nearly 2%
weaker in a move it said was intended to bring the
yuans value more in line with market expectations. The surprise action prompted investors to
sell the yuan both on the mainland and in what
is known as the Hong Kong offshore market in
expectations it would go still lower.
China limits the yuans daily trading on the
mainland to a tight band, but under a new policy its value is supposed to be determined more
by daily trading moves. To contain those moves,
PBOC has frequently bought the yuan and sold
the U.S. dollar to prevent the Chinese currency
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from falling too much. Analysts at Orient Securities Co., a Shanghai brokerage, estimate that the
PBOC has spent more than $40 billion of Chinas
roughly $3.7 trillion foreign-exchange reserves. It
could become costlier if the market continues to
drive the yuan down.
The interference also has had the effect
of draining yuan funds out of the marketthreatening to cause a shortage of funds at
Chinese banks that already are battling with rising bad-loan levels and falling profitability. The
Wall Street Journal reported on Sunday that the
PBOC was planning to flood the financial system with new liquidity in a bid to counter that
liquidity squeeze.
The half-percentage reduction in banks reserve requirements, which will become effective
Sept. 6, will pump about 678 billion yuan,
or roughly $105.7 billion, worth of funds into
Chinas banking system. After the interest-rate
cuts, which will be effective Wednesday, Chinas
benchmark one-year lending rate will be lowered
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to 4.6% from 4.85% previously, and the one-year

deposit rate will fall to 1.75% from 2%.
PBOC officials hope that the new funds will
encourage Chinese lenders to make more loans to
help the part of the economy that can generate
jobs and boost productivity. However, based on
recent official data, credit to those areas slumped
in July, while lending to financial institutions
surged amid the governments efforts to prop up
the stock market.
In a nod to reforms, the PBOC on Tuesday
also dropped a key control on rates for some
bank deposits, allowing lenders greater freedom
to compete for business. However, the central
bank still refrained from fully giving up its control on deposit rates for fear of driving up interest
rates and prompting more risk-taking behavior
by banks amid a slowing economy, according to
people close to the central bank.
In the statement, the PBOC said China faces
an arduous task to maintain growth and press
ahead with overhauling the economy.
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Grace Zhu and Mark Magnier contributed to

this article.
Write to Lingling Wei at lingling.wei@wsj.com
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Chapter
33
Serbia and Kosovo

Take Step Toward
Reconciliation
BRUSSELSSerbia and Kosovo, which fought a
war in the late 1990s, took another step toward
reconciliation Tuesday with a deal that, among
other things, will allow Kosovars to have their
own country code.
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The agreement, brokered by European Union

foreign policy chief Federica Mogherini, also
grants more rights to Serb communities living in
the north of Kosovo, a former province of Serbia.
Kosovo, whose declaration of independence in
2008 hasnt been recognized by Serbia or several
EU countries, has been using either Monacos or
Slovenias country codes for mobile phones.
Serbias Prime Minister Aleksandar Vucic expressed satisfaction with the agreement after
talks in Brussels. He said he was particularly
pleased that the association of Serbian communities in Kosovo will be able to receive funding
from Belgrade.
Kosovo Foreign Minister Hashim Thaci said
that the agreement is in the interest of Kosovo,
its citizens, and the European integration of
Kosovo.
Speaking to The Wall Street Journal before the
talks, Mr. Thaci said the region, formerly torn by
war and ethnic strife, has never been in a better
place in terms of cooperating with each other.
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In another step toward reconciliation, Kosovos

parliament this month approved the establishment of a special court to investigate alleged
war crimes carried out by the Kosovo Liberation
Army, the paramilitary force that led the fight
for Kosovar independence.
The establishment of the war crimes court
would meet a demand by the EU for improving
the rule of law in Kosovo.
Mr. Thaci, the man who transformed the KLA
militia into an established political party, said in
the interview that he backs this court, even if
its mandate is to prosecute some of his former
acolytes.
An EU task force last year said there was
enough evidence to prosecute senior members of
the KLA on charges including unlawful killings,
abductions, illegal detention camps, sexual violence and desecration of churches.
It added that there were compelling indicationsalbeit not enough for a trialthat KLA
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oners and sold them on a very limited scale.

Mr. Thaci said he has nothing to hide and
would cooperate in any circumstance and any
form needed with the court. He denied any involvement or knowledge of war crimes. I very
much hope that no one will try to rewrite history, to try to draw parallels or equate the genocide perpetrated by Serbia with individual acts
of some desperate citizens, Mr. Thaci said.
If the court is established, Kosovo would be the
last of the former Yugoslav republics to try war
crimes allegedly committed during the 1990s.
Previous attempts to try former leading KLA
members at the International Criminal Tribunal
for the former Yugoslavia, based in The Hague,
ended with acquittals, after the prosecution complained of intimidation of witnesses as well as disappearances and suspicious suicides. Some EU
officials were skeptical that the situation would
be different for the new court.
Maria Bamieh, a British prosecutor who was
part of the EU rule-of-law mission EULEX in
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Kosovo until last year, said she often got death

threats and was warned by Western intelligence
officers that someone had tried to put a bomb under her car. EULEX failed to protect witnesses
adequately, so the question now is how this court
is going to make it work, Ms. Bamieh said.
Kosovo poses particular problems for witnesses
because everybody knows everyone, said another EU official familiar with the EU-led investigation.
While Mr. Thaci said that witness protection
will be for the court to solve, he promised that
his government would do everything to help the
credibility of this process.
Although the Kosovo parliament voted in favor
of the new court, the decision has been subject to
a constitutional challenge by the main opposition
party.
Mr. Thaciwho served as Kosovos inaugural
prime minister before moving to the foreign ministry in Decembersaid he expects the challenge
to be resolved in September, while conceding that
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establishing a special court remains contentious.

We did have a lot of work to convince [members of parliament] to vote in favor and I had to
do that with MPs of my own party, while the entire opposition was against, he said. It was a
very sensitive issue, but it had a good ending.
Negotiations are under way to base part of the
court in the Netherlands. Mr. Thaci said he
hoped that would be resolved in the coming days
or weeks.
Write to Valentina Pop at valentina.pop@wsj.com
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Chapter
34
Ukrainian Filmmaker
Sentenced to 20 Years
by Russian Court
MOSCOWA Russian military court Tuesday
sentenced a Ukrainian film director to 20 years
in prison on terrorism charges that Kiev and
Western capitals called trumped-up and politically motivated.
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The court in the southern city of Rostov-onDon ruled that Oleh Sentsov, 39 years old, formed
a terrorist group in Crimea that set fire to offices
of two pro-Russian organizations and planned to
blow up a statue of Vladimir Lenin and a World
War II memorial.
Mr. Sentsov, an opponent of Russias annexation of Crimea from Ukraine last year,
called the charges fabricated and said the court
had no jurisdiction. A co-defendant, Oleksandr
Kolchenko, was sentenced to 10 years on lesser
terrorism charges.
After the judge read the verdict, the defendants sang Ukraines national anthem. Mr.
Sentsov waved to a supporter, put a hand on Mr.
Kolchenkos shoulder, and then called: Glory to
Ukraine!
Lawyers for the two said they would appeal the
verdict, Interfax news agency reported.
Ukraines government condemned the verdict
and called for the mens release.
Oleh Sentsov, Oleksandr Kolchenko and other
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citizens of Ukraine who are illegally detained on

Russian territory are political hostages and innocent victims of the Russian Federations aggression against Ukraine, the Ukrainian Foreign
Ministry said.
Hang in there, Oleh. The time will come when
those who organized the mock trial against you
will find themselves in the dock, read a message
Ukrainian President Petro Poroshenkos Twitter
account.
The U.S. and governments in Europe criticized
the ruling.
The U.S. State Department said Messrs.
Sentsov and Kolchenko had been hit with
groundless charges because of their opposition
to Russias annexation of Crimea.
This is clear miscarriage of justice. Both
Ukrainians were taken hostage on Ukrainian territory, transported to and imprisoned in Russia,
and had Russian citizenship imposed on them
against their wills, department spokesman John
Kirby said Tuesday.
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He called on Russia to release the men and all

other remaining hostages, including Ukrainian
air force pilot Nadiya Savchenko, whom Russia
says was an accessory to the killing of two Russian journalists in eastern Ukraine last year.
Ms. Savchenko says she was abducted in eastern Ukraine and forced across the border.
This whole trial was designed to send a message. It played into Russias propaganda war
against Ukraine and was redolent of Stalinist-era
show trials of dissidents, Heather McGill, a researcher at Amnesty International, said.
Dmytro Kuleba, an ambassador-at-large in the
Ukrainian Foreign Ministry, said the trial aimed
to show Ukraine that Russia could act how it
wanted on Ukrainian territory; demonstrate to
the West that it will resist any pressure over human rights; and warn Russians and Crimeans
that it is prepared to act ruthlessly against any
dissent.
Russia sent troops to seize Crimeas peninsula
in February last year after Ukraines pro-Russian
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president fled the country amid street protests in

the capital, Kiev.
It has also been accused by the West of supplying separatists in eastern Ukraine with weapons
and fighters during more than a year of fighting,
charges Moscow has denied.
The conflict has killed nearly 7,000 people, according to the United Nations.
Mr. Sentsov opposed Russias annexation of
Crimea in March 2014 and delivered food to
Ukrainian soldiers blockaded in bases by Russian
forces. He was seized by the Russias Federal Security Service, or FSB, in May 2014 and resurfaced days later in custody in Moscow.
In court this month, he said he was tortured
in an unsuccessful attempt to extract a confession. Russian authorities refused to investigate
the claim.
The prosecution was built around evidence
from two alleged co-conspirators. One received
a shorter sentence in return for testifying against
Mr. Sentsov and Mr. Kolchenko. The other told
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the court his testimony had been coerced.

The board of the European Film Academy
wrote Russian authorities a letter calling for Mr.
Sentsovs release that was signed by leading directors including Germanys Wim Wenders and
the U.K.s Ken Loach.
In court Friday, prosecutors had called for Mr.
Sentsov to be jailed for 23 years. In his final
speech to court on Friday, he said he hadnt given
in to torture to incriminate himself or others. I
dont know what your convictions are worth if
you arent prepared to suffer or die for them, he
said.
Laura Mills in Kiev, Ukraine, contributed to
this article.
Write to James Marson at james.marson@wsj.com
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Chapter
35
Train Gunman
Watched Jihadist
Video Before Attack,
French Prosecutor
Says
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PARISInvestigators in France have turned up

evidence that the gunman in last weeks attack
on a Paris-bound train watched a radical Islamist
video in the moments before his attack, and traveled this spring to the Turkish border with Syria,
near territory controlled by Islamic State, French
authorities said on Tuesday.
After four days of investigation in four countries, French authorities said evidence and other
links to radical Islam have led them to press preliminary charges against the gunman, identified
as 25-year-old Ayoub El-Khazzani, on multiple
counts of attempted murder as part of a terrorist
act and participation in a terrorist conspiracy.
Investigators are now examining whether Mr.
El-Khazzani, a Moroccan national, had accomplices or help from established terrorist groups.
Turkish authorities are assisting the investigation
to determine whether Mr. El-Khazzani entered
Islamic State territory during his trip near the
Syrian border in May, Francois Molins, the Paris
prosecutor, told reporters on Tuesday.
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French President Francois Hollande warned on

Tuesday that the country must prepare for further terrorism.
Mr. El-Khazzanis current lawyer couldnt be
identified. A lawyer who represented him shortly
after his arrest said Mr. El-Khazzani wanted to
rob the trains passengers, not commit a terrorist
attack.
The new evidence is part of authorities emerging portrait of the assailant as a delinquent who
lived for years in Spain, developed apparent associations with radical Islam, and later allegedly
plotted a targeted assault.
While living in southern Spain, Mr. ElKhazzani assiduously attended a mosque in
southern Spain known for radical proselytizing,
and in which Mr. El-Khazzanis brother was the
treasurer, Mr. Molins said.
Mr. El-Khazzani also used a mobile phone to
watch a YouTube video containing an exhortation to violence in the name of the prophet
when he was aboard the train, before bursting
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shirtless out of a bathroom carrying an arsenal

of weapons, Mr. Molins said.
The phone had been activated only hours before Mr. El-Khazzani boarded the train in Brussels, indicating it was intended for use within the
attack, Mr. Molins added.
French officials gave new information on Mr.
El-Khazzanis alleged trip to Turkey, which they
said indicates he tried to visit northern Syria, a
stronghold of Islamic State.
Mr. Molins confirmed that Mr. El-Khazzani
flew to Istanbul from Berlin in May 10, but added
that he returned to Europe on June 4 on a flight
from Antakya, a town near the border with Syria,
to Tirana, the capital of Albania. Mr. Molins
didnt discuss how Mr. El-Khazzani returned to
Belgium from Albania.
Mr. El-Khazzanis presence in Antakya is
likely to be a focus of the continuing investigation. Near Syrias northwestern border with
Turkey, Antakya has been a popular destination
for foreign jihadists to enter territory controlled
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by Islamic State.
Mr. Molins said Mr. El-Khazzani had been responding to investigators questions after he was
arrested, but has since invoked his right to silence.
During the interrogation, Mr. El-Khazzani
said he found the machine gun, a variant of
a Kalashnikov pieced together with parts from
other guns, in a suitcase in a Brussels park, where
Mr. El-Khazzani told investigators he was sleeping. Mr. El-Khazzani denied he went to Turkey
and said he bounced around Germany, Austria
and Belgium in recent months, Mr. Molins said.
Mr. El-Khazzani began contradicting himself
as the interrogation progressed, Mr. Molins said.
During his interrogation, his answers became
more and more evasive, he said.
Belgian authorities searched two houses in the
Brussels neighborhood of Molenbeek on Monday,
where Mr. El-Khazzani may have stayed before boarding the high-speed train in Brussels.
In particular, Investigators are looking for Mr.
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El-Khazzanis sister, a Belgian official said. Mr.

Molins said Mr. El-Khazzani spent time at her
house before getting on the train, paying 149
($173) in cash for a first-class ticket.
Write
to
Matthew
Dalton
at
Matthew.Dalton@wsj.com, Inti Landauro at
inti.landauro@wsj.com and Sam Schechner at
sam.schechner@wsj.com
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Chapter
36
14 People Arrested in
Spain and Morocco
Over Islamic State
Links
MADRIDSpain and Morocco arrested 14 people suspected of forming part of a network to recruit and send fighters to Islamic State in Syria
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and Iraq, Spains Interior Ministry said on Tuesday.

The operation, carried out Tuesday morning,
comes as Europe remains on high alert after passengers on a Paris-bound train tackled and disarmed a man who had guns and a box cutter on
Friday, halting what authorities say could have
been a deadly terrorist attack.
The attacker, Ayoub El-Khazzani, a 25-yearold Moroccan, had lived in Spain for seven years
until 2014, and Spanish authorities had identified
him as a potential security risk.
Spains Interior Ministry said that Spanish and
Moroccan police arrested the 14 people in San
Martin de la Vega, about 30 kilometers south of
Madrid, and several cities in Morocco, including
Fez and Casablanca.
The detainees formed part of a network to recruit and send foreign fighters to join the ranks of
the terrorist organization Daesh [Islamic State],
in the Syrian-Iraqi region under its control,
Spains Interior Ministry said.
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Spanish authorities have been cracking down

hard on suspected Islamic extremists since the
January attack on the offices of Charlie Hebdo
magazine in Paris, including working to stop citizens from fighting and training in the Middle
East.
Before Tuesdays arrests, 47 people had been
detained in terrorism-related investigations in
Spain this year, compared with 36 in all of 2014,
the Interior Ministry said.
However the failed attack in France last week
has highlighted the challenges European security
services face as they try to stop terrorist assaults.
Spanish authorities alerted European Union antiterror authorities in March 2014 that Mr. ElKhazzani represented a threat, a Spanish official
said. Belgian authorities believe he may have
been in Belgium in early 2015, but decided he
didnt represent enough of a threat to warrant
close monitoring.
Tactical intelligence sharing is not always effective for a variety of reasons, including personal
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data protection, said Emmanuel Karagiannis, a

specialist on security and terrorism at Kings College London.
Mr. Karagiannis noted that terrorists take advantage of a treaty allowing the free flow of people
and goods between most EU member states.
European governments must carefully choose
strategies and policies for dealing with jihadists,
if they are to avoid a threat to European security, he said.
Write to Jeannette Neumann at jeannette.neumann@wsj.com and Matt Moffett at
matthew.moffett@wsj.com
Corrections & Amplifications
Ayoub El-Khazzani, the suspect in an attack
against a high-speed train last week, is 25 years
old, and will turn 26 on Sept. 3. An earlier version of this story incorrectly described the suspect as already being 26 years old.
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Chapter
37
Germany Eases Rules

for Syrian Refugees
The German government said Tuesday it would
allow Syrian refugees to stay in the country regardless of where they first entered the European
Union, the latest indication of how difficult it has
become to enforce the blocs asylum rules.
Under EU rules, refugees have to request asylum in the country where they first enter the
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union, putting states with large external borders,

such as Italy, Greece or Hungary, on the front
line. Refugees who make their way to other EU
states, often hoping for better treatment and facilities there, are to be sent back to the place in
which they were first registered.
A spokesman for Germanys Interior Ministry
said that while the first reason for having Syrians
exempted from this rule is humanitarian, the second is bureaucratic: It takes too much paperwork
to send back migrants to the first EU country
where they set foot.
This all is binding an incredible amount of resources in our administration that we currently
want to use in a more sensible way in a different areanamely to look into and decide on asylum claims, said Interior Ministry spokesman Johannes Dimroth.
Overall, Germany has registered 44,417 asylum applications from Syrians in the first seven
months of this year and sent just 131 Syrians back
to their first port of arrival.
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Returning asylum seekers to the country where

they first entered the EU is particularly cumbersome for Germany, where asylum seekers have
the right to challenge that decision. In 2013 and
2014, only about 15% of return decisions were enforced, with Italy, France and Spain taking back
about a tenth of the people Germany wanted to
send back.
The EU executive, meanwhile, welcomed the
German move as an act of European solidarity
and said it is working on overhauling asylum rules
to make these exemptions more structural. But
previous efforts by the commission to redistribute
refugees more evenly across the bloc have failed,
particularly because Central and Eastern European countries, as well as Spain and Portugal,
resist any binding quotas for refugees from other
EU states.
Hungary, which has seen a growing number of
arrivals from non-EU members Macedonia and
Serbia, also welcomed the German decision.
This is an internal matter for Germany, but
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definitely means a lighter weight on our shoulders, said Hungarian government spokesman
Zoltan Kovacs.
Like countries in southern Europe, Hungary
isnt keen to take back asylum seekers who have
moved elsewhere. In the first half of this year,
Hungary took back 718 asylum seekers, compared
with 19,284 migrants EU governments wanted to
send back.
So far this year Hungary has registered 130,379
asylum requests, more than three times as many
as all of last year. Of that, 38,827 applications
were filed by Syrians, who, if they continue their
journey to Germany, would no longer be sent
back.
In Italy, Giovanni Pinto, head of immigration
and border control at Italys Interior Ministry,
said the German decision, while welcome, wasnt
enough. Italy and Greece still must shoulder the
costs of rescue, first aid, identification and then
the transit of thousands of migrants and refugees
who reach the two countries on a daily basis, he
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said.
Sharing the burden of the migrants longerterm care will certainly help, but I imagine that
German authorities will still ask us to stop the
flow toward Germany, Mr. Pinto said.
In recent months, tensions have increased
among neighboring countries throughout the EU,
with France sending additional personnel to turn
back migrants as soon as they crossed the border
from Italy. Mr. Pinto said Italian border authorities are still struggling to process all the repatriation requests they receive from their French
counterparts.
Giovanni Legorano in Milan and Margit Feher in Budapest contributed to this article
Write to Valentina Pop at valentina.pop@wsj.com
and Andrea Thomas at andrea.thomas@wsj.com
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Chapter
38
Group Proposes Talks

to Find Ways of
Averting Russia-NATO
Military Mishaps
BRUSSELSA task force made up of former
Russian and western officials proposed Wednesday new talks aimed at a new set of agreements
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between the North Atlantic Treaty Organization

and Moscow to prevent an incident between military forces.
A group of former officials, including the former foreign ministers of Poland and Russia, rolled
out a paper Wednesday morning proposing a new
round of dialogue between NATO and Moscow
aimed at establishing rules for navy ships and
air-force fleets.
Alliance members have doubted that Russia
would agree to substantive talks and NATO officials dismissed the latest recommendation.
Air intercepts between alliance and Russian
aircraft are increasing and the U.S. and Russia
have stepped up naval exercises. An agreement
on encounters at sea and in the air, according to
the task force report, are necessary to prevent a
mishap from spiraling out of control.
The situation is ripe with potential for either dangerous miscalculation or an accident that
could trigger a further worsening of the crisis or
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sia and the West, according to a report by the

task force.
Among the members of the task force are Des
Browne, a former British defense secretary, Igor
Ivanov, a former Russian foreign minister, and
Adam Daniel Rotfeld, a former Polish foreign
minister.
The work of the former officials and think
tank members was sponsored by several think
tanks, including the European Leadership Network. Earlier this month the ELN published
a paper critical of NATO military exercises,
saying they were increasingnot decreasingthe
chances of a miscalculation or conflict in Europe.
NATO officials reacted furiously to the previous ELN report and took a dim view of the call
by the task force to begin a new dialogue with
Russia.
Oana Lungescu,
the alliances chief
spokeswoman, said NATO has been operating
transparently and following existing agreements
in both letter and in spirit. But she said mil272
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itary dialogue with Moscow was a two-way

street and accused Russia of a pattern of disregarding international law in Ukraine, Georgia
and elsewhere.
Russia has many tools already available to
avoid unintentional conflict, to reduce tensions
and to increase transparency, ranging from armscontrol agreements to voluntary measures, she
said. It should first and foremost focus on implementing its existing commitments and using
the tools it already has.
Officials with the Russian delegation to NATO
didnt immediately comment on the task force
recommendation or the alliance response.
During the Cold War, the U.S. and Soviet
Union struck an agreement in 1972 aimed at
averting incidents at sea. Last year, the U.S. and
China made an agreement aimed at reducing the
likelihood of a conflict or misunderstanding between naval vessels.
The task force said because of the increased
scale of military activities in Europe now, a
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broader agreement is needed covering all of

NATO as well as alliance partners such as Finland and Sweden.
Write to Julian E. Barnes at julian.barnes@wsj.com
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Chapter
39
Turkey to Join
Coalitions Airstrikes
Against ISIS
WASHINGTONTurkey and the U.S. have completed an agreement allowing Turkey to begin
striking at Islamic State targets in Iraq and Syria,
the Pentagon said Tuesday, but officials said they
dont expect the airstrikes to begin immediately.
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The agreement completes details of what is

known as an air tasking order that will integrate Turkey into the U.S.-led airstrike campaign
against Islamic State, also known as ISIL or ISIS.
It could take a few days to put these technical
arrangements into place at the operational level,
said Pentagon press secretary Peter Cook. We
believe that Turkey is committed to fully participating as soon as possible.
Turkish Foreign Minister Mevl
ut Cavu
soglu
confirmed the agreement Tuesday.
The U.S. has been eager for Turkey to start
taking part in airstrikes against Islamic State
militants. Turkey launched a short series of
airstrikes against Islamic State targets last month
after it agreed to play a larger role in the fight,
including allowing U.S. to use bases in Turkey
to launch such strikes. But U.S. officials asked
Turkey to halt the strikes until their planes could
be brought under the umbrella of the U.S.-led
coalition.
While the two countries worked out those
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details, Turkey launched a massive air campaign against Kurdish militants in northern Iraq
and southeastern Turkey. That fueled suspicion
among some senior U.S. military officials that
Turkey was more interested in targeting the Kurdish fighters instead of attacking Islamic State
militants. Turkish officials said earlier this month
that they were more concerned about the Kurdish
fighters, who have carried out weeks of deadly
attacks on Turkeys security forces, than about
Islamic State forces across the border in Syria.
We dont want to take a unilateral action unless there is an imminent direct threat against
Turkey outside our borders, an unnamed government official said in Istanbul earlier this month.
Now that we have managed to push [Islamic
State] away from our borders, there is no imminent threat.
The final arrangement helps to track and coordinate air operations among the coalition fighting Islamic State as Turkey joins the U.S., Saudi
Arabia, France, Britain and others in the air cam277
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paign.
Last week, Defense Secretary Ash Carter said
he wanted Turkey to play a role beyond the agreement to conduct air operations alongside the U.S.
We need them alsoas a neighbor to this conflict zone, as a longtime NATO ally and a responsible member of the anti-ISIL coalitionto control the border, the long border they have with
both Syria and Iraq, more than it has been controlled over the last year, Mr. Carter said at the
Pentagon Aug. 20.
Mr. Cook said Tuesday the Pentagon welcomed the Turks deeper involvement in the fight
against Islamic State but there is still work to be
done.
Our cooperation with the Turks, and the expansion of that cooperation, remains a work in
progress at this point, and so we see this as a
step forward, but we also see that theres opportunity for Turkey and the U.S. and the rest of
the coalition to further refine exactly what that
cooperation looks like going forward, Mr. Cook
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said.
An official with the Turkish Embassy in Washington said he didnt know when Turkey might
begin air operations against Islamic State but
that Turkey is committed to the fight against the
militant group.
We have committed since the beginning to
fight, the official said.
As for Mr. Carters hope that Turkey would do
more, especially in securing its roughly 700-mile
border with Syria, the official reiterated Ankaras
position that Turkey wants more regional cooperation to keep foreign fighters out of Syria.
It is a huge border so it is impossible to seal
completely, he said. This is a broad problem, it
is not just a Turkey problem.
Ayla Albayrak in Istanbul contributed to this
article.
Write
to
Gordon
Lubold
at
Gordon.Lubold@wsj.com
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Chapter
40
Migrants Mass at
Serbia-Macedonia
Border
Thousands of migrants gathered at the border
between Macedonia and Serbia on Sunday, after
Macedonian officials allowed them the day before
to cross into their territory following days of high
tension and clashes.
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The move is likely to add to the pressure

on Serbia and Hungary, two main transit countries for Middle Eastern and African migrants attempting to reach Northern Europe.
During the night, about 40 private buses ferried the migrants from the train station in
Gevgelija, near the countrys southern border, to
Tabanovce, at Macedonias frontier with Serbia.
In normal driving conditions it takes around two
hours to cover the distance.
Authorities had also set up at least two trains
to cross the country. In recent days, at the
Gevgelija station, taxi drivers were available to
take people north for about 100 ($114), according to migrants interviewed there.
In letting the migrants enter relatively freely,
Macedonia reversed an earlier decision to effectively seal the border with Greece, leaving thousands stuck on the Greek side in difficult conditions.
Tensions rose so high that police used stun
grenades, batons and tear gas to control the
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crowds late last week. Authorities then tried Saturday to regulate the flow, but were quickly overwhelmed and decided to open the border, allowing as many as 2,000 people to cross.
On Saturday the migrants [at the southern
border] managed to put so much pressure that
they got in, said Ivo Kotevski, spokesman for
the Macedonian Interior Ministry. But we arent
letting everybody in, and we wont.
Indeed, Macedonian authorities again tried to
regulate the flows on Sunday, allowing only about
50 people at a time to cross. More than 1,000
migrants have crossed the border so far, according to the United Nations High Commissioner for
Refugees.
The flow of migrants toward Macedonias
southern border is likely to continue, the Macedonian government and aid groups said. The number of migrants, mainly fleeing war and persecution in Syria and Iraq and entering Greece from
Turkey, has shot up in recent months, making the
country the main entry point into the European
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Union.
Nearly 142,000 seaborne migrants have arrived
in Greece since June 1, according to the International Organization for Migration.
According to the U.N., some 124,000 refugees
and migrants arrived in Greece by sea between
January and July this year, a 750% increase from
the same period last year. The vast majority
aims to cross the so-called Balkan corridoran
area stretching from Greece to Hungaryto reach
Northern Europe.
We are trying to let the people in according
to our capacity, said Mr. Kotevski, the government spokesman. But I am very worried because the migrants pressure from the Greek border will continue to be high. Aid groups expect
thousands of seaborne migrants to arrive at the
southern Macedonian border in the coming days.
At the northern border with Macedonia, Serbian authorities are letting in migrants, who
are being transported to a reception center a
few miles from the frontier by the U.N., a
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spokeswoman said. She couldnt confirm the

number of migrants allowed in so far.
Once inside Serbian territory, private buses
are available to take them to Belgrade, Serbias
capital. From there, they typically proceed to
the border with Hungary. A spokesman for
the Serbian government couldnt immediately be
reached for comment.
On Friday, the Macedonian and Serbian governments issued statements saying that they were
working together closely to manage the flow of
migrants between their countries.
Hungary has been among the most aggressive
countries in Europe in opposing the migrants arrivals. Last week, its government said it would
deploy border hunters at its frontier with Serbia
to stem illegal crossings. Hungary is also building
a fence along the same border to stop migrants.
In Csongrad, a county along the HungarianSerbian border, police intercepted nearly 1,300
migrants on Saturday, including 274 minors. So
far this year, there have been more than 120,000
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irregular entries into Hungarian territory, according to government figures.

Earlier on Sunday, Hungarian ministers confirmed that the government planned to close the
full length of the border by the end of this month
with three rows of razor-wire fence.
Zoltan Nogradi, mayor of Morahalom, a Hungarian town near the Serbian border, said that
the village had started to feel that the fence is
diverting migrants away from the village. But,
he added, it had also detected greater aggression on the part of people trying to enter the
country.
Other European countries, such as France,
Austria and the U.K., have also stepped up controls at their borders to prevent the entry of
migrants, while thousands of people continue to
cross the Mediterranean trying to reach Italys
southern coast from North Africa.
On Saturday, Italys coast guard said its ships,
together with Navy and other European vessels,
had rescued 4,400 migrants in 22 different op285
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erations off the Libyan coast, after receiving distress calls from wooden ships and rubber dinghies
crammed with people.
Margit Feher contributed to this article.
Write to Giovanni Legorano at giovanni.legorano@wsj.com
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Chapter
41
Galaxy S6 Edge+ and

Note 5 Review: A
Choice Between Style
and Stylus
Do you want a stylus with your phablet?
Thats the main question when deciding between Samsung SSNHZ 0.00 % s two new
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big-screen phones, the curved-screen Galaxy S6

Edge+ and the thicker, flat-screen Galaxy Note
5.
The names and display designs are different,
and thats where the differences largely end.
Both have stunning 5.7-inch, 1440 x 2560 pixel
displays and both have the same camera, processors, generous four gigabytes of RAM and other
internal hardwareall best in class. Ive used
both phones for about a week and the experience
is much the same.
Whether you choose the S6 Edge+ or Note 5,
you will get the best all-round Android phablets
available right now.
Its an outstanding time to be an Android fan,
with plenty of competitive options. Compared
with Samsungs new phablets, LGs G4 has a better camera, Motorolas Nexus 6 has better software, and the OnePlus 2 is a better bargain at
about half the price. But none of those big-screen
rivals combine high-end materials and cuttingedge features the way the S6 Edge+ and Note 5
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do.
The other phones have significant trade-offs.
The G4s body feels overly plastic, the Nexus
6s camera is disappointing and the OnePlus 2
is missing a Near Field Communications chip required for Google GOOG 8.00 % s coming Android Pay service. Samsung beats its Android
rivals on all those fronts.
But the cutting-edge crown doesnt come
cheap. The S6 Edge+ starts at $800 without a
contract, or $350 with a two-year carrier contract.
The Note 5 is a little more manageable, starting
at $700 off contract, or $250 on contract. While
these prices might be hard to stomach, they are
competitive with Apples iPhone 6 Plus phablet,
the only pound-for-pound and dollar-for-dollar rival to Samsungs new duo.
Choosing between the two Samsung phablets, I
preferred the S6 Edge+, largely because I wasnt
enamored with the Note 5s stylus.
The stylus, called the S Pen, has a few novel
features but nothing I felt driven to use more
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than once. The stylus can scribble and save notes

even when Note 5 is asleep. When awake, sliding
out the S Pen launches a burst of five circular
app icons from the right side of the screen that
serve as shortcuts to stylus-friendly apps. None
of these features proved particularly useful in my
daily life.
The S6 Edge+ has no stylus to lose, but it has
style you wont find in any other phablet.
The curved display is downright cool, with an
exclusive software feature: a small, gray tab floating on either the left or right of the screen, which
slides out five of your favorite apps and contacts. Its a nice perk, though Samsung realistically could build this shortcut into its other
phones. The screen doesnt need to be curved to
pull that off. Its hard not to imagine that down
the road Samsung will make just one phablet with
a curved screen and a stylus.
Both phones have a metal frame and Gorilla
Glass on the front and back, which look fantastic if you dont mind all the fingerprints. I
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never felt like I was going to drop either phone.

They also look a bit like an iPhoneand borrow
a design choice that might not go over well with
some die-hard Samsung fans. The phones back
plates cant be removed, which means no removable batteries or microSD card slots. I didnt miss
the removable batteries, since I went to bed with
around 20% battery life remaining regardless of
which phone I used that day.
Each has top-end features like wireless charging and fast charging. The duos 16-megapixel
camera takes gorgeous photos indoor and out,
day and night, and in any light situations. Photos are clear and crisp, but some colors appear
overly saturated compared with what youll find
from the iPhone and G4s more accurate cameras.
The 5-megapixel front camera has a wide-angle
lens thats great for group selfies.
The cameras are the same as those found in
Samsungs smaller phones, the Galaxy S6 and
S6 Edge, which were released in March. Back
then, my colleague Joanna Stern applauded the
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phones impressive cameras. She also argued that

the S6 and S6 Edge overall were the first Samsung phones to truly rival Apples iPhone. But
there was one major downside: Samsungs software. The user experience is where the Galaxy
S6 still struggles against the iPhone and even Android phones, like the Moto X and Nexus 6, she
said.
That hasnt changed with the new phablets.
While Samsungs version of the Android operating system is more refined than in years past,
it falls short of Googles stock Android 5.0 Lollipop and Apples iOS. They are easier to use,
prettier to look at and have fewer unwanted apps
littering the home screens.
All four top Galaxy phones this year carry dueling apps from Samsung and Google for photos,
video, music, clocks, calendars, text messages,
email and Web browsing. Its painful. Samsung
also shovels its lesser-quality Galaxy app store
and S Voice assistant alongside the much more
superior Google Play store and Google Now.
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These continuing software sins could be forgiven when Samsung launches in the U.S. its new
mobile-payments service, Samsung Pay, this fall.
Samsung Pay has an advantage over the rival services from Apple and Google: It will work almost
anywhere, Samsung says. Thats because the S6
Edge+ and Note 5 use small magnetic pulses
to send payment information to any swipeable
credit-card reader. No new payments hardware
is needed from the retailers.
Apple Pay and Android Pay work at hundreds
of thousands of NFC-compatible checkout stands
that use wireless-chip payment technology. Samsung says its payments system will work at millions of checkouts.
That said, I wasnt able to test Samsung Pay
because the service isnt yet in beta testing. But
in an era when smartphones increasingly look and
work the same, Samsungs payments potential
gives it an edge.
Write
to
Nathan
Olivarez-Giles
at
Nathan.Olivarez-Giles@wsj.com or on Twitter
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at @nateog.
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Chapter
42
Hong Kong Property

Developer Invests in
Co-Working Space
Company NeueHouse
Hong Kong property company Great Eagle Holdings Ltd. 0041 -2.51 % is betting on the sharedoffice trend that is taking off in the U.S.
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Great Eagle recently invested $25 million in

NeueHouse, a New York-based provider of upscale co-working space, according to people familiar with the matter. Its plan: to open a number
of co-working spaces adjacent to Great Eagles
new lifestyle hotel brand, which is still unnamed
but is expected to be introduced later this year.
A Great Eagle spokesperson declined to comment.
Over the past few years, New York-based WeWork Cos. has reignited the shared-office model,
which first took off during the technology boom
of the late 1990s. The privately held company,
whose value has doubled this year to $10 billion
based on a recent investment round, leases office space, refurbishes it and adds quirky elements
such as table tennis and free beer and coffee. It
then rents out the space at a big markup.
WeWork and other companies have had success
thus far attracting small businesses looking for
hip office space and a chance to collaborate with
like-minded entrepreneurs.
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The shared-office crowd could be a good match

for lifestyle hotels, a segment that typically appeals to younger people through attention to design and public spaces that serve as social hubs.
NeueHouses co-working space attracts a similarly hip and creative clientele, and Great Eagle
is hoping synergy between the two brands will
increase exposure for both.
Great Eagle is entering the crowded lifestyle
segment after many small firms and major hotel
companies, including Marriott International Inc.
and Hilton Worldwide Holdings Inc., launched
new brands in recent months.
Its a pretty interesting opportunity, said
Sean Hennessey, chief executive officer of Lodging Advisors, a hotel consulting firm. It could
help differentiate the new hotel brand, especially
if they are planning to compete in international
markets where boutique is already well established.
The partnership shows how different types of
real estate aimed at the millennial generation are
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beginning to converge, as office space starts to

resemble a lifestyle hotel and hotels see value in
partnering with office space.
Hotel investor Hospitality Ventures Management Group co-owns and operates a co-working
space in downtown Chicago with Serendipity
Labs. HVMG is looking to put these work spaces
in future hotel projects.
Its a great offering for our guests and it can
bring a fresh dynamic to a lobby space, said
Mary Beth Cutshall, HVMGs senior vice president of acquisitions and business development.
NeueHouse started in 2013 with its first location in Manhattan. Properties in Los Angeles
and London are poised to open in the coming
months, a spokeswoman said. The company expects to add locations in Shanghai, Washington,
D.C., and a second New York property by the end
of next year, say people familiar with its plans.
The company is a fraction of the size of WeWork, which has 44 locations in the U.S. and
abroad, and six more on the way. WeWork leases
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about 3.5 million square feet of office space in all.

NeueHouse aims for more international and affluent customers than WeWork, which is reflected
in the membership price. Monthly dues start at
$300 a month for evening and weekend access and
rise to nearly $2,000 for a private desk in a studio
office. Thats several times the amounts charged
by WeWork, where monthly fees start at $45.
The New York property, filled with stacks of
art books and glossy magazines, mixes chic with
an industrial feel and concrete floors. The location has several hundred members and thousands
of applicants, according to a person familiar with
the company.
A NeueHouse spokeswoman declined to discuss
the admission process, though she said members
work in a mix of creative industries like film, fashion and design, and that about one-third of them
are from overseas.
The New York location has attracted a number
of high-profile guest speakers, including German
film director Werner Herzog, Michelin-starred
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chef Daniel Boulud and rapper Fab 5 Freddy.

Miami-based private equity and venture firm
Aeterna Capital led NeueHouses previous round
of funding.
Great Eagle also owns Langham Hospitality
Group, a luxury hotel chain. The new Great
Eagle boutique brand is under the supervision
of Katherine Lo, the Yale-educated daughter of
Great Eagle chairman Lo Ka Shui and granddaughter of the companys founder.
Write to Craig Karmin at craig.karmin@wsj.com
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Chapter
43
South Bronx Sours on

Mayor Bill de Blasio
New York City Mayor Bill de Blasio was swept
into office by communities like the South Bronx,
where his promise to fight income inequality resonated with those who live in one of the citys
poorest and most crime-afflicted areas.
But when Mr. de Blasio returned earlier this
month to praise health workers for their response
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to a deadly outbreak of Legionnaires disease, interviews with residents, local officials and community activists showed residents had mixed feelings on the mayor and believed the borough was
headed in the wrong direction, even as some indicators suggested otherwise.
I had high hopes when I voted for him, but Im
sorry I did that now, said Ronald Gaskins, a 74
year-old retired veteran who lives near Lincoln
Medical Center. He just hasnt cared about the
poor people and areas like this like he said he was
going to.
According to a Quinnipiac poll released Aug.
5, the mayors approval rating in the Bronx
dropped to 46% from 60% a year earlier.
While Mr. de Blasios approval numbers are
slumping in other parts of the city, waning support among minority communities carries a special sting because they formed an important part
of the base that propelled him to victory in the
2013 mayoral election. The same Quinnipiac
poll found that Bronx residents disagreed with
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how the Democratic mayor was handling public

schools and povertykey elements in Mr. de Blasios 2013 platformand thought quality of life
was declining.
Borough President Ruben Diaz, also a Democrat, said the mayor had rated mixed reviews
in the Bronx, with many criticizing him for traveling too much to promote his national agenda
when theres so much to do at home.
In many ways, life has improved in the Bronx
since Mr. de Blasio took office. Unemployment has dropped, and crime overall has fallen
in much of the borough. Advocates say the administration has increased housing subsidies for
homeless residents while also providing universal
prekindergarten.
A spokesman for the mayor said the city had
financed the start of more than 3,000 new affordable apartments in the Bronx. The administration also has supported new health programs to
reduce teen pregnancies and provided coupons for
people to buy fresh produce.
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Neglected for decades, the South Bronx is now

getting its fair share under the mayors care, said
Karen Hinton, a spokeswoman for the mayor. To
say otherwise is just not a reflection of the here
and now in the South Bronx.
Yet many residents simply dont see progress
and are softening their support of the mayor, said
Councilman Ritchie Torres, who praised Mr. de
Blasio for efforts in the borough.
Theres certainly a perception of declining
quality of life, Mr. Torres said. The political
messaging and public relations of this administration has been at times inept, even as the substance has been largely strong.
Even if the South Bronx is less blighted than it
was a few decades ago, when its abandoned buildings came to symbolize American urban decline,
it continues to struggle.
On a recent day, hundreds of people piled into
the emergency department and waiting rooms
at Lincoln Medical Center, many uninsured and
seeking basic care. Many streets in the bor304
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ough are lined with bodegas and fast-food optionsbut few healthy choices, said Eileen Torres, whose BronxWorks nonprofit works with residents across the borough.
Someone who lives in the Mott Haven neighborhood of the South Bronx is expected to live 76
years, compared with 85 years on the Upper East
Side, according to statistics compiled by Virginia
Commonwealth University and the Robert Wood
Johnson Health Foundation.
Violent crimes have risen in the New York Police Department s 40th Precinct, which encompasses much of the area, by 129% since last year,
from to 71 incidents from 31. It remains far lower
than two decades ago, however.
Jeannine Comeau, who lives near Yankee Stadium, said more homeless people were on the
street and her neighbors were increasingly worried about crime in their neighborhood. She
voted for the mayor, but doesnt plan to do so
again.
Hes done a horrible job for the Bronx, she
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said.
The city has also promised to make repairs
more quickly at New York City Housing Authority complexes and infuse the agency with more
funding.
Maria Forbes, president of a public-housing
association in the Bronx, said conditions and
crime were worse in her development and the city
hadnt paid attention to the borough. Residents
were lodging more complaints, said Ms. Forbes,
who added she wouldnt vote for the mayor again.
Ruben Babilonia, an unemployed resident, said
he had been helped by changes the administration made and thought Mr. de Blasio was doing
a good job. Mr. Babilonia received a housing
voucher that helped move him from a homeless
shelter into an apartment.
He also isnt stopped anymore and searched
by police officers, as he said he was twice when
Michael Bloomberg was mayor. The use of that
crime-fighting tactic has been sharply reduced
citywide, which Mr. de Blasio promised to do.
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Still, Mr. Babilonia had concerns about the

mayor.
He needs to come and refresh himself with the
people who got him elected, he said. After they
get into office, you dont see politicians in the
South Bronx.
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Chapter
44
New York City Office

Construction Heats Up
Construction of new office space in New York

City is on track to hit a 25-year high this year
and almost double that built in 2014, reflecting
increasing employment and low interest rates, according to a new report by the New York Building
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Congress.
Big development sites at Hudson Yards on the
West Side and the World Trade Center in lower
Manhattan are helping to boost the pace of office construction, which is expected to reach 4.3
million square feet in 2015, the report said. That
is a 79% increase from the 2.4 million square feet
built in 2014 and the highest level since 1990.
Office construction had been a laggard during
the economic recovery, but that is changing as
employment in office-using industries picks up,
said Richard T. Anderson, president of the Building Congress, which promotes the construction
industry. In 2015 and 2016, the report projects,
9.7 million square feet of new office space will
be constructed in 19 buildings across Manhattan. The reports analysis includes office space
in buildings still under construction.
Over the last 50 to 60 years, office construction has had some real peaks and valleys, Mr.
Anderson said. We are coming out of a valley,
and there is plenty of room for growth.
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The Building Congress expects the pace of office construction to pick up in the next two years,
reaching 5.4 million square feet in 2016 and 4.9
million in 2017. The group expects 4 million
square feet to be constructed in 2018. The development community is bullish, Mr. Anderson
said.
The wave of new construction has also
prompted office landlords to boost investment in
renovations, the report said. Alteration and renovation projects valued at $1.7 billion were started
in the first half of this year, up from $1.2 billion
a year earlier, the report said. Such projects totaled $2.7 billion for all of 2014, up from $2.2
billion in 2013 and $1.3 billion in 2012.
Business confidence and employment growth
are among the main drivers of office construction, real-estate economists and researchers said.
From the citys low point in August of 2009, the
city has gained 184,000 office jobs, according to
Cushman & Wakefield Inc., a major broker of office space.
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Companies are now looking for ways to use

space more efficiently and as a way of attracting
employees, said Ken McCarthy, Cushmans senior managing director of economic analysis and
forecasting.
The new office buildings are built to handle
more people, and thats attractive to a lot of tenants, Mr. McCarthy said. So where there is
new construction, we are seeing tenants commit
to them.
While the reports findings reflect the citys
healthy economy and employment picture, some
analysts are cautious about the long-term impact
of all the new space on the office market.
Although the employment level for office-using
industries in Manhattan is about the same as in
2000, these sectors occupy 9.8% less space, said
Heidi Learner, chief economist for real-estateservices firm Savills Studley. The type of firms
we are seeing grow in Manhattan are a lot of tech
firms with open floor plans, and dont necessarily
allocate 400 square feet of offices to senior-level
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employees.
The stock markets volatility this week is something to watch but not to overemphasize, Mr.
McCarthy said.
The one concern is, how does it impact financial services, which is a big employer here and has
been coming back, Mr. McCarthy said, which
is why I think we need to keep an eye on it but
not put too much weight on it.
A possible office glut as a result of the anticipated new construction isnt a major concern,
said Richard Persichetti, vice president of research and marketing at real-estate-services firm
DTZ. The 9.7 million square feet of office space
expected to be built in 2015 and 2016 is only a
fraction of Manhattans total office inventory of
roughly 400 million square feet, he said.
The new construction is necessary to serve tenants needs, especially with Manhattans aging
office buildings. More than two-thirds of them
were built before 1970, Mr. Persichetti said, making some of them prime candidates for conversion
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into residential buildings.

Basically, the older, less-desirable office products now become more desirable for an investor
and developers, said Mr. Persichetti, especially
with the hot residential market we have.
Write to Keiko Morris at Keiko.Morris@wsj.com
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Chapter
45
Dewey & LeBoeuf

Inflated Key Financial
Metrics, Witness Says
http://www.wsj.com/articles/dewey-leboeuf314
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Me
inflated-key-financial-metrics-witness-says1440620294
Dewey & LeBoeuf LLP inflated key financial
metrics by as much as 1,000% in the years leading
up to the law firms 2012 collapse, jurors were
told Wednesday, as prosecutors presented their
final round of evidence in a case against three
former Dewey leaders.
A forensic accountant talked jurors through
years of data compiled by prosecutors from the
Manhattan district attorneys office, ultimately
showing that between 2008 and 2012, the firms
net income was allegedly adjusted upward by as
much as 10% each year and its net assets in those
years boosted by as much as 1,040%.
Prosecutors claim Deweys former chief financial officer, Joel Sanders, ex-chairman, Steven
Davis, and former executive director, Stephen
DiCarmine, committed financial fraud in an attempt to lure banks and investors into continuing
to lend money to the law firm. Boosting certain
financial figures, prosecutors say, helped the firm
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stay in compliance with the terms of its $250 million in debt.

The former leaders deny any wrongdoing and
attorneys for the defendants have said they plan
to ask the judge to throw out the case once the
prosecution rests by the end of the week.
Wednesdays testimony by Jonathan Vanderveen, a managing director at professional services firm Alvarez & Marsal, presented the full
extent of the allegations against the defendants,
which have trickled out over the past three
months of testimony from approximately 40 witnesses. Mr. Vanderveen said he and his team
spent hundreds of hours analyzing Deweys books
to come up with his analysis.
The improper adjustments prosecutors
say took place include reallocating a leasetermination payment as an asset on the firms
books, reclassifying payments to salaried lawyers
as partner distributions and using an incorrect
exchange rate for revenue received in foreign
currency. For the most part, prosecutors allege,
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the adjustments boosted the firms net income,

a key figure in meeting a cash-flow covenant on
its bank debt.
The defense lawyers have argued that adjustments made to the firms books werent necessarily improper. An attorney for Mr. Sanders, Andrew Frisch, attempted to persuade the jurors of
that point Wednesday during cross-examination
of Mr. Vanderveen.
Mr. Vanderveen agreed that the data he compiled didnt show whether the adjustments were
right or wrong.
On Tuesday, one of Deweys former bankers at
Citi Private Bank told the jury about how the
bank began to lose faith in the firm in 2011, the
year before it filed for bankruptcy in the largest
law-firm failure in U.S. history. The banker, Ellen
Hope, said Citi ended up selling its $24 million
in debt for 50 cents on the dollar in May 2012,
on the eve of Deweys bankruptcy.
In an email shown in court Tuesday, in March
2012, Mr. DiCarmine told one of the firms
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lawyers at another law firm: No way were going

to hold it together.
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www.djreprints.com.
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Chapter
46
Port of New York and

New Jersey Saw
Record Container
Traffic in July
The Port of New York and New Jersey handled
a record number of shipping containers in July,
though the pace of growth eased from the torrid
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rates seen in recent months.

The port complex saw total traffic rise last
month to 588,918 twenty-foot equivalent units,
the standard measure for containers, a gain of
14.1% from a year earlier and 4.7% higher than
June, when volumes also set an all-time high.
Julys pace of annual growth was slightly faster
than the 13.5% growth rate the port saw through
the first seven months of 2015.
East Coast ports have seen a surge in container
volumes in 2015 as shipping lines diverted vessels away from West Coast ports that saw disruptions tied to labor strife earlier this year. However, ports along the East Coast saw the rate of
growth tail off in July. Traffic is also rebounding
on the West Coast, with ports from Long Beach
to Seattle reporting strong increases in container
volumes last month. Together, the numbers indicate that shipping routes are slowly returning
to normal, analysts say.
New York and New Jersey also saw a smaller
increase in imports of loaded containers, a mea321
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sure of the amount of goods entering the country through the port. Loaded-container imports
grew 11.% in July, the slowest pace since April.
Still, the strong port volumes on both coasts
are a sign that U.S. imports as a whole remain
strong, defying signs of a slowdown in global
trade and unease about the economic health of
major trade partners, said Jonathan Starks, an
analyst with FTR Transportation Intelligence.
FTR predicts that U.S. imports will grow 5.5%
in 2015, compared with 3.4% in 2014. Mr. Starks
predicts that any potential results of a recent currency devaluation and stock-market turbulence in
China will not show up in U.S. port trade numbers until September results are released in the
fourth quarter.
Youve got a strong dollar, which will help the
import side, and the Chinese government trying
to improve their import numbers and devaluing
the yuan specifically to do that, Mr. Starks said.
We think that on the whole, import numbers are
going to be pretty robust this year.
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Write
to
Robbie
bie.whelan@wsj.com
323
Whelan
1282
at
rob-
Chapter
47
Congressional
Democrats Face
Political Pressure on
Iran Nuclear Deal
For the many congressional Democrats in the region who havent taken a stance on President
Barack Obamas nuclear deal with Iran, polit324
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ical pressure has intensified as the White House

courts their support and the pacts opponents escalate their lobbying efforts.
In New York, Sen. Charles Schumer opposes
the deal, while Sen. Kirsten Gillibrand endorsed
it. Sen. Robert Menendez of New Jersey has
denounced the pact, while Sen. Chris Murphy of
Connecticut favors it.
But many Democrats in the metropolitan area,
which is home to the largest Jewish population
outside Israel, remain undecided as they weigh
whether to support the Democratic president and
risk the ire of a vocal constituency. These lawmakers include Cory Booker, New Jerseys junior
senator; Richard Blumenthal, Connecticuts senior senator; and Hakeem Jeffries, a House member from New York.
On Tuesday, Jewish leaders stood alongside
New Jersey Gov. Chris Christie, a GOP presidential hopeful, to call on Mr. Booker to vote
against the deal. Some Jewish groups are focusing their lobbying efforts on Mr. Booker, who has
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long-standing ties with the Jewish community.

For those who have not yet announced their
position, particularly to my friend Sen. Booker,
this cannot be about politics and this cannot be
about accepting the flawed idea that a bad deal
is better than no deal, said Mr. Christie at a
news conference at the Chabad House at Rutgers
University in New Brunswick, N.J.
Silvia Alvarez, a spokeswoman for the senator,
said: Sen. Booker will make his decision on the
Iran deal based upon what he believes is best for
Americas national security regardless of political
pressure, lobbying, or theatrics.
Mr. Booker is close to the Obama administration and is a campaign surrogate for presidential candidate Hillary Clinton, a fellow Democrat
who has endorsed the deal. Mr. Bookers ties
to the Jewish community date back to his days
as a Rhodes Scholar in England, where he befriended Rabbi Shmuley Boteach, an outspoken
Jewish leader and a sponsor of Tuesdays event.
The nuclear deal, which was announced in July,
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is intended to prevent Iran from producing nuclear weapons in exchange for relief on economic
sanctions. Opponents say the deal will make the
Middle East less safe.
Congress has until Sept. 17 to pass a joint resolution to prevent the pact from moving forward.
If it passes, Mr. Obama is expected to veto that
resolution.
A vote opposing the deal would be embarrassing for Mr. Obama, but it appears unlikely, at
this point, that opponents would be able to corral
a two-thirds majority of both chambers to override a veto.
In early August, Ms. Gillibrand became one of
the first senators to announce her support. Hours
later, Mr. Schumer, who is Jewish and is one of
the most prominent voices on Capitol Hill, became the first Senate Democrat to oppose the
pact, placing him in the company of several other
Jewish members of New Yorks congressional delegation.
Last week, Rep. Jerry Nadler, whose New
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York City district has a large Jewish population,

voiced his support, saying he had come to his decision while seeking to shut out the demagoguery
and hateful rhetoric accompanying the debate.
Mr. Jeffries and Rep. Yvette Clarke are both
undecided and represent heavily Jewish districts
in Brooklyn. Earlier this month, they attended
a town hall hosted by the American Israel Public Affairs Committee, a pro-Israel group. Mr.
Jeffries spoke at the event. Ms. Clarke took copious notes, her spokesman said, but she has no
timetable at the moment for a decision.
On Tuesday, Connecticut Rep. Elizabeth Esty
announced her support, leaving Mr. Blumenthal
as the only member of the states congressional
delegation who has yet to take a stand.
Mr. Blumenthal said his decision will be one
of conscience and conviction.
Joseph Lieberman, a former U.S. senator from
Connecticut who ran as a Democrat and then
later as an independent, has emerged as one of
the most prominent voices lobbying against the
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deal, and he has been prodding Mr. Blumenthal.

In New Jersey, Mr. Menendez held a news conference last week to announce his opposition. Mr.
Menendez is fighting federal corruption charges,
and Jewish groups have given large amounts to
his legal-defense fund.
In the House, New Jersey Reps. Bill Pascrell
and Frank Pallone, who both have large Jewish
constituencies, are holding meetings this week
with interested parties but remain undecided,
their spokesmen said. Rep. Donald Norcross, a
freshman from southern New Jersey who recently
traveled to Israel, came out opposed.
In the region, attention now appears focused
on Mr. Booker.
Whether we moved him inches or feet, we
cant tell, said Nathan Diament, executive director for the Orthodox Union, a national Jewish
group that opposes the deal and was part of a
call with Mr. Booker last Thursday.
On Monday, NORPAC, a political-action committee that supports candidates who back Is329
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rael, urged its New Jersey supporters to call Mr.

Booker to vote against the deal. The group bundled $149,000 for Mr. Bookers campaign last
year, the most of any House or Senate candidate
up for election that year, according to data from
the Center for Responsive Politics, a nonpartisan
research group.
At Tuesdays news conference with Mr.
Christie, Rabbi Boteach made a personal plea:
I am asking for my very dear friend Sen. Booker
to oppose this deal.
On the flip side, some prominent New Jersey Democratic fundraisers who are Jewish have
urged Mr. Booker to support the pact. Mr.
Booker has been receptive to their point of view,
they said.
Rabbi Clifford Kulwin of the Temple Bnai
Abraham in Livingston, N.J., criticized Rabbi
Boteach for applying so much pressure on Mr.
Booker.
This kind of near-blackmail, from such a wellknown figure, only turns up the heat on an al330
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ready raging controversy, Rabbi Kulwin said.

His 3,000-member congregation is split on the issue, he said.
Jewish leaders said they thought Mr. Booker
and other lawmakers who were struggling to
make a choice were being deliberate.
Hes a very serious man, said Max Kleinman,
an executive committee officer for the Jewish Federation of Greater MetroWest NJ, referring to
Mr. Booker. Hes taking a look at all sides.
Joseph De Avila contributed to this article.
Write
to
Heather
Haddon
at
heather.haddon@wsj.com and Erica Orden at
erica.orden@wsj.com
Corrections & Amplifications: An earlier version of the article incorrectly spelled the surname
of Rep. Yvette Clarke. (August 26, 2015)
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Chapter
48
Bill Would Ban

Synthetic Marijuana in
New York City
New York City Council Speaker Melissa MarkViverito said Tuesday she planned to introduce
legislation to ban the sale of synthetic marijuana,
a drug that has prompted increasing alarm in
law-enforcement and public-health circles.
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This is a concern thats growing. Were trying

to get a handle on it, Ms. Mark-Viverito said a
news conference near City Hall.
The sale and use of the drug, known as K2,
isnt now illegal in New York City. But city officials say they are concerned by a rise in violence
and hospital visits linked to the drug.
Under the proposed legislation, anyone found
guilty of selling K2 or an imitation drug would
face up to a year in jail and a fine of up to $5,000,
which would increase to $25,000 for subsequent
violations. Ms. Mark-Viverito said the measure
would be proposed early next month.
Stores selling the drug could face prosecution.
Owners also could lose their licenses to sell to
tobacco.
We support the councils bill and look forward
to working with the council on it, said Karen
Hinton, a spokeswoman for Mayor Bill de Blasio.
Hillary Kunins, an assistant commissioner in
the New York City Department of Health and
Mental Hygiene, said medical professionals in
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New York were seeing wide-ranging problems

that include cardiac arrest and kidney problems
in patients who have used the drug.
Dr. Kunins said the drugs danger was rooted
in its unpredictability: The exact chemical composition of a synthetic cannabinoid varies widely
and can include combinations of dozens of chemical compounds.
New York Gov. Andrew Cuomo said in July
he planned to toughen state regulations on the
drug. He proposed the expansion of the state
health code to include commonly used forms of
synthetic marijuana.
The drug has figured in several high-profile incidents this summer. In July, New York Police
Department officials said a man who drowned after jumping into the Hudson River was thought
to have been high on K2.
A week earlier, five patients at a psychiatric
center on Wards Island were sickened after allegedly using the drug, police said. And more
than a dozen inmates at a Westchester County
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jail were treated in July after showing symptoms

officials said were consistent with a K2 overdose.
City officials say the intersection of East 125th
Street and Lexington Avenue in East Harlemin
Ms. Mark-Viveritos districtis at the heart of
the citys K2 scene. The NYPD has carried out
at least two sting operations there this summer,
one in June and the other in July. In one deli
alone, we seized 8,000 bags of this K2 product,
Ms. Mark-Viverito said.
The city saw more than 120 emergency-room
visits linked to synthetic marijuana during a oneweek period in April, according to an advisory
issued by the city health department.
New York Police Commissioner William Bratton this month characterized K2 as weaponized
marijuana. Mr. Bratton said the drug had also
made the job more difficult for officers because
K2 users often become unusually aggressive.
A spokesman for Mr. Bratton said he generally
was supportive of the legislation proposed by Ms.
Mark-Viverito.
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Ms. Mark-Viverito, a Democrat, also said use

of the drug seemed especially prevalent among
the citys shelter residents.
Brooklyn Borough President Eric Adams said
parts of Brooklyn also had seen increased use of
the drug. Emergency-room visits related to synthetic marijuana use rose by 220% in 2014 over
the previous year, he said.
Write to Mara Gay at mara.gay@wsj.com
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Chapter
49
Judge Approves
N.J.-Exxon Settlement
A New Jersey judge approved a $225 million

settlement on Tuesday between Gov. Chris
Christies administration and Exxon Mobil Corp.
XOM 5.52 % to end a legal battle over polluted sites, a deal environmentalists denounced
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as grossly inadequate.
Superior Court Judge Michael Hogan described
the settlement in his ruling as fair, reasonable,
in the public interest and consistent with a state
law that seeks to protect New Jerseys natural resources from contamination by petroleum products and other hazardous substances.
Environmental groups criticized the ruling. In
a statement, the New Jersey chapter of the Sierra
Club accused Judge Hogan of rubberstamp[ing]
the biggest corporate subsidy in state history.
This settlement is incomplete because it neglects to restore 1,500 acres of wetlands, said Jeff
Tittel, the clubs director. We are down, but not
out. We will continue to fight this sellout.
The state initially sought $8.9 billion from
Exxon, and battled the oil company in court
for 11 years before the parties notified the court
of their proposed settlement in February. The
litigation stemmed from allegations that Exxon,
which owned and operated refineries in the Bayonne area for much of the 20th century, contam338
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inated wetlands, meadows and waterways.

A spokeswoman for Mr. Christies administration hailed the judges decision as affirmation of
what she called the states fair and historic settlement.
The Christie administration has not only secured the largest environmental-damage recovery
in state history, but also cemented Exxon Mobils
obligation to pay for the complete cleanup and remediation of these sites on top of this landmark
payout, said Nicole Sizemore, a spokeswoman for
Mr. Christie.
Tuesdays decision follows a 60-day public comment period, which ended June 5, and unsuccessful attempts by eight environmental groups and
New Jersey state Sen. Raymond Lesniak to intervene in the case. The vast majority of the 16,013
public comments received by the court opposed
the settlement, according to Judge Hogans ruling.
Opponents said the settlement was far too
meager to compensate for the damage done to
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northern New Jerseys wetlands.

This is a multibillion-dollar gift to Exxon Mobil from Gov. Christie and his administration, at
the expense of New Jersey residents, said Margaret Brown, an attorney for Natural Resources
Defense Council, an environmental group.
An Exxon spokesman said the company lauds
the decision.
This settlement has brought this case to a fair
and reasonable conclusion, company spokesman
Alan Jeffers said in an email. Both parties will
now have the benefit of the certainty and finality
that comes from this settlement.
Oil refining in Bayonne dates back to the late
1800s, when John D. Rockefellers Standard Oil
Co. constructed a pipeline from Pennsylvania to
Bayonne, according to court records.
At its peak in 1936, the Bayonne refinery covered 650 acres and employed 5,000 workers.
A landmark 1911 U.S. Supreme Court decision
forced the breakup of Standard Oil into 34 companies, including Jersey Standard, which changed
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its name to Exxon Corp. in the 1970s and continued to operate the northern New Jersey refineries.
The company began discussing environmental
remediation with the state in the early 1990s, and
as of December 2014 had spent more than $258
million on remediation in the Bayonne area, according to Judge Hogans ruling.
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Chapter
50
Newark Schools See

Red Ink
The Newark school district faces a budget hole
of $15 million to $20 million going into the new
academic year, its officials said Tuesday.
Chris Cerf, who took over as superintendent of
the state-operated district last month, said the
financial picture was very, very tough, but he
aimed to close the gap in the nearly $1 billion
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budget without boosting class size or hurting instruction.

He disclosed the budget gap in his first appearance before the Newark Schools Advisory Board.
His predecessor, Cami Anderson , stopped attending the groups monthly meetings about a
year and a half ago. Facing critics demanding her
ouster, she said the often raucous board meetings
had devolved into personal attacks.
Mr. Cerf has said he wants to bring a new era
of trust, transparency and civil discourse to the
district.
The audience of several hundred people was
mostly polite, but there were some loud expressions of disbelief at his statistics about the large
number of parents seeking to send children to
public schools outside their neighborhoods. A
few people shouted out calls for no more school
closures and others protested state control of the
schools.
The Newark district has gained national attention for rancorous fights over its future. Gov.
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Chris Christie sought to make the low-performing

system a national model for reform, but opponents say his administrations top-down approach
has ignored community voices.
In June the Republican governor, who is running for president, appointed a panel to find a
way to return to local control of the states largest
school district.
Newark Mayor Ras Baraka, a former high
school principal under Ms. Anderson, showed up
to push for local control. He said her complex
school overhaul plan, called One Newark, should
be dismantled as soon as possible.
We have to say flat out philosophically it
didnt work, he said.
Mr. Cerf said his team had already cut central
office expenses and vacant positions to narrow a
budget gap that had been much larger. In further
savings, he said the pool of educators without
placementsabout 450 teachers who were on the
payroll without permanent positions in Julyhad
been trimmed substantially.
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He said principals hired many of them voluntarily, but some were assigned to schools in what
he called forced placements. When principals
hire these educators, the district saves money by
filling vacancies without hiring from outside the
system.
Mr. Cerf said he expected about 80 teachers
to be in the pool this fall, plus about 100 who
couldnt be deployed in classrooms due to pending investigations or legal proceedings to revoke
tenure.
Mr. Cerf stepped down in June from the
digital-education company Amplify, which, like
The Wall Street Journal, is owned by News Corp.
NWSA 2.16 % Earlier this month, News Corp
took an impairment charge for Amplify and said
it is in negotiations with a potential buyer of the
division.
For years the Newark district has grappled
with crumbling facilities, budget problems and
shrinking enrollment as many families switched
to charter schools. In the past school year, more
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than 36,000 children attended traditional public

schools and 12,900 were in charters. Critics say
charters dont take their fair share of the most
at-risk children and drain resources.
But many Newark families want charters. District officials said that of 2,481 children seeking
kindergarten spots in the first round of applications for this fall, 42% listed a charter as their
top choice.
Just 25% of kindergartners listed the school
closest to home as their top picka statistic officials used to bolster their argument that families
want options beyond their neighborhoods.
The universal enrollment system, in its second
year, lets families vie for seats in district schools
and charters through the same portal. Critics say
it has broken up communities by sending children
across town, separating siblings and frequently
making inappropriate matches.
The advisory board unanimously passed a resolution calling for an end to the new enrollment
system and bolstering parents abilities to send
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children to neighborhood schools.

Mr. Cerf pledged to improve the enrollment
system so that siblings could more easily transfer
together and ensure more students who wanted
to stay close to home could do so.
Write to Leslie Brody at leslie.brody@wsj.com
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Chapter
51
After Stormy
Introduction, New
Jersey Club Takes Its
Second Shot at
Barclays
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EDISON, N.J.The first time the PGA Tour

came to Plainfield Country Club, the week began with a rare Northeast earthquake and ended
with a hurricane.
After Hurricane Irene shortened the 2011 Barclays BCS 2.45 % to a three-day, 54-hole event,
course officials arrived that Sunday to the sight
of disassembled grandstands and entire greens
submerged in water. We were just shaking our
heads, said Scott Paris, Plainfields director of
golf. We couldnt believe it.
This week, Plainfield gets to try again, and
the weather isnt the only thing the tournaments
hosts hope will be different. The Barclays, the
first of four tournaments that make up the PGA
Tours FedEx Cup playoff system, will also test
the difficulty of a course that became a birdie
bonanza four years ago.
In just three rounds, 31 players finished at
least 10 strokes under par, far more than at any
other course that has hosted the event since it
left Westchester Country Club and began rotat349
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ing among New York metropolitan area courses

in 2008. The field averaged nearly 2.2 strokes
under par, making it the easiest par-71 course on
tour that year. Dustin Johnson won with a score
of 19-under.
Theres probably more clubs that want to host
it than probably are able to host it. Its a real
challenge.
Paris pointed to two reasons why players had
their way with the place in 2011. An unusually wet month had softened Plainfields typically
tricky greens. And because everyone was in a
hurry to leave town before the hurricane arrived,
he said the course was set up to encourage fast
play. Neither will be the case when the first round
begins Thursday.
Id like to see a balance of really fun, entertaining golf for fans, in person and on TV, yet a
really strong test for the players, Paris said. I
really believe thats whats going to happen.
The return of the Barclays to Plainfield comes
at a time when the rotation of courses that host
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the tournament is expanding. On Tuesday, tournament officials announced that in 2017, it will be
held for the first time at Long Islands Glen Oaks
Club, which has undergone a $4 million overhaul
since 2010.
Barclays executive director Peter Mele said the
toughness of courses is important in selecting future sites. You want a course that can hold up
to the championship, he said.
But it would be a stretch to say Plainfield needs
to prove its mettle this week. For one thing,
Mele said Tuesday that the 125-year-old course
will host the tournament again in 2020. That
leaves the Barclays booked through 2022.
For all the courses that dot the New York-New
Jersey area, only a few have enough length, staging space and suitable practice facilities to meet
the PGA Tours needs. Most are private clubs
that cater to their members, and generally only
tolerate the disruption caused by the tournament
once every four years or so.
Theres probably more clubs that want to host
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it than probably are able to host it, Mele said.

Its a real challenge.
Higher-profile tournaments in the region in the
years ahead also have prompted the Barclays to
shy away from landing at nearby courses in the
same year. With the PGA Championship coming to Baltusrol in Springfield, N.J., in 2016, the
Barclays will return to Bethpage Black on Long
Island. The selection of New Jerseys Liberty
National as the site of the 2017 Presidents Cup
prompted the Barclays to stay on Long Island.
Hoping to provide a more formidable challenge
for the worlds best golfers, Plainfield has made
a few tweaks since the last time it hosted the
tournament. It will play as a par-70, rather than
a par-71. At 7,012 yards, it will also play 48 yards
longer than it did in 2011. But there is only so
much a course can do to expand within a confined
space. And even supposedly long, treacherous
courses are having a hard time keeping todays
best players close to par.
Jason Day won this months PGA Champi352
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onship by finishing 20 under par at Whistling

Straits, where 15 others finished 10 under or better. Day will be in the field of 120 at Plainfield
along with Jordan Spieth, the reigning Masters
and U.S. Open champion whose second-place finish at the PGA vaulted him to the top spot in
the world rankings.
Spieth called his No. 1 ranking the fulfillment
of a lifelong ambition. He couldnt say the same
about the FedEx Cup, though the $10 million
prize for winning it offers some incentive. Something that would put some food on the table for
sure, Spieth said Tuesday before setting off for a
nine-hole practice round. Its something Id love
to win someday.
If nothing else, the Barclays seems assured of
finishing on Sunday this time. The forecast calls
for high temperatures in the mid-80s to low-90s,
with sunny or partly cloudy skies throughout the
weekend. And the earth beneath the course has
yet to tremble, though Paris said he is taking
none of it for granted.
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I dont want to jinx anything, he said.

Write to Brian Costa at brian.costa@wsj.com
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Chapter
52
Male Escort Site CEO,

Six Employees
Indicted
The head of a multimillion-dollar male escort service and six of his employees were indicted Tuesday on charges that they used the company as a
front to promote prostitution.
Authorities arrested Rentboy.com chief exec355
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utive Jeffrey Hurant and the six others after

an indictment was unsealed in Brooklyn federal
court, charging them with conspiring to violate
the Travel Act by promoting prostitution.
Mr. Hurant and five other defendants were released on bond after appearing before Magistrate
Judge Marilyn Go.
The seventh defendant turned himself in Tuesday to authorities in South Dakota, Assistant
U.S. Attorney Tyler Smith said.
Mr. Hurants appointed attorney, Charles
Hochbaum, said the case is about constitutional
rights. Thats the key to this case, the First
Amendment right to advertise.
Its not promoting prostitution, Mr.
Hochbaum said of the website. Theres disclaimers all over the website, which indicate that
this is not a website for sexual purposes.
The investigation was led by federal authorities
with help from the New York Police Department.
As alleged, Rentboy.com attempted to present
a veneer of legality, when in fact this Internet
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brothel made millions of dollars from the promotion of illegal prostitution, said acting Brooklyn
U.S. Attorney Kelly Currie.
According to the criminal complaint, Rentboy.com was founded in 1997 and takes its name
from a British slang term for male prostitute. It
bills itself as the original and largest male escort
service online and brought in more than $10 million in gross income between 2010 and 2015.
While disclaimers on the site advertise the services as companionship, the complaint alleges
that Mr. Hurant and employees have made
statements that the sites purpose is for facilitating illegal prostitution and the advertisements
that are posted on the site are clearly for sexual
services.
In one instance, the complaint said, Mr. Hurant told reporters that he designed Rentboy.com
to keep the oldest profession in the world up to
date with all the latest technology.
After paying a fee to join the site, users can
access the profile of an escort, many who adver357
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tise in their profile the types of sexual acts they

are willing to perform and the price for them, the
complaint said.
The company grew to more than a dozen workers, the complaint said, adding that anyone employed by the site was aware of its aim to promote prostitution.
Along with the arrests, the government served
warrants to seize more than $1.4 million of allegedly criminal proceeds from six bank accounts
around the world and took steps to shut down
the Rentboy.com domain name.
Thomas MacMillan contributed to this article.
Write to Pervaiz Shallwani at pervaiz.shallwani@wsj.com
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Chapter
53
Should MLB Scrap

Divisions for More
Playoff Fairness?
PITTSBURGHOn the surface, qualifying for
the Major League Baseball playoffs sounds like
a simple concept: After a grueling, 162-game
marathon of a season, the best five teams in each
league advance for a chance to play in the World
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Series.
At least, thats the way it should work. But
one look at the National League standings this
year shows that it doesnt always go quite so
smoothly. In fact, it raises questions about the
competitive fairness of baseballs postseason system.
Consider the current matchups: Maybe: If the
season ended today, the leagues fourth- and fifthbest teams (the Mets and Los Angeles Dodgers)
would meet in a best-of-five series to determine
who moves on to the NL Championship Series.
The second-best team (the Pittsburgh Pirates)
and the third-best team (the Chicago Cubs)
would be stuck playing in a brutal one-game wildcard round, just for the privilege of taking on the
top team in the majors, the St. Louis Cardinals.
And it could get even messier: the San Francisco Giants, the second-place team in the National League West, entered Wednesday nights
action sitting three games behind the Mets, the
National League East leaders. Even if the Giants
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make a run and move ahead of the Mets, they

would be out of the five-team playoff altogether
while the Mets would continue happily onward as
a division winner.
It can annoy you, because it just doesnt
make sense, said San Francisco outfielder Marlon Byrd, a 14-year veteran.
If thats the case, why doesnt anyone seem
particularly motivated to do anything about it?
The problem this year stems from the disproportionate amount of talent dispersed across the
three divisions. The three best teams in the
leaguethe Cardinals, Pirates and Cubsall play
in the NL Central. This despite the fact that
they play each other 19 times apiece, while the
Mets get 57 opportunities35% of their entire
scheduleto feast on the lowly Miami Marlins,
Philadelphia Phillies and Atlanta Braves.
The playoff structure puts a significant emphasis on winning ones division, giving those teams
guaranteed entry to the division series, while relegating the two wild-card teams into second-class
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citizens.
This was largely by design. When we added
the two additional playoff teams for the wild
card, said an MLB spokesman, we wanted to
make sure to preserve the extra incentive for winning the division.
But that doesnt mean a team like Pittsburgh,
which has played in wild-card games the past two
years, has to like it. There are lot of things out
of your control, which is why we play so many
games to figure out whos the best teamand
then it whittles down to a one-game playoff, Pirates pitcher Gerrit Cole said.
There are lot of things out of your control,
which is why we play so many games to figure
out whos the best teamand then it whittles
down to a one-game playoff.
Advocates of the structure argue that divisional strength ebbs and flows. Since baseball expanded to three divisions per league in 1994, the
three best teams in a league have never come from
the same division. That will probably change this
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year. Doesnt that make the one-game play-in

any tougher to stomach?
The answer is an obvious yes, right? Cole
said. Youre saying that if you put us in any
other division, wed be in first place. But does it
bother us? No. Thats the situation that were
in.
So how to fix it?
Several players proposed modest tweaks: Cole
and his Pirates teammate Neil Walker suggested
expanding the wild-card round from one game
to a best-of-three series, though it would involve
elongating an already lengthy postseason.
Then theres the more radical solution: eliminating divisions altogether. Simply line up all
15 teams and take the top five. After all, baseball operated this way until 1969, when the two
leagues first split into divisions.
I think when you really look at it, black and
white, you say, Why not let the best five teams
go at it, regardless of division? Walker said.
But while players acknowledge that eliminating
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divisions could make things more equitable from

a competitive standpoint, nobody seems to want
it implemented. Their rationale, almost universally, has little to do with competitive fairness
and everything to do with logistics, specifically
travel.
With 162 games crammed into 180 days, and
franchises stretched from Miami to Seattle, divisions help ease the burden. Each team plays 76
games against opponents within its geographical
region. The Giants wont travel east of Denver
again in 2015, and the Mets wont leave the Eastern time zone.
Eradicating divisions would probably require
implementing a balanced schedule, where everybody plays everybody an equal amount. Presented with that possibility, multiple players all
responded similarly: The travel is already pretty
brutal, Walker said.
Mets relief pitcher Tyler Clippard, who has
served as a player representative to the MLB
Players Association, was even more blunt. You
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cant have a balanced schedule in baseball because we play every single day, he said. It just
cant happen.
This isnt to say players dont want fairness
in deciding who makes the playoffs. Byrd said
that if, during the next round of collectivebargaining negotiations, the owners wanted to
adopt a division-less format, the players would
consider itif they were presented with a sample
schedule that was suitable. (The current CBA
expires after next season.)
Short of that, the players appear willing to deal
with occasional competitive imbalances in order
to maintain their quality of life.
Is it better collectively for all teams to change
just because one team got shafted? I guess youre
going to be biased if youre on the team that gets
shafted.
Is it better collectively for all teams to change
just because one team got shafted? Byrd said.
I guess youre going to be biased if youre on the
team that gets shafted.
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A spokesman for the MLBPA said, Players

have always valued winning the division and
therefore support the unbalanced schedule and
the knockout round of wild-card play.
Having said that, he continued, we are always open to discussing ideas that would make
for better or fairer competition.
Ultimately, it seems unlikely that much will
change. Apart from easier travel, an unbalanced
schedule allows for more games between division
rivals, like the Dodgers and Giants, which makes
the league happy.
As Cuddyer put it, In the grand scheme of
things, its not as fair, so to speak, but in the
microcosm of it all, in the divisions, it is fair.
But what about the fans? Clearly, fans in
Pittsburgh and Chicago cant be too happy with
the hands their teams have been dealt. On the
other hand, under the old system, only two teams
from the NL Central could have made the playoffs. This year, there will likely be three, even if
two of them have to submit to a one-game playoff.
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Perhaps this is progress.

We understand the importance of the fans being on board with what were doing, Clippard
said. If theyre on board, then its going to be a
popular sport, and theyre going to want to come
to the games. And I think the fans can respect
the fact that we have a grueling schedule, and
thats how its got to be.
Write to Jared Diamond at jared.diamond@wsj.com
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Chapter
54
Catherine Belliss
Teenage Dream Moves
Closer to the U.S.
Open
By the time Catherine CiCi Bellis was born, in
1999, Kimiko Date-Krumm had already retired
from professional tennis. Three years earlier, in
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1996, Date-Krumm lost to a 16-year-old named

Martina Hingis and stepped away from the game
and her top-10 ranking.
Twelve years later, in 2008, Date-Krumm returned to the womens tour, and is now ranked
No. 148 in the world. On Tuesday during the
qualifying rounds for the upcoming U.S. Open,
the now-44-year-old faced another 16-year-old:
Bellis, the darling of last years Open.
Alas, an extra 28 years of experience was no
match for youth and the August heat: Bellis prevailed 4-6, 6-1, 6-4, beating Date-Krumm to come
a step closer to playing in her second U.S. Open
main draw.
Shes 16, but when Im on the court I cant
think about the age, Date-Krumm said after the
match. Her body and her face is 16, but her
tennis is not like a 16 [year-old].
Both players looked and acted their age during
the match. Last week, Bellis dyed part of her
hair blue just because she felt like it. Im going
to go blue streak, and Im going to go hard, she
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said.
Her body and her face is 16, but her tennis is
not like a 16 [year-old].
During the match, she giddily hopped around
to stay active between points and eagerly got up
from her chair between changeovers, showing no
signs of fatigue from the sweltering heat. She
yelled Yeah, baby! after big points. On the
other side of the court, Date-Krumm massaged a
cramping left hamstring and later required medical attention after it gave out, causing her to
collapse.
Bellis appeared to get a little older during
Tuesdays match. After initially struggling to
adapt to Date-Krumms unique style, which features low shots that barely eclipse the top of the
net, Bellis, sporting more muscles than she did
in Queens last summer, adjusted and controlled
the pace with her power.
Despite all their obvious differencesin age,
playing style and temperamentthe two players
embody a similar theme: how difficult it can be
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to climb to the top of the tennis ladder.

Date-Krumm has already reached tenniss
elite. She rose as high as No. 4 in the world
in 1995 and retired (temporarily) with that top10 ranking. Bellis emerged as a national star at
the age of 15 last year when she upset 12th-seeded
Dominika Cibulkova in the first round of the U.S.
Open. But on Tuesday, the two were playing in
front of just a few hundred fans with a common
hope of clawing their way into this years main
draw.
For Bellis, the road from last years mania to this years qualifying bracket has been
bumpy. Since taking two matches at the Miami Open in Marchultimately losing there to
Serena Williams after beating Zarina Diyas, who
had knocked her out of the U.S. Openshe hasnt
won a match in her limited WTA tournaments.
Her father, Gordon Bellis, described her as devastated when she didnt receive a wild-card bid
into this years U.S. Open main draw, though
they werent surprised.
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Bellis, however, sees an advantage in the snub.

Because WTA rules limit the number of events
teenagers can play16-year-olds are allowed to
play in 12, plus WTA championships and Fed
Cupthe pre-tournament qualifying rounds allow her to play more matches and gain experience
against top-caliber foes, like Date-Krumm, who
in 2009 became the second-oldest player ever to
win a WTA singles title.
Its actually better for me to play in qualifying this year because you get those three extra
matches if you make it to the main draw, Bellis
said. If not, you get really good practice in the
qualifying.
Bellis is still two matches away from returning
to the main draw. The highs and lows of playing
as a teenager, both of which she has experienced
in the past year, are why she remains an amateur,
leaving college and a tennis scholarship as an option. That might change if she goes far enough
in a major tournament, however, since it would
come with a big payday.
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For now, though, Bellis is happy she can handle

her nerves. Last years sudden fame was overwhelming, and she said the drive to the Open
grounds rekindled those emotions. But even if
she doesnt reach the main draw, shell at least
leave with a cathartic moment: the win against
Date-Krumm came on Court 17, the court she
lost on last year.
Im glad I was able to get my revenge on this
court, she said.
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Chapter
55
How Long Can the

Mets Keep Bartolo
Colon in the Rotation?
The saving grace for struggling Mets starter Bartolo Colon this season has been the teams desire
to use an expanded rotation to limit the innings
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of their younger pitchers. But then 25-year-old

righty Logan Verrett pitched perhaps the Mets
best game of the season in an emergency start
Sunday in Colorado. So now even Colons No.
6 spot in the rotation seems on the line heading
into his outing Wednesday in Philadelphia.
Colon has gone from bad to worse of late. His
full-season statistics rank near the bottom among
the 89 starting pitchers who qualified for the
baseballs ERA title through Monday.
Colons 4.90 ERA sits at 83rd and his batting average allowed (.291) and slugging allowed
(.468) rank even worse, at 85th and 84th, respectively. Hitters swing through his pitches just
15.2% of the time (86th). But since the All-Star
break, Colons ERA has soared to 6.08, with hitters hitting .327 against him and slugging .537.
Basically, since the break, every hitter against
Colon turns into National League MVP candidate Paul Goldschmidt (.327 average, .561 slugging).
Colon, baseballs oldest starter at age 42, may
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have little left in his tank.

Verrett seems more than capable of replacing
Colon after allowing just one run in eight innings
(four hits, eight strikeouts) against the Rockies,
who had scored 18 runs in the prior two games.
Plus, rookie lefty Steven Matz is rounding back
into shape on a rehab assignment after tearing
his lat muscle in July.
Colon started well this season, jumping out to
a 6-1 record, and manager Terry Collins was able
to point to that record to justify his rotation
spot. But hes lost seven of his last eight decisions to drop to 10-11. So barring a sudden and
extreme reversal in his pitching fortunes, each additional start by Colon may be threatening the
Mets chances of cementing their first division title since 2006.
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Chapter
56
What Should Macys

Do With Its Flagship
Store?
Macys Inc. M 3.43 % is the latest major retailer
to consider spinning off its real-estate assets into
a separate company, following recent moves by
Sears Holdings Corp. SHLD 3.23 % and Darden
Restaurants Inc. DRI 2.01 %
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But first it will have to answer a thorny question: what to do with its prized asset, the landmark building at New Yorks Herald Square?
Its decision could point the way for other retailers that own trophy properties, a group that includes Nordstrom Inc. JWN 3.46 % and Neiman
Marcus Group Inc. Like Macys, their crown jewels are in prime locations in major metropolitan
areas, making them more valuable than look-alike
properties in malls or smaller cities.
Unloading the Herald Square building could
make a lot of money for Macys shareholders now,
while finding a way to extract some value without
ceding control of such a prime location could pay
off more in the long run, according to analysts.
Herald Square is especially tricky because there
is no consensus on precisely how much the property is worth, with estimates ranging from less
than $3 billion to more than $4 billion.
The hard part is, theres nothing like Macys
Herald Square, said Jim Costello, senior vice
president at Real Capital Analytics, a real-estate
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research firm.
Investors have been pressuring Macys and
other retailers in recent years to spin off their
real-estate assets into separate companies. The
aim is to make the most of those assets at a time
when commercial real-estate values are soaring
and the retailers face long-term challenges from
online rivals.
Macys earlier this month said real-estate
prices have prompted it to study its options. The
company owns 556 stores from Puerto Rico to
Guam, most of them nondescript. Its flagship
store, however, covers almost an entire New York
City block, features about 1.1 million square feet
of retail space, includes additional space for offices and storage, and serves as the endpoint for
Macys annual Thanksgiving Day parade.
That distinguishes its portfolio from those of
retailers whose strategy revolves around owning
and operating stores of a similar size in residential
neighborhoods or strip malls around the country.
Some other retailers also have crown jewels.
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Nordstrom owns its flagship store on Pine Street

in Seattle, which has 383,000 square feet of retail space. Tiffany TIF 3.96 % & Co. bought
its store on Fifth Avenue in Manhattan in 1999,
after it had been sold by the jeweler and leased
back in a previous deal. Neiman Marcus, which is
planning an initial public offering of its stock, has
a portfolio that includes stores in San Francisco,
Dallas and Beverly Hills, Calif.
Often, theres additional value that can be
gained from having those primary locations, said
Adam Silverman, a retail analyst at Forrester Research. FORR 0.41 % The cookie-cutter locations may not drive as much traffic or the right
kind of clientele.
Activist investor Starboard Value LP last
month said it had taken a stake in Macys, and
chief executive Jeff Smith said at the time the
building was worth about $4 billion, based on an
assessment by real-estate experts.
Analysts at investment bank Cowen & Co.,
where Mr. Smith once worked, were less bullish,
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pegging the value at $3.3 billion in a July report.

And Robert Von Ancken, chairman of Landauer
Valuation & Advisory, a unit of real-estate firm
Newmark Grubb Knight Frank, said in an interview he was skeptical the Herald Square building
was worth more than $3 billion.
The real answer is, we dont know, said Jim
Sluzewski, a Macys spokesman. And thats why
we have teams of people looking at the question.
The company has hired real-estate firm Green
Street Advisors, tax experts at law firm Skadden,
Arps, Slate, Meagher & Flom LLP, and bankers
including Goldman Sachs Group Inc. GS 3.47 %
and Credit Suisse Group AG CS 0.98 % , among
others, to study its real-estate portfolio.
Investors have bid down Macys shares amid
questions about its real estate and its financial
results. Since hitting a peak for the year on July
16, the day after Starboard Value disclosed its
stake, Macys shares have dropped 22%, through
Mondays close. At that share price, Macys
market value is about $19 billion, according to
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FactSet, less than the $21 billion Starboard believes the companys real estate alone is worth,
and roughly equal to Cowens estimate of nearly
$19 billion. Cowen concluded that the companys
second most-valuable store, in Chicago, is worth
about $1.7 billion.
Creating a new company to own the real estate
is one option, but that could saddle Macys with
rent payments and force it to cede control of the
building.
This month, Macys announced a different realestate deal that could be a model. The company
said it was selling off part of its store in downtown
Brooklyn and a nearby parking garage to developer Tishman Speyer for $170 million in cash and
another $100 million over three years. It will
compress its existing retail operations at the site
into 310,000 square feet on five floors, down from
378,000 square feet on eight floors.
A similar plan could be lucrative in Herald
Square, where the upper floors could be converted into condominiums or a hotel, according
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to analysts.
There is clearly impressive potential, said
James Sullivan, a senior real-estate analyst at
Cowen. That is the path to the highest value
creation for the Herald Square store.
Write to Liam Pleven at liam.pleven@wsj.com
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57
The Puma Pack Gets

Ripped Together
http://www.wsj.com/articles/the-puma-packgets-ripped-together-1440619921
One of the ways a certain actor who has be384
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come known for playing Wolverine stays in shape

is through the DogPound, a group of male friends
including fashion photographer Nigel Barker and
the New York Stock Exchange president Tom
Farley. They wake up absurdly early several
mornings during the week to work out with each
other, starting around 5:45 a.m.
Once the guys clear out, however, the ladies
move in.
Around 9 a.m. or so, the pals, several of whom
happen to be moms at the nearby Little Red
School House, meet at a gym in the West Village for circuit and strength training with Kirk
Myers and his partners, the brothers Dawin and
Brey Pena.
Molly Farley, who worked in the fashion industry, started working out with Mr. Myers and the
Pena brothers alongside her husband. Then she
recruited some of her female friends to join her.
Two became four and four became eight, said
Mr. Myers. Sometimes there can be upwards of
12.
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The women call themselves the Puma Pack.

Among them are Ms. Farley; Anick Guira, who
regularly volunteers with Every Mother Counts;
Maggie Plattner, who works in marketing at
Showtime; Cristen Barker, a former model who
runs a photo studio with her husband and has a
popular Instagram with her sister called @Chintwins; Stacey Fraser, the founder of the childrens
fashion line Pink Chicken; Eileen Libutti, an education lawyer and managing partner of Lewis
Johs New York City; Alison Lille, a fashion executive; and Jeane Lopez Muniz, an interior designer. They will often meet for lunch at Bar
Pitti, El Toro Blanco or Clover Cafe after workouts and before school pickup.
Weve become a tightknit crew, said Ms.
Libutti.
It took a very long email exchange for the ladies
to settle on Puma Pack.
It started as a not nice name, said Ms. Farley,
as she as some of her compatriots finished a round
of crunches on a recent summer morning.
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Ms. Farley meant that, at one point, the group

was describing themselves by combining the word
pack with the term more generously applied to
a female dog.
But, collectively, they decided that wasnt an
expression they necessarily wanted to use all the
time in front of their children or put on T-shirts.
Also Cougars Doing Ball Slams had some negative connotations and seemed a tad verbose.
The Puma Pack was a little more exotic,
said Ms. Barker, who saw the camaraderie her
husband was experiencing at the DogPound and
wanted some of that for herself.
They wake up at 5:30 and they encourage each
other, explained Ms. Barker. I saw him become
more positive. It changed his life.
Ms. Guira said that she is similarly inspired
by her friends in the Puma Pack. I would rather
sleep in, she explained, but if I know the other
girls are coming, I will, too.
Its a really great time to get your body
healthy, and its a time for us to chat, added
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Ms. Farley. Its like happy hour.

Mr. Myers calls the routine a machinegun workout, a high-intensity-training method
where almost none of the specific exercises are
repeated. That means that a set of burpees transitions into a round of hand weights which moves
into a set of hitting a sledgehammer on an oversize tire.
Its a little bit of yoga, a little bit of core training and a little bit of cardiovascular. You dont
ever stop, said Mr. Myers. Part of that is so
you dont get bored, but its also about confusing
the muscles to keep the body guessing.
Though recently Mr. Myers and the Pena
brothers have been renting out space, this fall
they plan to open their own state-of-the-art gym
downtown. They will also be running a pushup contest in the V.I.P. backstage area at the
Global Citizen Festival, featuring Beyonce, Pearl
Jam and Ed Sheeran, in late September.
Ms. Muniz found that other workouts she did
were too focused on the upper body. Im from
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Brazil. Brazil is all about the butt, she said.

There, we do the whole body. Its the same
here.
Naturally, the bodies of the ladies in the Puma
Pack have changed since they began this regular
workout.
Abs, said Ms. Farley. Now I have them.
I feel so much stronger, said Ms. Plattner.
Ms. Libutti, for one, has been bestowed with
the nickname Sweet Baby.
Whys that?
Come over here, Dawin Pena encouraged Ms.
Libutti. Lets see those guns.
Ms. Libutti sheepishly flexed her arms.
Explained Mr. Pena, When you see those
guns, you say, Sweet baby!
Write to Marshall Heyman at marshall.heyman@wsj.com
Cougars Doing Ball Slams must now be
placed on a golden plaque on the wall of the WSJ
employee lounge.......You have not only made my
day, but quite possibly my decade.
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a Family
Musical Head Start
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ment and by copyright law. For non-personal

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Chapter
58
A Celebration of
Ingrid Bergman, Plus
a Teenage Werewolf
http://www.wsj.com/articles/a-celebration392
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of-ingrid-bergman-plus-a-teenage-werewolf1440621112
Museum of Modern Art 11 W. 53rd St. (212)
708-9400 SaturdaySept. 10 To mark the 100th
anniversary of Ingrid Bergmans birth, an array of films from her 50-year career was selected
by her three daughters: Isabella Rossellini, Pia
Lindstrom and Ingrid Rossellini. The women will
introduce various screenings, which begin on her
birthday with Casablanca (1942)perhaps her
most widely admired film, opposite Humphrey
Bogartand Autumn Sonata (1978), a final cinematic outing for both the actress and director
Ingmar Bergman. The series continues with the
no-nonsense stars work with Alfred Hitchcock
(Under Capricorn, Notorious), George Cukor
(Gasight) and, of course, her husband Roberto
Rossellini (Stromboli, Journey to Italy and
more).
Whitney Museum of American Art 99 Gansevoort St. (212) 570-3600 Through Sept. 20
Each weekend, the museum screens several of
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19 programs that comprise a selective history

of American avant-garde film. The short pieces
accompany the inaugural exhibit at the Whitneys new location, offering patrons another facet
to explore. Themes on-screen include Beat
Life, Street Life (with classic films by Robert
Frank and Helen Levitt), Mind Eye Body (carnal explorations from Carolee Schneemann and
Stan Brakhage) and Colorwork (optical art by
Richard Serra and John Baldessari).
Village East Cinema 181-189 Second Ave.
(212) 529-6998 FridaySept. 3 Adolescence is
tough enough without surging hormones totally
running amok. Like so many young horror-movie
protagonists before her, though, a mopey beauty
named Marie (Sonia Suhl) discovers that theres
more to her teenage angst than meets the eye.
Thats right: Shes a werewolf. Beyond that,
though, shes a Danish werewolf. So, in this atmospheric drama from director Jonas Alexander
Arnby, the realization takes time to dawn, as secrets are exposed and menacing follicles sprout.
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The artful approach should appeal to those who

prefer their supernatural coming-of-age stories
more sober-minded than howlingly contrived.
IFC Center 323 Sixth Ave. (212) 924-7771
FridaySept. 24 A career retrospective that includes weeklong theatrical runs of movies that
have long been out of circulation, this collection of 22 features and six shorts gives audiences a new chance to appreciate what German
filmmaker Wim Wenders was up to besides his
Academy Award-nominated documentaries, and
art house favorites like Wings of Desire and
Paris, Texas. The series begins with Alice in
the Cities, one of several great road movies from
the 1970s, with the director present for a Q&A
after the Friday evening screening. Mr. Wenders
also will be present at selected screenings of other
titles and give a Tuesday talk about the essential
role of music in his films.
Nitehawk Cinema 136 Metropolitan Ave.,
Brooklyn nitehawkcinema.com Saturday-Sunday
Hans Richters 1947 art fable is famous for its col395
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laborative dream sequences, which tapped such

contemporaries of the artist as John Cage, Max
Ernst, Man Ray, Marcel Duchamp, Alexander
Calder, Darius Milhaud and Paul Bowles, among
others. The film is the main course at weekend
dada brunch screenings, accompanied by a live
performance from the group Parlor Walls. The
show also includes the gastronomically appropriate short, Ghosts Before Breakfast.
a Family
Musical Head Start
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Chapter
59
Elisabeth Moss, Going

Kind of Crazy
When she finished shooting Mad Men last year,
Elisabeth Moss consigned Peggy Olson to TV
history, and went back to making movies. As
she usually does, the actress looked beyond more
mainstream possibilities and chose the scripts
and filmmakers she found most exciting.
Its always, for me, the material first, said Ms.
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Moss, 33 years old, whose new independent film

Queen of Earth opens Wednesday at IFC Center in the West Village. The psychological drama
reunites her with Alex Ross Perry, the Brooklynbased writer and director who also cast her in
last years New York literary comedy Listen Up
Philip.
The film belongs mostly to Ms. Moss, in
the role of Catherine, a woman reeling from a
breakup and the death of her father, who joins
her best friend Virginia ( Katherine Waterston)
at a lake house in Putnam County, in upstate
New York. She doesnt find solace. Instead,
Catherine begins to fall apart, lost in a swirl of
paranoia and madness.
The role was obviously really meaty and crazy
and like nothing I had gotten to do or probably
would get to do again in the near future, said
Ms. Moss, who lives on the Upper West Side of
New York City. She found a kindred spirit in the
31-year-old director, whom she suspects she may
have first encountered when he rented her movies
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at the now-defunct Kims Video & Music in the

East Village, where the films cinematographer,
Sean Price Williams, also once was employed.
I kind of always do whatever he wants, she
said of Mr. Perry.
He began developing Queen of Earth after
Philip premiered at Sundance in 2014. Ms.
Moss said she enlisted almost as soon as she read
the script which, at 70 pages, left a lot of space
for the performers, with jaggedly emotional sequences for the actress.
Ive had the opportunity to get to know what
good writing is, she said, citing her experience
with the Emmy Award-laden Mad Men and
The West Wing, whose cast she joined at age
17. Ms. Moss described Mr. Perrys style as
smart and ballsy, but his scripts also have an
underlying humor that I appreciate, she said.
You can either take it seriously or not, and he
doesnt really care which you do.
The way Mr. Perry envisioned the film, built
around close-ups using a hand-held camera and
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sustained pauses, was nearly customized for the

actress. If you do a close-up of her, you are going
to get little things that create an entirely livedin performance, Mr. Perry said. It makes the
perfect performance for the style of filmmaking
that I find really fun.
The movie uses flashbacks, the unreliable nature of Catherines perspective and a dissonant
score by composer Keegan DeWitt to evoke a
sense of disorientation and creeping dread, looking back to films such as Robert Altmans Images and Ingmar Bergmans Persona.
I wear this nightgown which is a direct nod to
Repulsion, said Ms. Moss, referring to Roman
Polanskis 1965 psychological horror film, which
starred Catherine Deneuve as a woman gripped
by schizophrenia. Its exciting to kind of tip a
little hat to the films I love.
Even when portraying a meltdown, Ms. Moss
never loses balance. As out of control as her
character is in the film, theres calculation mixed
in there with it, said Kentucker Audley, an indie
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writer, actor and director who has a few scenes

in Queen of Earth as Catherines boyfriend.
Its not hysterical in the way that women-onthe-verge movies can get, he said. Theres a
sense that she has this power in her, and shes
not showing you all of her power.
The actress, nonetheless, asserted some of her
power off-screen, working as a producer for the
first time. Ive been in the business a long time,
so I know a couple of things about how youre
supposed to do things, said Ms. Moss, who began acting as a child. After 26 years, it was cool
to exercise some of that knowledge.
It wasnt like I could sit in the corner all day
with my headphones on, crying.
With a minimal production team, the actress
became especially handy in casting. Having her
get on the phone got us answers quicker than
I thought was possible in Hollywood, said Mr.
Perry, who also worked closely with another filmmaker, Joe Swanberg, in preparing for the twoweek shoot. It was all hands on deck.
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The open, collaborative nature of the production also helped Ms. Moss maintain the right
frame of mind. Even though I was in an emotional state, I had to keep coming out of it and
be objective, she said. It wasnt like I could
sit in the corner all day with my headphones on,
crying.
She also got to weigh in on the first cut. I
gave three notes and two out of three notes were
taken, Ms. Moss said. I remember being, Oh
my God, they went into the editing room and
did what I asked. Thats cool. I never had that
happen before.
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Chapter
60
A Tudor Castle in
Connecticut
A Tudor Castle in Connecticut
More Slideshows
Location:
Greenwich, United States
Price:$6,995,000
This Greenwich, Conn., home, built in the
1920s, combines a historic manor feel with mod404
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ern amenities. The property features much of the

original woodwork, filtered water views, a wine
cellar and more. Erin McCarthy
Bravo! Thank you for rescuing and resuscitating a beautiful home.
Literally my new dream home; I always wanted
to live in Greenwich anyhow.
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Chapter
61
Athletes Jump
Through Hoops to
Host Hamptons Event
Water Mill, N.Y.One of the more exclusive
groups in the Hamptons arent members at a
country club, dont live together on a chichi
Sagaponack cul-de-sac or pay $70 per class for
VIP privileges at Soul Cycle. Rather they are
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Minardi Athletes, named so because, for years,

they have been personally trained by Jimmy Minardi, a locally born-and-bred lifeguard.
Nearly every morning, rain or shine and well
into the cooler weather, Mr. Minardi sets up an
obstacle course on Main Beach for eager clients
to run, jump, hurdle and pivot. During the 90minute session, the sand gets deeper and the running, jumping, hurdling and pivoting get harder.
Similarly, things get more challenging as the week
moves from Monday to Sunday.
It isnt surprising that workouts can get a little
bit competitive within Mr. Minardis crowd. The
same, it turns out, goes for social activities.
Every summer, said Mr. Minardi, his acolytes,
a mix of locals and drop-ins from the city, as well
as seasonal transplants from Aspen, Colo., Montecito, Calif., Seattle and the like, fight to decide
which of them will get the honor of hosting the
annual Minardi Summer Party.
Its a pecking order, said the extremely tan,
shaggy-haired Mr. Minardi as he walked into this
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summers party wearing shorts, a Van Halen Tshirt and not even flip-flops. (Mr. Minardi, notoriously, refuses to wear shoes.) But its about
presentation and they all style it out.
This years hosting duties fell to Jack Pearson, a Corcoran real-estate broker. Sliders, lobster rolls and corn and kale salad were served at
his gorgeously landscaped enclave of a home here,
as well as Jack-a-ritas, his take on a margarita.
We all know theres going to be a party and,
at some point, I just felt it was my time, said
Mr. Pearson.
Its pretty nice, right? Mr. Minardi said.
The propertys been published in Better
Homes and Gardens and elsewhere, said Mr.
Pearson, as he gestured to the manicured gardens that he oversees himself and have won him
a few awards.
Mr. Pearson, like many of his fellow athletes,
has been training with Mr. Minardi on the beach
for years. His relationship with Mr. Minardi has
lasted for a decade and a half.
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Hes so special and so Zen about the way he

trains us, said Mr. Pearson. Its a very physical
workout. Its a lot of calisthenics. Youve heard
of a steeplechase for a horse. Its a steeplechase
for a human. Being in my 50s, its about elongating and remaining toned, while not being too
muscle-y.
One of Mr. Minardis ways of bringing his
team closer is that he gives everyone a moniker.
Mr. Pearsons is Action. Heidi Wald is Amelia
because, for whatever reason, she reminds Mr.
Minardi of Amelia Earhart and she gets lost all
the time on the course. Unfortunately, Jitney
Gigolo couldnt attend this year.
Theres a story there, said Mr. Minardi, who
turned to greet Claudia Camozzi, the chief of staff
for Ronald S. Lauder who has been on Mr. Minardis cycling team, biking twice a week or so,
for the last 18 years.
Hey Mozzi, Mr. Minardi said.
We actually dont know anyones real names
here, Ms. Camozzi responded.
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As Labor Day approaches, Mr. Minardi has already decided on the theme for the summer 2016
party, which will be hosted by Christine Rupp,
otherwise known as the Ruppinator.
Next year, were doing the Bratwurst and
Beer, he said.
He has it in his head, said Ms. Rupp, who
was supposed to host last years get-together but
lost out to Kriena Nederveen.
She fought me over it, said Ms. Rupp. But
I didnt fight that hard.
You dont fight with the Dutch One, said
Mr. Minardi, of Ms. Nederveen, a fashion
consultant who launches and remakes menswear
brands. Thats her nickname. Shes Dutch.
Plus, she dresses me, Mr. Minardi noted.
Please dont listen to him, said Ms. Nederveen.
Ms. Nederveen said she has been working out
with Mr. Minardi for 11 years and finds that at
the end of every summer shes a little more cut
and svelte, and everythings a little higher. She
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said she also appreciates the camaraderie among

the Minardi athletes; all of the regulars have become her friends.
Weve been through sickness and health, she
said. Weve been through amazing things together.
Ms. Nederveen admitted that she wanted to
host last years party because she had been renting a particularly nice house she wasnt sure shed
be able to rent again.
If there was a theme, it was tequila, she recalled. There was much tequila consumed.
Write to Marshall Heyman at marshall.heyman@wsj.com
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Chapter
62
Chris Brown in Jones

Beach, Aaron Neville
in SoHo
http://www.wsj.com/articles/chris-brown-in412
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jones-beach-aaron-neville-in-soho-1440543936
Jones Beach Theater 1000 Ocean Parkway,
Wantagh (516) 221-1000 Sunday
While his first two albums both went platinum,
when Chris Brown was charged with a felony assault after his then-girlfriend Rihanna was beaten
in 2009, it should have all but ruined his career. Yet the R&B star weathered the public
outcry not by receding from public view but by
never quite going away. He has been unavoidable on pop radio in the last three years, hopping
on tracks with the likes of Usher, Tyga, Pitbull,
Afrojack, David Guetta and even Rihanna. Similarly inescapable, opener Fetty Wap became the
first artist to have his first four singles land simultaneously on the Hot Rap Charts. With Kid
Ink and Omarion.
Union Pool 484 Union Ave., Brooklyn (718)
609-0484 Saturday
Philadelphia-born guitarist Steve Gunn has
quickly become one of the foremost players of
his generation, skilled yet never flashy. Much
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like fellow Philadelphians Kurt Vile and The

War on Drugs, Mr. Gunn tucks nimble, folkindebted guitar work into a rock band setting.
But while his peers might tend more towards classic rock structures, Mr. Gunns music can be exploratory and open-ended, drawing on American
roots music like bluegrass, country as well as 60s
psychedelic rock, finding the strands that connect them. Last years Way Out Weather was
one of the years most pleasant surprises, at times
evoking comparison to Workingmans Dead. A
daytime party with garage-rock act Spacin.
Good Room 98 Meserole Ave., Brooklyn (718)
609-9100 Saturday
With its first few singles being the Raptures
House of Jealous Lovers and LCD Soundsystems Losing My Edge, the DFA imprint defined the sound of the early 21st century New
York City. Part-punk, part-disco, with a penchant for noise and house music, the label had a
strong run during its first ten years. And while
the label has never quite replaced their flagship
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acts when they both disbanded a few years ago,

their smaller roster remains lively. This party,
dubbed Summer Hot Dog, features a live performance from Holy Ghost! and DJ turns from Museum of Love, Nancy Whang and other members
of LCD Soundsystem.
Trans-Pecos 915 Wyckoff Ave., Ridgewood Friday
Angel Deradoorian was a key component of
Dirty Projectors when the band pivoted away
from obtuse indie-rock and towards enticing R&B
tropes on their 2009 album Bitte Orca. She then
left the band and returned to her native California, her name appearing on albums from acts as
diverse as Vampire Weekend, U2 and Flying Lotus. But this month saw the release of her debut
album The Expanding Flower Planet, which
takes eclectic cues from her former employer. By
turns, theres pastoral folk, Gregorian polyphony,
and garage-soul in her songs and unlike the minimalism informing most modern music, Ms. Deradoorian doesnt shy away from making a com415
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plex and beautiful statement.

City Winery 155 Varick St. (212) 608-0555
Sunday and Monday Built like a linebacker but
with a nimble, angelic and aching tenor that
could climb into a falsetto, Aaron Nevilles first
major single from 1967, Tell It Like It Is, became a standard. Ten years on, he enjoyed moderate success as part of the Neville Brothers,
didnt find the top of the charts again until 22
years later, when he performed with Linda Ronstadt. In 2013, he signed to Blue Note Records
and released My True Story, which explored
the era of doo-wop and vocal pop that preceded
his own career, featuring renditions of classics
like Under the Boardwalk and Goodnight My
Love.
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a Family
Musical Head Start
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Chapter
63
Asia Society Appoints

New Museum Director
Asia Society, as part of a strategic plan to emphasize global engagement, has appointed a new
director of its museum: Tan Boon Hui, who will
also serve as vice president for global arts and
cultural programs.
Mr. Tan, 45 years old, is an expert in the art
of Singapore, where he served as director of the
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Singapore Art Museum from 2009 to 2013.

His appointment comes after a nearly yearlong search to replace Melissa Chiu, who left last
September to be the director of the Hirshhorn
Museum and Sculpture Garden in Washington,
D.C.
Headquartered in New York, Asia Society has
10 additional locations around the world devoted
to presentation of Asian art and cross-cultural
understanding, a mission set out in its founding
in 1956 by John D. Rockefeller III.
Asia Society President Josette Sheeran said the
institutions search for a museum director was the
first arts hire in a strategic plan that began a
rollout in 2014.
Among the ongoing agenda items is to build
a board in which half the trustees are from Asia
and half from the West.
We are a globally deployed institution, said
Ms. Sheeran, adding that to maintain and
heighten that active presence, the society interviewed people from all over Asia for the museum
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role. We were determined to find someone with

a finger on the pulse of the exploding, dynamic
art scene in Asia.
Mr. Tan managed Singapores pavilion at the
50th Venice Biennale and was assistant chief executive for museums and programs under Singapores National Heritage Board.
He brings expertise from curation and administration, said Ms. Sheeran. Singapore is such
a crossroads. It really showed in his perspective.
Asia Societys museum exhibits traditional
Asian art, as well as an extensive collection of
photography and new-media works by Asian and
Asian-American artists.
Among Mr. Tans new duties will be overseeing those collections, as well as orchestrating dialogue about the Asian art field through directing
the Asia Society Arts and Museum Network and
its Arts & Museum Summit.
Write to Pia Catton at pia.catton@wsj.com
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Chapter
64
Monsanto Drops $46

Billion Bid for
Syngenta
Monsanto Co. MON 8.57 % dropped its roughly
$46 billion bid for Syngenta AG SYT -13.55 % after the Swiss agribusiness giant rejected a sweetened offer, dashingat least for nowchances of
a union that would have reshaped the global mar421
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ket for seeds and pesticides.

The surprise disclosure on Wednesday capped
four months of aggressive pursuit by St. Louisbased Monsanto, which Syngenta had consistently rebuffed even as some of its shareholders
pressured the Swiss company to negotiate.
The deals demise forestalls what some analysts
anticipated, and some farmers feared, would be
another round of consolidation in the global marketplace for crop seeds and chemicals, a sector
currently dominated by six top firms.
We engaged with Monsanto in good faith and
highlighted those key issues which required more
concrete information in order to continue a dialogue, said Michel Demare, Syngentas chairman. Our Board is confident that Syngentas
long-term prospects remain very attractive with
a leading portfolio and a promising pipeline of
new products and technologies.
Dropping the bid marks a high-profile defeat
for Monsanto Chief Executive Hugh Grant, who
spent much of the spring and summer pitching
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the deal to investors. The combination of Syngentas position in pesticides with Monsantos
seeds business offered transformative potential,
he had said, and the deal was his most ambitious
expansion plan in 12 years at the helm.
Now Monsanto must weigh other options, such
as joining with different pesticide manufacturers,
to better integrate its seeds business with crop
chemicals, a strategy that he has said made sense
regardless of the outcome of its merger proposal.
Well figure out another way of doing that if
the Syngenta deal failed, he said in June. This
isnt one you fold up the tent and go back to how
things were.
Mr. Grant was unavailable to comment on
Wednesday.
Monsanto said it had raised its cash-and-stock
offer to 470 Swiss francs ($495.57) a share on
Aug. 18 but that Syngenta rejected the enhanced
proposal as insufficient.
Syngenta now must show it can deliver on the
organic growth that its executives argued was
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preferable to a Monsanto deal even as low commodity prices have crimped farmers spending on
equipment and supplies, said Jeremy Redenius,
an analyst with Sanford C. Bernstein & Co.
Investors are bound to put an increasing
amount of pressure on the current management team, said Mr. Redenius. Syngenta investors overwhelmingly favored entering negotiations with Monsanto, according to a survey conducted by Sanford Bernstein this month.
Syngentas shares, which had been buoyed by
Monsantos bid, fell 18% to 309.90 francs in Swiss
trading on Wednesday.
Syngenta on Wednesday said it valued the latest offer as worth 433 francs a share based on
Monsantos Tuesday closing price. It also said
Monsanto did not provide sufficient clarity on
cost savings expected from a combination, how
much Syngentas seed business could be expected
to fetch in a sale and any risks related to moving the combined companys corporate base to
the United Kingdom, which Monsanto had sug424
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gested.
Monsantos position had been weakened by a
decline in its own shares, owing to concerns about
the Syngenta bid and to a broad slump in commodity prices that diminished farmers spending
power.
Monsanto shares, which had fallen 25% this
year through Tuesdays close, jumped nearly 9%
to $97.08 in 4 p.m. New York Stock Exchange
trading on Wednesday after disclosing it would
drop the bid and resume repurchasing shares.
Monsanto didnt preclude a resumption of its
pursuit. Mr. Grant has coveted Syngenta since
at least 2011, and said in a June interview that
he viewed the effort as a long game.
Monsanto said it continues to believe a combination would have created tremendous value for
shareowners of both companies and farmers.
A deal would have been controversial.
Some U.S. farmers had expressed concern
about the heft a combined company would wield,
and Monsanto, while insisting that a merger
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could win regulatory approval, had acknowledged

that approval would require moves such as finding
a buyer for Syngentas seed business, to eliminate
overlap that could court antitrust scrutiny.
The National Farmers Union, a trade group for
farmers that had opposed the deal over competitive concerns, said Wednesday it was pleased that
Monsanto had given up.
American agriculture is already far too economically concentrated, leaving family farmers
and ranchers at a great disadvantage in the market place, said Roger Johnson, president of the
group.
Monsantos initial proposal in late April was
for 449 Swiss francs a share in cash and stock.
It later added a $2 billion reverse breakup fee,
which it said it would pay if competitive authorities blocked an agreed deal.
Mr. Grant met with Syngentas chairman in
Switzerland on Aug. 18 to outline its sweetened proposal, people familiar with the discussions said, including raising the breakup fee to
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$3 billion.
Write to Jacob Bunge at jacob.bunge@wsj.com
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Chapter
65
Schlumberger to Buy
Cameron International
for $12.7 Billion
Schlumberger Ltd. SLB -3.35 % , the worlds
largest oil-field service company, said Wednesday
it would buy smaller rival Cameron International
Corp. CAM 41.11 % for $12.7 billion in cash and
stock.
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Consolidation is expected across the energy

sector as companies struggle with low oil prices
and a pullback in drilling activity. The deal
comes months after Schlumbergers two biggest
competitors, Halliburton Co. HAL 2.87 % and
Baker Hughes Inc., BHI 3.06 % agreed to combine. That $35 billion deal is still undergoing
regulatory review.
The price tag values Houston-based
Cameronwhich makes drilling equipment and
supplies maintenance equipment to pipelines, refineries and oil-and-gas wellsat $66.36 a share,
a 56.3% premium to Tuesdays closing price.
Camerons shares have fallen 42% in the past
12 months as the price of oil plunged. But
stock in Cameron surged 41% to $59.81 midday
Wednesday. Shares of Schlumberger fell 4.7% to
$69.11.
The combination of Schlumberger and
Cameron, two of the best known names in oilfield services, will create an energy technology
powerhouse, executives from the two companies
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said Wednesday during a conference call.

Schlumbergers expertise is focused underground, helping companies find new oil and gas
reserves and coax more fuel out of existing discoveries.
Cameron creates the equipment that sits on the
surface at the top of a well, and is perhaps best
known as the maker of a piece that malfunctioned
and helped trigger the 2010 Deepwater Horizon
oil spill disaster. It settled with BP, the wells operator, for $250 million. Cameron later benefited
from new regulations on oil wells as companies
upgraded their equipment in the wake of the disaster.
The real excitement here is around what we
can create by combining our technology offerings, Schlumberger Chief Executive Paal Kibsgaard said on a call to discuss the deal. We
will basically generate better performance for our
customers.
Helping oil companies unlock oil and gas stores
more cheaply has become especially pressing for
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oil-field service providers as crude-oil prices linger

at their lowest levels this decade. Companies like
Schlumberger and Halliburton, as well as smaller
service providers, have had to lay off tens of thousands of workers around the world this year and
idle hundreds of drilling rigs amid sharp spending
cuts by their energy company customers.
Analysts said the deal didnt come as a complete surprise. Schlumberger and Cameron are
already partners in a joint venture, OneSubsea,
which focuses on drilling and managing subsea
wells in extremely deep water offshore.
The companies were in talks for months, according to a person familiar with the matter.
Market volatility in recent days complicated the
discussions, but ultimately only delayed the announcement, people familiar with the matter
said.
If crude-oil prices or stock markets decline further, the deal could look better from Camerons
perspective, because the company will be able to
ride out the downturn as part of a more muscu431
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lar entity, the people said, adding that if prices or

markets rebound the transaction no longer looks
attractive and Cameron shareholders could vote
it down.
Schlumberger took advantage of sharp share
price declines during the downturn. Although it
is paying a high premium based on Camerons
current price, the bid represents a 10% discount
to where the companys shares traded a year ago.
By acting now, Schlumberger was able to ink a
deal before Camerons retiring CEO Jack Moore
passed the baton to Chief Operating Officer Scott
Rowe in October. Schlumberger said Mr. Rowe
will run one of the main divisions at the combined
company.
The Schlumberger-Cameron deal is unlikely to
be the last combination of oil-field service companies, the part of the energy industry that has
borne the brunt of the pain inflicted by lower oil
prices. The sharp decline in oil prices has been a
catalyst for energy deals, with more oil-and-gas
M&A so far this year than in the same period
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of any other year on record, according Dealogic.

Year-to-date, acquisitions totaling $314 billion
have been announcedmore than double the volume of oil-and-gas deals seen at this time last
year.
While the dollar volume is high, the number of
transactions so far in 2015 is smaller than in prior
years. Many buyers and sellers are struggling to
agree on price, deal makers say. The sharp slide
in oil prices is making it tough for sellers to justify
deals at lower valuations, while buyers fret that
the markets still have further to fall.
While many energy observers had hoped oil
prices might recover in the second half of 2015,
expectations for weaker demand from China and
the possibility of new crude supplies flowing out
of Iran have pushed back expectations for a rebound. Analysts at UBS AG say oil-field service
companies could be under pressure until 2017,
which could prompt more mergers and acquisitions as companies try to weather the downturn.
We believe that more M&A opportunities are
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likely to evolve between the larger oil service and

equipment companies, Wells Fargo analyst Judson Bailey said. The driving force, in our view,
will be the ability to provide a suite of technology
and product lines to help the worlds biggest operators lower costs and enhance returns in areas
like deep water and U.S. shale.
Schlumberger, with dual headquarters in Paris
and Houston, said it expects to complete the
Cameron acquisition in the first quarter of 2016,
subject to approval by Cameron shareholders as
well as regulatory clearance.
Schlumberger expects pretax synergies of
about $300 million in the first year and $600 million in the second year after the deal closes. The
transaction will add to per-share profit by the
end of 2016, Schlumberger said.
Other parts of the energy sector, including
pipelines and oil-and-gas producers, have also
been consolidating.
Earlier this year, Royal Dutch Shell RDS.A 0.30 % PLC said it would pay nearly $70 billion
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for Britains BG Group BRGYY -1.82 % PLC;

pipeline giant Energy Transfer Equity ETE 0.64
% LP offered $48 billion to buy Williams WMB
2.24 % Cos.; and a partnership controlled by refiner Marathon Petroleum Corp. MPC 4.00 %
announced plans to acquire MarkWest Energy
Partners MWE 0.17 % LP for $15.8 billion.
Lisa Beilfuss contributed to this article.
Write to Alison Sider at alison.sider@wsj.com
and Dana Mattioli at dana.mattioli@wsj.com
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Chapter
66
Netflix Viewership
Finally Gets a
Yardstick
http://www.wsj.com/articles/netflix436
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viewership-finally-gets-a-yardstick-1440630513
When asked recently if she knew how many
people were watching the comedy Unbreakable
Kimmy Schmidt on Netflix, NFLX 8.48 % cocreator Tina Fey said she had no idea.
We dont have any actual numbers, Ms. Fey
said at a recent gathering of television critics. I
feel a lot of people are watching the show. Lets
go with that, she cracked.
Netflix Inc. is notoriously secretive when
it comes to sharing such informationbe it
with content providers, the media or Wall
Streetarguing that since it doesnt have advertisers to please, ratings for its subscription
streaming service are irrelevant.
But now Hollywood is getting its first real peek
inside the black box of online video streaming.
In recent months, measurement specialist Nielsen
has been scaling up a program to track viewing
on Netflix and other online services like Amazon.com Inc. AMZN 7.38 % s Prime Instant
Video and Hulu. Nielsen said it is now tracking
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nearly 1,000 shows.

Most major TV studios are receiving detailed
readouts on how their own programming is performing, including the total viewers for any
episode and basic demographics like age and gender, Nielsen said.
For media giants including Comcast Corp.s
NBCUniversal, Time Warner Inc. and 21st Century Fox, the new data could give them more
leverage in their content-licensing negotiations
with streaming services, especially industry giant Netflix. When shows perform well, they will
know to push for higher fees when deals are renewed.
At the same time, if the data reveal that Netflixs original content isnt as popular as its acquired programs that could be a concern to Wall
Street, given how much the company has been
investing in its own programming.
Netflix has been dismissive of Nielsens efforts,
noting that the company still doesnt provide ratings for content viewed on tablets and phones
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and that its numbers wouldnt include viewing

of shows outside the U.S.
There are limits to the media companies bargaining power. Despite their misgivings about
Netflixand its role in drawing audiences away
from traditional TVthey have clocked robust
revenue growth from their licensing pacts with
streaming companies. Streaming services including Netflix, Hulu and Amazon will spend $6.8
billion this year buying reruns of TV shows from
networks and studios, estimates David Bank, an
analyst at RBC Capital Markets.
Netflix does shares some viewing information
with select studios. Studios that do large contentlicensing deals with Netflix have been able to negotiate for data such as the number of times a
show has been streamed on a monthly basis and
some tracking info to see how a show is retaining an audience over multiple episodes, people
familiar with the matter say. But Netflix doesnt
provide demographic breakdowns or how many
people watch any individual episode.
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Some major suppliers said they dont get any

information from Netflix, and expressed surprise
and disappointment that competitors do, since
Netflixs mantra has been that it doesnt share
viewership data. Amazon and Hulu have a similar approach to sharing data with program suppliers.
A Netflix spokesman said the data that has
been shared is very limited and said the company isnt sharing any data on Netflix originals, including shows produced by the major studios. The one exception was Twentieth Century Fox Televisions Arrested Development,
the spokesman said. (Twentieth-parent 21st Century Fox and Wall Street Journal-owner News
Corp were part of the same company until mid2013.)
For now, Nielsen is sharing only data on shows
with the studios that own them and that pay for
the information. Over time, the company hopes
to syndicate the data widely in the industry,
so studios can compare their viewership against
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others, further aiding them in negotiations.

Nielsen is measuring streaming viewership
through the same sample of more than 25,000
U.S. households it uses to measure traditional TV
ratings. Studios provide Nielsen with digital files
that allow the measurement company to scan for
audio fingerprints of shows and log viewing data.
Nielsen can measure any show a studio has produced, including originals created exclusively for
streaming services.
The data provided to studios doesnt specify
which streaming service a show was on, but studios can deduce that since they generally have
exclusive tie-ups with streaming services for certain periods.
Not everyone is thrilled with the early results
from Nielsen. One studio executive said the
Nielsen samples arent wide enough and dont
capture viewing from tablets and mobile devices.
Nielsen is planning on including such measurement in the near future. Competitors to Nielsen
in this area are emerging, including Luth Re441
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search and Symphony Advanced Media, both of

whom offer viewership information on subscription video services.
In addition to whatever data can be obtained
from outside suppliers and Netflix, some production companies have tried on their own to gauge
whats working on the service and whats not.
A common approach is to closely monitor Netflix to see which shows it is promoting to get a
sense of what is popular. One studio executive
said he has multiple researchers who often devote several days a week watching the home page
of the streaming service.
If a show is being suggested for a month, it
really tells you something, the executive said.
Another dead giveaway is when Netflix calls a
studio, unsolicited, seeking shows similar to one
that recently started streaming.
Then there are the old-school Hollywood ways
to get information, such as hiring people who
used to work at a streaming company or swapping data over cocktails.
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People do talk, said a studio executive. We

go to lunch. We go to dinner. We drink.
The data the studios are getting doesnt yet
appear to be trickling down to show producers,
actors or their agents, limiting their ability to
cash in on the popularity of a Netflix series to
grow their career.
This is most important psychologically, said
one prominent television agent. Creators want
to know who, if anyone, is watching and enjoying
their work.
Write to Joe Flint at joe.flint@wsj.com and
Ben Fritz at ben.fritz@wsj.com
a Family
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Musical Head Start

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Chapter
67
Winners, Losers in
Chinas Upheaval
http://www.wsj.com/articles/winners-losersin-chinas-upheaval-1440630969
BEIJINGThe China economic slowdown that
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has rattled global markets is also shaking the fortunes of multinationals that do business here.
Those that fed Chinas traditional boom industries of infrastructure, energy and steellike
Anglo-Australian miner BHP Billiton Ltd. BHP
3.52 % and French energy-equipment maker
Schneider Electric SU -2.19 % SEare suffering
precipitous falls in revenue there after years when
their profits were boosted by the countrys 10%plus economic growth. Many also face heavy
write-downs as investment plans predicated on
surging China demand look increasingly unrealistic as the countrys growth slows.
In contrast, companies like iPhone maker Apple Inc. and luggage maker Samsonite International SA 1910 -3.61 % that cater to Chinas consumers are faring much better as retail demand
overall remains strong.
Were spending as much as we always do, said
Zhen Lin, a 27-year-old magazine editor on maternity leave, emerging from a Beijing supermarket with a cart half full of groceries. Ms. Lin said
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she eats out several times a week and isnt holding back on her spending. Among the purchases
she is planning: a new computer this year and a
new car some time in the next two.
The shifting fortunes of international companies in the worlds second-largest economy come
after two decades when China has not only been
the worlds factory floor, but an El Dorado for
foreign companies of all stripes.
Major luxury and retail brands as well as car
makers piled in, becoming as prevalent on the
streets of Shanghai as they are in New York or
London. China became the worlds largest car
marketa critical venue for companies like General Motors Co. and Volkswagen AG. Sales of
luxury goods in China jumped 30% to 266 billion
yuan ($41.4 billion) in 2011, and by 2012, Chinese shoppers made a quarter of all global luxury
purchases. Giorgio Armani SpA had around 300
stores in China then, just shy of Wal-Mart Stores
Inc.s 380.
Major oil companies like BP PLC and Royal
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Dutch Shell PLC invested in projects in China,

and hundreds of other industrial companies
boosted output around the world to meet Chinas
demand. China still consumes nearly half the
worlds copper and has become the worlds
second-largest oil importer. It also consumes 45%
of global steel, but some analysts reckon its demand may have already peaked.
The slowdown in Chinas rate of growth that
began in 2011 is changing the equation. Industrial production in July grew 6% over the yearearlier period, less than half its year-over-year
growth rate of 14% in July 2011. Property development has ground to a halt as empty malls
and apartment buildings dot many of the countrys smaller cities. Office-building construction
starts fell nearly 15% in the first seven months
of this year versus a year earlier; in 2014, theyd
grown 6.7%.
But retail sales have held up relatively well during the past few years, with growth slowing to
10.5% in July from 12.2% the same month last
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year and 17.2% in 2011.

The contrasting fortunes in the corporate
world are stark.
BHP Billiton, the worlds biggest miner, which
had racked up $23.6 billion in profit four years
ago, last year made only $1.9 billion. On Tuesday
it scrapped its long-held belief that China will
produce more than one billion tons of steel a year
by the mid-2020s and now sees output peaking as
low as 935 million tons. U.S. oil giant Chevron
Corp. took a $2 billion impairment charge in
the second quarter after a lower crude-price outlook led it to suspend projects; the company said
slower Chinese growth was partly to blame.
Schneider Electric, one of the worlds leading
suppliers of switches, circuit breakers and other
electrical gear used in buildings and power grids,
cut its profitability target for the year, blaming in large part Chinas slowing growth. The
countrys ebbing demand for elevators and escalators as its building boom cooled hit the Otis elevator unit of United Technologies Corp., which
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in July reported a 5% decline in second-quarter

sales. Caterpillar Inc. said in July that AsiaPacific sales of its construction equipment were
down 30% in the second quarter, with much of
that decline in China.
Meanwhile, luggage maker Samsonite Wednesday said sales in China during the first half of the
year rose 30% excluding currency effects, helping push overall revenue to a record $1.2 billion.
Apple said its business in China more than doubled to $13.23 billion in the latest quarter, and
Chief Executive Tim Cook assured spooked investors earlier in the week that its business was
still strong there in July and August. German
sportswear brand Adidas AGs China sales in the
first half of the year in China increased 1.16 billion ($1.34 billion), up 20% from a year earlier
excluding currency effects. Much of the growth
came from aggressive expansion across China,
where Adidas has more than 8,400 stores.
It is a tale of two economies, said Andrew Polk,
economist at research group Conference Board.
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The old growth drivers are clearly in the tank.

The new growth driversconsumption and serviceare holding up for now, but the jury is still
out, Mr. Polk said.
Some of the strongest corporate performers
are targeting a newly affluent population that
looks increasingly like the American middle class.
They are spending for the first time on goodies like overseas travel, imported food and concert tickets. Demand for prime splurging products like Japanese diapers, Mexican avocados and
Chilean salmon is surging, and it hasnt been
overturned by the crash in stockswhere average
Chinese still have little invested.
Income is climbing for large segments of the
population. Between 2005 and 2012, roughly 50
million urban households graduated into the middle class, which now numbers around 147 million households, roughly 49% of Chinas urban
population, according to the Boston Consulting
Group. Those consumers started buying products like Dove shampoo from Unilever PLC and
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Crest toothpaste from Procter & Gamble Co.

rather than local goods.
Now, the fastest shift is in households moving to the equivalent of upper-middle class,
with monthly incomes between 12,000 yuan and
20,000 yuan ($1,868 to $3,114) and a taste for
spas, organic food and vacations in Tokyo and
Bangkok. BCG estimates there are more than 25
million of such households now, and the number
will more than triple by 2020.
We are on the spend side of the economy,
said Samsonite Chief Executive Ramesh Tainwala, adding that many of the companys customers are first-time overseas travelers. Despite
the New Normal, the urge to travel has not
changed.
Mr. Tainwala said that the price of Samsonites best-selling luggage in China has dropped
to around $250 from $400 a few years ago as some
of the more reckless spenders of the boom times
are replaced by buyers looking for good value for
their money. The company has reached out to
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consumers in smaller Chinese cities and tackled

local rivals by stressing its global warranty and
internationally known brand.
To be sure, plenty of consumer-facing firms are
also struggling. Purveyors of luxury goods like
Prada SpA have seen sales in China pummeled
by a government crackdown on corruption and
extravagance. Companies like Unilever and P&G
that peddle basic consumer goods have seen sales
eroded by a host of savvy local rivals with soap
and shampoo brands that now rival theirs in popularity. Global car makers have cut back production as sales fall, amid Chinese government
complaints that the companies were overcharging consumers.
Consumer spending isnt enough to replace the
industrial investment that powered Chinas economic boom, and if economic fallout continues,
many consumers may lose the jobs that are fueling their spending. Already Chinese wage growth
has slowed in the past year. Smaller cities, which
have been targets for corporate expansion, may
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no longer be bright spots for growth, Conference

Boards Mr. Polk said.
Adidas China head Colin Currie said executives plan to keep a close eye on business, tracking real-time sales data to see if there is any fallout in Chinas smallest cities, where the brand
has rapidly expanded in the past five years. The
company clusters its store data by regions and
store formats, enabling executives to compare
what strategies are working and to switch everything from design to distribution for those that
arent.
We know that the Chinese consumer changes
very quickly, said Mr. Currie. As a brand and
a business, we have to watch these changes. Its
one of our strengths.
Multinationals have seen promiseand sometimes disappointmentin Chinas vast consumer
market for more than a century, embodied by
an oft-repeated 19th-century saying that if every man in China added an inch to his shirttail,
then the mills of Lancashire, England, would run
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for a generation.
Consumer companies were among the first to
invest when China began opening its economy
to outsiders in the late 1970s. Coca-Cola Co.,
which entered the market in 1978, said in 1980
it would build its first bottling plant in Beijing.
Kentucky Fried Chickennow KFCopened its
first outlet in the 1980s and quickly became the
most popular foreign food chain in China.
Heavy industry investment jumped after China
joined the World Trade Organization in 2001. By
2002, foreign direct investment had jumped to
$52.74 billion from $40.4 billion in 1999. By 2011
it had more than doubled to $124 billion before
easing, and last year totaled $119.57 billion.
Brian Spegele in Beijing and Phred Dvorak
in Hong Kong contributed to this article.
Write
to
Laurie
Burkitt
at
laurie.burkitt@wsj.com
Winners : the big funds who drive the marker
up and down, lot of money is made when the
market makes huge swings..
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Losers : Everyone else...

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Chapter
68
Water, Water
Everywherein Bottles
Mary Clare Carley leaves home each morning

with a gallon water jug and carries it wherever
she goes to stay hydrated.
The 34-year-old teacher doesnt remember
when she last drank water from a tap. Instead
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she buys Crystal Springs or Great Value distilled

water at supermarkets for $1 or less. If I dont
have my gallon of water, I just feel incomplete,
said Ms. Carley, seated at an Atlanta food court
with her giant water bottle.
Despite obvious drawbacksthe plastic and
the extra cost for something essentially free out of
the tapthirst for bottled water just keeps growing. U.S. bottled water volume rose 7% last year.
That puts it on track to outsell soda by 2017,
according to forecasts by industry tracker Beverage Marketing Corp. Nestle SA, NSRGY 0.42 %
whose water brands include Pure Life and Poland
Spring, sold more water than Dr Pepper Snapple
Group Inc. DPS 2.13 % sold soda last year, making Nestlenot Dr Pepperthe No. 3 company
in the U.S. for nonalcoholic beverages, according
to Beverage Digest.
That is bad news for Coca-Cola Co. KO 1.95
% and chief rival PepsiCo Inc. PEP 3.18 % which
together control roughly two thirds of the highermargin U.S. soda market. Between 2000 and
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2014, per capita bottled-water consumption more

than doubled to 34.02 gallons from 16.74 gallons
while soda fell to 39.92 gallons from 53.17 gallons, according to Beverage Marketing. There
are now hundreds of brands vying in a market
that was non-existent not that long ago, leaving
those hallway and playground drinking fountains
in the dust.
Coke and Pepsi together do have about a fifth
of the bottled-water market. Cokes main brand
is Dasani; Pepsis is Aquafina. But they would
rather be selling soda. Over the past decade,
according to Beverage Marketing, the wholesale
price for a gallon of water has dropped to $1.23
from $1.63 while soda has risen to $4.05 from
$3.05. With water, The philosophy is stack it
high and sell it low, said Bill Sipper, a beverage
consultant at Cascadia Managing Brands. Retail
sales of bottled water totaled $18.82 billion last
year, estimates market researcher Euromonitor,
compared with $36.87 billion for soda.
Environmental concerns dog the product in
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some quarters. At least 18 national parks, including Grand Canyon and Mount Rushmore, have
prohibited the sale of bottled water. Bottled water is frowned upon on many college campuses,
and in May, protesters demanded that Nestle
stop tapping Californias water supplies during
the states drought. Starbucks Corp. SBUX 5.62
% stopped using California water for its Ethos
brand, but Nestle hasnt changed.
But water is so hot that most consumers buy
it despite the environmental drawbacks.
Meanwhile, dozens of smaller, high-end
specialty-water brands with names like Real
Water, People Water and HappyWater have begun flooding the market. They are backed by
investors of all types who are trying to create
higher margins with new bottle designs, exotic minerals and elaborate tales of provenance.
Eternals label faces inward so shoppers view it
through water, filtered by limestone, quartzite
and sandstone from the Allegheny Mountains.
Karma Wellness Waters cap injects seven vita461
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mins when youre ready to drink. Other startups

pitch birch water, maple water and cactus water.
Aquahydrate, headed by former Coke executive Hal Kravitz, is getting a publicity boost
from its celebrity shareholders Mark Wahlberg
and Sean Diddy Combs, who have recently featured the high pH, electrolyte-infused water in
Entourage, a film Mr. Wahlberg helped produce, and in a TV ad for Mr. Combs Ciroc
vodka.
Private-equity firms Castanea Partners, which
sold Fuze Beverage to Coke in 2007, and First
Beverage Ventures, a unit of Los Angeles-based
First Beverage Group, took stakes last fall in Essentia, an alkaline water. Verlinvest, an investment fund of Anheuser-Busch InBev SA BUD
1.89 % s main Belgian shareholders, has invested
in Hint, a flavored water so popular on Googles
Mountain View, Calif., campus that Hint stocks
its own refrigerators there.
Water wars are heating up. Bottled water
brands spent $84.5 million on advertising last
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year, much less than the $650.6 million spent advertising soda, estimates Kantar Media. But Fiji
Water, owned by closely held Roll Global, alone
plans to spend $30 million this year for its first
U.S. television campaign, contrasting the pristine volcanic island that produces its water with
grimy cityscapes.
Coke has a new ad campaign featuring actress Jennifer Aniston touting its vapor-distilled,
electrolyte-enhanced Smartwater and PepsiCo
this summer ran its first ad campaign for Aquafina since 2008. Detox Water, whose investors
include Aloecorp and NBA player Mason Plumlee, has handed out thousands of free samples of
its brand new aloe water in Manhattan this summer.
Some of this interest may have been stirred
up by a 2013 industry-funded study attributing
scores of illnesses to tap water. But a lot of
it is being generated by a new consumer obsession: Hydration. In a December poll by Mintel,
29% of bottled water drinkers said they would
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feel strange not always having water with them.

That helped Hidrate Inc., a start-up by University of Minnesota students, raise more than
$600,000 on the crowdfunding site Kickstarter
this year to finance a bottle that tracks how much
water youre drinking and sends alerts to your
smart phone.
Debra Ann Stokes recently stopped at Whole
Foods in Atlanta to stock up on bottles of alkaline
water, which has a high pH level that proponents
say can neutralize acids and help the body absorb nutrients. This goes down much different,
smoother, said Ms. Stokes, a 64-year-old bellydance instructor, grabbing six one-liter bottles of
Alkalife Ten.
Some scientific studies indicate Americans may
be going overboard. The Institute of Medicine estimates women and men need about 2.7 and 3.7
liters of water a day, respectively, but that includes water from other sources like soda or coffee
and 20% from food. It says fluid intake prompted
by thirst and drinking at meals is usually suffi464
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cient.
The Government Accountability Office also
noted in a 2009 report that the Food and Drug
Administration cant make bottlers use certified
laboratories for water-quality tests or share their
results. The Mayo Clinic, meanwhile, says the
science on specialty waters like alkaline water is
thin and that for most people, plain water is
best.
Write to Mike Esterl at mike.esterl@wsj.com
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Chapter
69
For Emerging Markets,

2015 Isnt 1997
The Federal Reserve was planning to raise interest rates, oil prices were sinking, and an emerging
Asian country devalued its currency.
For emerging markets, there are unsettling
similarities between 1997, when Thailands devaluation touched off a crisis that engulfed Asia
and eventually Russia and Latin America, and
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the present, when Chinas devaluation has triggered selloffs in currencies, stocks and bonds.
The good news is that a lot has changed since
then. Today, falling currencies arent a sign of
a brewing crisis, but a welcome shock absorber.
The bad news is that Chinas slowdown and
the accompanying slump in commodity prices
are exposing structural weaknesses that emerging economies have neglected for too long.
For emerging markets, the Feds apparent determination to tighten monetary policy stirs unpleasant memories. In 1981-82, 1994, and 199798, the fact or fear of higher U.S. interest rates
squeezed countries and companies that borrowed
in dollars, precipitating crises.
Entering 1997, many emerging market currencies were pegged to the dollar. Those pegs had
stabilized inflation and provided certainty to investors and exporters. But they also encouraged governments, banks and companies to borrow heavily in dollars, which was cheaper than
borrowing in the local currency, and foreigners
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to lend in local currency.

Growing trade deficits, though, made those
pegs unsustainable. To counter selling pressure,
central banks spent scarce foreign currency reserves buying up their currencies. Eventually,
they were forced to devalue, starting with Thailand, and later, the Philippines, Malaysia, South
Korea, Indonesia, Russia and Brazil.
Devaluation drastically raised the burden of
dollar-denominated debt. To limit selling pressure, many resorted to higher interest rates. In
both South Korea and Thailand, short-term interest rates roughly doubled to over 20%.
Today, most major emerging economies have
floating, not fixed, exchange rates. That has
buffered them from U.S. and European recessions and slumping commodity prices. Their
central banks still worry about inflation. But
with prices still rising in the low single digits,
most have avoided significant increases in interest rates. Indonesia, South Korea and Thailand
have cut them this year. Brazil is still struggling
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with inflation and has raised rates, but by far less

than in 1998-1999.
At the same time, emerging-market banks are
more conservatively run and regulated than in
the late 1990s. They are better capitalized, and
depend more on deposits and less on loans from
big, often foreign, investors.
China is a glaring exception to some of these
trends. It has stuck with a fixed exchange rate.
Its devaluation two weeks ago had echoes of 1997:
the threat of higher U.S. rates had prompted investors to sell the yuan, forcing the Peoples Bank
of China to spend reserves propping it up.
But while devaluations in the 1990s were disorderly, dramatic, and forced, Chinas control over
cross-border capital flows and ample $3.7 trillion
of reserves means it is largely immune to speculative pressure, allowing tight rein over the currencys rate of descent and freedom to lower interest rates.
True, emerging-market companies have exploited low U.S. interest rates to borrow heavily
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in dollars in recent years; those debts get harder

to repay as the dollar rises. But because the
borrowing has been predominantly in long-term
bonds rather than short-term bank loans, those
difficulties will likely materialize gradually.
Chinas banks are another potential problem:
their nonperforming loans are almost certainly
many times higher than the 1.5% of assets reported by their regulator.
Systemic banking crises occur when depositors
and lenders, fearing bad loans will sink the banks,
yank their money out. To stop the panic the
government is forced to bail out or nationalize
the banks.
But runs on Chinas banks are unlikely since
most are already government controlled and
wont be allowed to fail: They come prenationalized, notes Simon Cox of BNY Mellon
Investment Management.
The combination of capital outflows, high interest rates and collapsing banks pummeled the
economies of east Asia: South Koreas shrank 5%
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in 1998, Thailands by 11%, and Indonesias by

13%. By contrast, a hard landing for China
means it would still grow 4% per year in coming
years, according to the pessimistic forecasters at
Oxford Economics.
So emerging economies arent on the precipice
of a financial crisis. Yet many face a more drawnout economic crisis nonetheless.
The banner growth many enjoyed in the last
decade has proved to be highly dependent on
China and its appetite for commodities. Exports
to China represent roughly 2% of GDP for Indonesia, Brazil and South Africa, according to
IHS. IHS 2.15 % That understates Chinas influence, since its demand underpinned commodity
prices no matter who they were sold to.
The receding China boom is exposing more
intractable barriers to growth: Russias failure
to diversify beyond oil and gas, Brazils and Indonesias inadequate public infrastructure, East
Asias aging populations, and South Africas underachieving schools. Throughout the emerging
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world, corruption and excessive state meddling

undermine public confidence and private enterprise.
In the long run, these problems are more important, and more difficult to fix, than a slowdown in China.
Write to Greg Ip at greg.ip@wsj.com
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Chapter
70
U.S. Durable Orders

Rose 2% in July
WASHINGTONOrders for long-lasting manufactured goods rose in July for the second straight
month, as businesses boosted investment in new
equipment and software.
New orders for durable goodsproducts designed to last at least three years, such as refrigerators and fighter jetsrose a seasonally adjusted
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2% in July from June, the Commerce Department said Wednesday. Economists surveyed by
The Wall Street Journal had expected growth of
just 0.1%.
Junes orders rose a revised 4.1% from May,
compared with an earlier estimate of 3.4%.
The figures provide more evidence suggesting
the U.S. economy is strong enough to weather
recent market turmoil, coming on the heels of
data showing the housing market and consumer
confidence are picking up.
Other recent data have pointed to renewed optimism about demand for manufactured goods,
after a sluggish start to the year.
For the first time in over two years, we have
two unambiguously strong sets of monthly numbers in a row, Stephen Stanley, an economist at
Amherst Pierpont Securities, said in a client note.
I am not ready to jump on the investment boom
is coming! bandwagon just yet, but I am feeling
better about the possibility, he said. Labor and
product markets are tightening, which gives firms
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more reason to expand their businesses as well as

to spend on labor-saving technology.
Industrial production, which measures manufacturing, utilities and mining output, rose a seasonally adjusted 0.6% in July, the Federal Reserve said this month. A survey of supply-chain
executives conducted by the Institute for Supply Management found U.S. manufacturing expanded in July, but at a slower pace than in June.
Durable-goods statistics are volatile and subject to large revisions. Improvement in the manufacturing sector has been choppy as a strong
dollar has made U.S.-produced goods more expensive for overseas buyers.
Julys increase in part reflects increased investment by businesses in new machinery, electronics
and other goods. Core orderswhich strip out
defense and transportation and are considered a
proxy for business spending on equipment and
softwarerose 2.2% in July, the biggest increase
since June 2014.
The sharp rise in core orders was particularly
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encouraging as it points to a sharp acceleration

in the pace of business capital investment activity in the third quarter, following the fairly subdued tone the month before, Millan Mulraine,
an economist at TD Securities, said in a note to
clients.
Junes rise in the same category was revised up
to 1.4% from a previous estimate of 0.9%.
Transportation orders were a leading driver
of Julys gain, increasing 4.7% from the previous month. A 4% rise in new orders for motor
vehicles and parts reflected improving demand
for cars. Civilian aircraft orders were down 6%.
Separately, the nations largest aircraft manufacturer, Boeing Co., said it received fewer orders
for planes in July than June.
Excluding the transportation sector, orders
rose 0.6%. Excluding defense, another volatile
sector, orders rose 1%.
Wednesdays report suggests manufacturing
could begin picking up after slowing during the
first half of the year. Through July, overall new
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orders of durable goods are still down 5.1% compared with the year-earlier period.
Write to Anna Louie Sussman at
anna.sussman@wsj.com
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Chapter
71
Boeing Settles Lawsuit

Accusing Company of
Mishandling 401(k)
Plan
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http://www.wsj.com/articles/boeing-settleslawsuit-accusing-company-of-mishandling-401-kplan-1440623006
Boeing Co. BA 3.07 % agreed on Wednesday to a preliminary deal to settle a long-running
lawsuit accusing the company of mishandling its
401(k) plan to the detriment of its employees.
The settlement comes the day a trial was
scheduled to begin in the nine-year-old case.
Terms werent disclosed. The two sides are expected to update the court on details of the talks
next month and set a timeline for seeking final
approval, according to a court order.
Filed on behalf of 190,000 Boeing employees
and retirees, the class-action suit accused Boeing of failing to uphold its fiduciary duties to
employees by allowing excessive 401(k) fees to
go unchecked, choosing higher-cost retail mutual
funds over cheaper options, and improperly making 401(k) plan decisions to benefit vendors receiving other Boeing business.
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Boeing, which has defended its 401(k) practices

and denied the claims, had no comment Wednesday on the settlement.
Attorney Jerome Schlichter, who represents
the plaintiffs, said he was prepared to go to trial
and is pleased to have reached a provisional settlement. He said his firm continues to be committed to improving the 401k savings plans that
millions of Americans rely on for a secure retirement.
The Boeing suit is one of a string of similar
class actions targeting major companies over the
past decade for alleged violations of the federal
Employee Retirement Income Security Act, or
ERISA. Very few have gone to trial. In December, Lockheed Martin Corp. LMT 1.58 % reached
a $62 million settlement the week its trial was set
to begin, the largest payout so far in a suit of this
kind.
Mr. Schlichter also represented the Lockheed
plaintiffs and negotiated a $27.5 million deal with
Ameriprise Financial Inc. AMP 4.45 % earlier
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this year. All told, settlements in eight of his

suits have brought in $214 million, with about a
third of that going to Mr. Schlichters law firm.
In addition to monetary recoveries, the settlements often require the companies to agree to
permanent changes to their 401(k) practices.
One of Mr. Schlichters cases, against Southern California utility Edison International, EIX
2.10 % went to a partial trial and earlier this
year reached the U.S. Supreme Court. The court
ruled unanimously that companies have a continuing duty under ERISA to monitor and remove
imprudent investments included in a retirement
plan.
Boeings $44 billion 401(k) plan is the secondlargest in the nation after International Business
Machines Corp. IBM 4.07 % , according to the
Labor Department.
Regulation of the 401(k) industry falls to the
Labor Department, which has sometimes filed
briefs in support of cases brought by private attorneys. While the agency has pursued some
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companies on its own for allegedly excessive fees,

it more often uses its resources to investigate
fraudulent plans.
In 2012, the agency implemented new rules
that require companies to clearly disclose all
401(k) fees to employees.
Write to Sara Randazzo at sara.randazzo@wsj.com
payday for the lawyers.
Class Action suits often end with the plaintiffs
getting a $1.85 discount off the next Boeing 737
they buy and the lawyers getting MILLIONS.
Wonder how this one turned out?
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Musical Head Start
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Me

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Chapter
72
Paddy Power, Betfair

Agree to Gambling
Deal
LONDONPaddy Power PLC and Betfair
Group BTFRF 10.51 % PLC on Wednesday
joined a wave of mergers and acquisitions in the
online-gambling industry, seeking to create a betting group with operations throughout Europe
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and Australia.
The transaction comes as the sector faces increased regulations that are raising competitors
costs.
Shareholders in Dublin-listed Paddy Power
would own 52% of the merged company and receive an 80 million ($92 million) special dividend, while London-listed Betfairs shareholders
would own 48%, the companies said Wednesday.
The deal would create a group valued at $7.6
billion based on the companies current market
capitalizations.
Specific financial terms werent disclosed. The
companies said the combination would enhance
their position in online gambling and sports betting, as well as deliver synergies, customer benefits and shareholder value.
The combined groups scale and capabilities
would leave it better placed to compete in existing and new markets, the companies said.
Paddy Power and Betfair plan to keep their separate brand names.
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The structure of the possible merger is still being completed, though the companies said they
have agreed on who would run the combined
group. Paddy Power Chairman Gary McGann
would chair the merged company and Betfair
Chief Executive Breon Corcoran would serve as
the combined companys CEO.
The proposed tie-up comes amid consolidation
in the sectorparticularly in the U.K., where
the government has imposed a new tax on online gambling. The point-of-consumption measure, which took effect in December, levies a 15%
tax on profit made by companies on bets by U.K.
consumers.
The new levy has triggered a financial and
strategic rationale for consolidation in the sector, said Citi analyst James Wheatcroft said.
Regulations have also tightened elsewhere in
Europe, constraining growth and focusing companies attention on how to lower costs.
In the U.K., online sports-betting and gambling company GVC Holdings PLC earlier this
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month raised its offer for Bwin. Party Digital

Entertainment PLC as it continues to seek to
usurp Bwins agreed takeover by 888 Holdings
PLC. GVCs latest offer values Bwin at 1 billion ($1.6 billion), or 125.5 pence a share.
Also this month, William Hill PLC said it
bought a minority stake in NeoGames S.a.r.l.,
an online lottery company, for $25 million
and online-gambling and entertainment company
Sportech PLC said it received a proposal from a
Toronto-listed gambling-software supplier Contagious Gaming Inc. regarding a possible recommended offer for the company.
Betting and gambling-services company Ladbrokes PLC last month said it would merge with
rival Gala Coral Group Ltd. in a stock deal that
would create a gambling company valued at 2.3
billion. Also last month, Stride Gaming PLC acquired InfiApps Ltd., an internationally focused
mobile social-gambling company for as much as
$39.2 million.
Last year Canada-based Amaya Inc. purchased
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fellow online gambling company Oldford Group

Ltd., the owner of PokerStars, for $4.9 billion.
Investors responded positively to the proposed merger between Paddy Power and Betfair.
Shares in each company closed up 20% in London
on Wednesday.
The potential deal would create a company
with leading positions in the U.K., Australia and
continental Europe, said Mr. Wheatcroft, the
Citi analyst.
Paddy Power is one of the largest bookmakers in the U.K., Ireland and Australia in revenue
terms, with additional operations in Italy, France
and Canada, according to its website.
Betfair was launched in the U.K. in 1999 and
floated on the London Stock Exchange LSE -2.92
% in 2010. The companies have combined annual
revenue of roughly 1.5 billion.
Wednesday, Paddy Power posted a 31% rise in
pretax profit to 80.5 million for the six months
ended June 30 from 61.6 million a year earlier.
It added that full-year operating profit is ex488
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pected to be ahead of 2014 and the consensus

market forecast.
Betfair said its revenue rose 15% to 135.4 million for the companys fiscal first quarter ended
July 31.
Write to Rory Gallivan at rory.gallivan@wsj.com
and Razak Musah Baba at Razak.Baba@wsj.com
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Chapter
73
Fiat Chrysler Boss

Says Auto Maker Can
Survive With or
Without Partner
Fiat Chrysler Automobiles NV Chief Executive
Sergio Marchionne told thousands of dealers this
week the auto maker can survive as a stand-alone
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even after a public campaign to find a potential

partner.
Mr. Marchionne, speaking in Las Vegas to
roughly 7,000 personnel from its dealer body, said
he isnt under pressure to merge with another
car company, and that the company can finance
a competent product portfolio on its own. Fiat
Chrysler, the smallest of Detroits three car companies, has faced wide criticism for a relatively
thin pipeline.
We were told that the idea we cant compete
on our own was nonsense, said one of people who
attended the product preview at the show. The
new models show there are no delays in the new
models.
Mr. Marchionne showed off a handful of significantly redesigned models or entirely new models
in Las Vegas, including three Jeeps and a plugin hybrid electric minivan. The executive also
laid out plans for dozens of product freshening
projects slated for the next six to 24 months.
Chief among the highlights were three new
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Jeep models, including a compact crossover; an

upscale Grand Wagoneer designed to compete
against Land Rover and the next-generation Jeep
Wrangler, according to dealers in attendance. Although the new Wrangler doesnt stray far from
its iconic rugged design, say those who saw it, the
company promises it will get up to 30 miles per
gallon, these dealers said.
The new vehicles and the assurance Fiat
Chrysler can succeed on its own come as Mr.
Marchionne has aggressively pursued partnerships. His moveswhich include an approach to
General Motors Co. about a mergerprompted
questions about whether it can fund competing
head-to-head with the likes of Volkswagen AG
and Toyota Motor Corp., in an industry where
technology, safety and emissions requirements are
getting steeper.
Mr. Marchionne, who took control of Chrysler
after its 2009 bankruptcy and merged it with Fiat
just ahead of an industrywide upturn, has leveraged the two companies resources to quickly redo
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the U.S. auto makers aging lineup, but some industry experts still believe Fiat Chrysler needs to
move faster to get new models to showrooms.
Mr. Marchionne did tell the crowd that even if
a merger occurred, it would have no impact on
the auto makers U.S. network, now consisting of
2,630 dealerships.
A highlight of the product preview was a
streamlined, next-generation Dodge Charger that
brought dealers to their feet with applause. A
new Dodge Barracuda convertible is also in the
works.
If I could have, I would have ordered 25 of
those new Chargers on the spot, one dealer said
who was interviewed by telephone following the
event. Dealers were barred from bringing mobile
devices to the event.
Other vehicles included a new minivan with a
swoopy style and a front grille resembling the
Chrysler 200. A revised minivan is due out in first
half of 2016 and will also have a plug-in hybrid
version.
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Write to Jeff Bennett at jeff.bennett@wsj.com

and Christina Rogers at christina.rogers@wsj.com
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Chapter
74
Housing, Consumer
Confidence Are Bright
Spots in U.S. Economy
A firming housing market and growing consumer

confidence, alongside nearly five years of steady
job creation, suggest the U.S. is resilient enough
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to weather the forces roiling stock prices and

hurting commodity-producing countries reliant
on China as an export market.
Instability in China and concerns about a Federal Reserve rate increase in coming months have
caused turbulence in U.S. and other markets recently. But the turmoil doesnt mesh with the
domestic economys fundamentals.
U.S. consumer confidence rose in August to its
highest level since January, reflecting optimism
about an improving labor market. New-home
sales picked up the pace in July, rising 21% from
a year earlier. Home builder sentiment is at its
highest level since November 2005.
It is hard to make the case that the stockmarket mess has anything to do with the U.S.
economy as the data are all pointing to solid
growth, said Joel Naroff, chief economist of
Naroff Economic Advisors.
Mattamy Group Corp., which is based in
Canada and builds homes in five American states,
sold 155 houses in the U.S. in July, nearly dou496
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bling its year-earlier output of 80. Its U.S. homes

sell for $300,000 on average.
Its sunshine and blue skies, notwithstanding whats happening on Wall Street, said
Brian Johnston, Mattamys chief operating officer. Theres a lot of headline news going on in
places like China, but the U.S. is a more internally focused economy than others in this world.
Sales of new homes are still about a third
of their July 2005 peak of 1.4 million, and are
still significantly below precrisis levels. But
economists note that the market could strengthen
as rental prices have climbed in major cities
and potential buyers are eager to lock in mortgages before interest rates rise, which would make
mortgages more expensive.
Consumers in the U.S. also are more upbeat.
The Conference Board, a private research group,
said Tuesday that its index of consumer confidence rose to 101.5 in August, bouncing back after a steep decline in July. That survey was taken
before this weeks market turbulence, although
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the average consumer isnt heavily invested in

the market. Since 2001, stock ownership has increased only among the top 10% of households.
Slowly accelerating wage growth and rising
employment should drive a solid advance of
household spending in the latter half of 2015,
said Gregory Daco, an economist at Oxford Economics. Consumer spending accounts for more
than two-thirds of U.S. economic output.
Still, some economists warned that Chinas
slowdown and Wall Street loses could weigh on
confidence in the coming months.
Tracy Tannascoli, a Re/Max real-estate agent,
said her higher-end clients already are feeling the
pinch in Denver. She is concerned the citys hot
housing market is beginning to cool. After a few
years in which desirable homes would attract offers within hours of listing, she said properties are
now lingering on the market for several weeks and
price cuts are becoming more common.
With the high-end buyers, whats going on in
the stock market and the global economy matters
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more to them, she said. The slowdown does

make it easier for first-time buyers, but those
buyers are still very price-wary.
Write to Anna Louie Sussman at
anna.sussman@wsj.com and Eric Morath at
eric.morath@wsj.com
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Chapter
75
Molycorp to Suspend
Production at
California Mine
Molycorp Inc., MCPIQ -12.35 % the only U.S.
producer of rare earths, on Wednesday said it
would mothball its mine in California, laying off
almost 500 workers and suspending the countrys
sole source of the 15 elements used in magnets,
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batteries and other high-tech products.

Molycorp said it would put its Mountain Pass
mine on the California-Nevada border on care
and maintenance by Oct. 20, although it would
continue to produce at processing plants in Estonia and China.
Rare earths are essential to making everything
from cars to iPhones, but they are needed in such
minuscule quantities that it doesnt take much to
oversupply the market.
That is what happened to Molycorp. Prices
collapsed, forcing the Greenwood Village, Colo.based company to file for chapter 11 protection
in June, one of the biggest corporate failures in a
rotten year for miners hit by slumping commodity prices and slowing demand from their biggest
customer, China.
Molycorp said Wednesday it could restart the
mine depending on market conditions and other
factors that are difficult to forecast. Demand
is still relatively good for rare earths, especially
from the clean-energy sector, the company said.
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A bigger problem is supply, which Molycorp said

has been exacerbated by an ongoing tsunami of
rare earths that are produced via unregulated
and illicit mines and processors in China.
It has been a punishing downfall Molycorp. Fueled by restrictions on exports of rare earths by
China, the worlds dominant supplier, the companys stock market value rocketed to more than
$6 billion at the start of this decade.
But then China ended its limits on rare-earths
exports, and battery and magnet makers found
alternative materials, sending Molycorp into a
long slide. It hasnt turned a profit since 2011.
Molycorp employs just under 500 workers
represented by the United Steelworkers union,
said Jim Sims, a company spokesman. The overwhelming majority of those jobs will almost certainly be lost, he said, adding, It also represents
a loss to the U.S. of intellectual capital and workforce skills that is difficult to measure.
A USW spokesman declined to comment.
Rare earths are considered a strategic resource
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because they are used in military electronics. The

U.S. government, however, has a large stockpile,
and isnt planning to bail out Molycorp.
In 2010, Molycorpformerly a unit of Chevron
Corp. CVX 4.38 % and bought by private-equity
firms in 2008 for $80 millionraised $394 million
in a public offering. Then, as rare-earths prices
and its stock market value soared, Molycorp
overextended itself and took on debt. It committed to an expansion at the California mine,
which after overruns cost $1.5 billion, and bought
Neo Material Technologies Inc., a Toronto-based
rare-earths-processing firm, for $1.3 billion.
Write
to
John
W.
Miller
at
john.miller@wsj.com
503
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Chapter
76
Wal-Mart to Stop
Selling Semiautomatic
Rifles, Citing Declining
Demand
Wal-Mart Stores Inc. WMT 2.74 % will soon stop
selling semiautomatic rifles, removing what have
become politicized items from shelves for reasons
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the retailer says are purely business.

Wal-Mart, the nations biggest seller of guns
and ammunition, will eliminate AR-15s and other
similar rifles, spokesman Kory Lundberg said
Wednesday. Instead, the retailer will carry more
shotguns and other hunting weapons. Mr. Lundberg said the decision was based on shifting demand from shoppers. Its about what customers
are buying and what theyre not, he said.
The change, reported earlier Wednesday by
Quartz, comes as such semiautomatic arms, described by opponents as assault weapons, remain
a flash point in the national gun debate that
is faced with yet another high-profile shooting.
On Wednesday morning, two television reporters
were killed while conducting an interview in Moneta, Va.
Wal-Marts decision to phase out modern
sporting riflesa category that includes firearms
based on the AR-15 platform, according to
the National Shooting Sports Foundation was
months in the making, Mr. Lundberg said. The
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changes are being rolled out to stores this week

as Wal-Mart updates its sporting goods sections
for the fall season. The guns Wal-Mart are removing are sold in less than a third of its 4,500
U.S. stores.
The retailer has long held that it will carry
products, including firearms, to serve hunters and
sportsmen, but it doesnt sell items such as adult
films, or music with explicit-lyric warning labels
or, outside of Alaska, handguns. Earlier this year,
it vowed to remove merchandise from its stores
that depicted the Confederate battle flag.
Wal-Mart has also faced pressure from shareholders to stop selling these items. New Yorks
Trinity Wall Street Church tried to get the retailer to have shareholders vote on a resolution
that would have required Wal-Marts board to review management decisions to sell such weapons,
as well as any other products that could harm the
companys reputation. Wal-Mart objected to the
resolution, saying the matter involved everyday
business decisions.
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The disagreement went to court and Wal-Mart

prevailed in June when a federal appeals court
said the shareholder resolution didnt have to be
put to a vote.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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Chapter
77
Rovio to Cut
Workforce By Over a
Third
Rovio Entertainment Ltd., the Finnish mobilegames company behind Angry Birds, intends to
lay off more than one-third of its employees, saying it must focus on boosting revenue and profit
after wading into too many businesses.
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The privately held company, which has a workforce of 670, said it was entering a six-week negotiation period with a view toward cutting some
230 positions in Finland and 30 more overseas.
Rovio said it would continue to produce games,
films and consumer products but was reviewing
the fate of its playground business. We did
too many things, Rovio Chief Executive Pekka
Rantala said.
The job-cuts plan at Rovio speaks to the fragile business model of mobile-game makers, which
like film studios face the challenge of navigating
uncertain times between hit releases.
Rovios woes hit Finland at a difficult time for
the Nordic economy, which has contracted during the past three years. This is bad news, said
Ismo Kokko, a director at Finlands Union of Professional Engineers. We didnt expect this.
Founded in Espoo, near Helsinki, in 2003,
Rovio surged in 2009 with the launch of Angry
Birds.
By 2011, the game was nearly everywhere. It
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was even lampooned on The Conan OBrien

Show, where the television programs producers
built a life-size Angry Birds game set onstage.
Amid all the media attention, Rovio sought to
earn money outside mobile games. It launched
a campaign to license merchandise, putting its
birds on things including soft drinks and hooded
sweatshirts. Rovio also stopped calling itself a
game studio, rather referring to itself as an entertainment brand.
Meanwhile, the mobile-game industry was
shifting from Rovios pay-once-play-forever
model to free-to-play games in which players
buy tips to overcome difficulties.
In 2012, King Digital Entertainment KING 0.15 % PLC and Supercell Oy started to eclipse
Angry Birds at the top of the charts with
Candy Crush and Clash of Clans, respectively,
two free-to-play games.
As the popularity of Angry Birds cooled,
interest in the Angry Birds consumer brand
faded. Rovios results took a hit amid a drop
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in licensing revenue, with profit sinking 73% to

10 million ($11.5 million) last year from 36.5
million in 2013. Revenue fell 9% to 158 million.
Yet, Rovio kept exploring business opportunities, trying to earn money from outdoor
theme parks and playgrounds, and investing in a
preschool educational concept, developed in collaboration with the University of Helsinki and the
National Aeronautics and Space Administration
of the U.S.
This summer, the company launched Angry
Birds 2, a free-to-play game mimicking the revenue model used by King Digital and Supercell.
Angry Birds 2 was clearly an attempt to
make a grab for the lucrative Candy Crush fan
base, said Tero Kuittinen, a consultant who advises funds on their investments in the game industry. But it did not work.
Angry Birds 2 ranks far behind Candy
Crush and Clash of Clans in large U.S. app
stores.
Rovio is now pinning its hopes on an Angry
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Birds feature movie, which is scheduled to hit

U.S. screens in May.
We see growth around the corner, but sadly
it comes a little bit too late, said a Rovio
spokeswoman, Kaisu Karvala.
Write to Jens Hansegard at jens.hansegard@wsj.com
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Chapter
78
Insurers Win Big

Health-Rate Increases
http://www.wsj.com/articles/insurers-winbig-health-rate-increases-1440628848
At a July town hall in Nashville, Tenn., Presi513
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dent Barack Obama played down fears of a spike

in health insurance premiums in his signature
health laws third year.
My expectation is that theyll come in significantly lower than whats being requested, he
said, saying Tennesseans had to work to ensure
the states insurance commissioner does their job
in not just passively reviewing the rates, but really asking, OK, what is it that you are looking
for here? Why would you need very high premiums?
That commissioner, Julie Mix McPeak, answered on Friday by greenlighting the full 36.3%
increase sought by the biggest health plan in
the state, BlueCross BlueShield of Tennessee.
She said the insurer demonstrated the hefty increase for 2016 was needed to cover higher-thanexpected claims from sick people who signed up
for individual policies in the first two years of the
Affordable Care Act.
Several regulators around the country agree
with her, and have approved all or most of the big
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premium increases sought by the largest health

plans in their states for the new sign-up season
that begins Nov. 1.
Not all states have made their rate decisions,
and some have approved relatively modest increases. A number of the states with lower average increases this year had higher rates to begin
with. Some also fared better with enrollment under the law. Insurance premiums vary from state
to state, for a number of reasons including regional disparities in the costs of care.
Still, the upsurge is likely to be a big talking
point not only during the three-month enrollment
season, but through the 2016 campaigns, where
GOP opponents of the law are expected to use
it as a defining issue against their Democratic
rivals.
The law provides for government subsidies in
the form of tax credits for some consumers who
buy insurance on their own because they dont
have coverage through a job or government program such as Medicare. Those subsidies will
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blunt the impact of price increases for individuals who get them, but the tab is picked up by
the federal government.
White House spokeswoman Katie Hill said rate
review processes, which were beefed up under the
law, had helped lower proposed premiums in a
number of states. She also said that under the
health law, it was easier for customers to switch
to a new insurer.
Last year, more than half of re-enrolling customers on HealthCare.gov actively shopped and
selected a new plan, something that wasnt possible for many consumers prior to the ACA due
to the risk of being charged a higher premium
or denied coverage entirely due to a pre-existing
condition, she said.
Tennessees Ms. McPeak said shes required to
protect state residents by blocking unjustified increases but also guaranteeing that health plans
stay financially sound. Politics, and any opposition to the ACA, doesnt have anything to do
with it, she said. Do I wish they were lower?
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Absolutely, because I know what it means to consumers.

Kentucky Insurance Commissioner Sharon
Clark approved the 25.1% increase requested by
the Kentucky Health Cooperative, the largest insurer on the states insurance exchange. Kentucky has taken a more supportive stance toward
the health law, including operating its own insurance exchange rather than using the federal
governments HealthCare.gov.
Were lucky by comparison to Tennessee, Ms.
Clark said.
Oregons Laura Cali allowed an average 25.6%
increase for Moda Health Plan Inc., the biggest
plan on that states exchange. In Ohio, Lt.
Gov. Mary Taylor approved a 14.5% increase
from Medical Mutual. In Michigan, BlueCross
BlueShield won approval for the average 11.4%
increase from insurance director Patrick McPharlin.
In Idaho, insurance director Dean Cameron
said that an average 23% increase by Blue Cross
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of Idaho Health Service Inc., was disappointing

but not unreasonable and that he didnt have
the power to stop it.
The 2010 federal health law overhauled the way
insurance is priced and sold, requiring companies
to allow anyone to buy policies, regardless of their
medical history and with only limited variation in
premiums based on their age.
Many of the most popular plans in the country
offered low rates for the first and second year of
the laws rollout, unsure what to expect but eager
to snap up the new business. That was especially
true in Tennessee, which had some of the lowest
premiums in the U.S. initially.
Now, insurers have found that business has
been more costly than expected. Theyve incurred steep losses, the American Academy of
Actuaries said in a recent paper, and some programs designed to cushion them against high-risk
enrollees are ending.
Some people will be able to switch plans and
pay a modest increase from 2015, according to an
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analysis of proposed rates earlier this year by the

consulting firm Avalere Health LLC.
For the Obama administration, that means a
stepped-up campaign this fall to persuade people
to return to HealthCare.gov and shop around in
the coming open enrollment season.
The administration said late Tuesday it would
automatically renew the coverage of people who
signed up through the site last year and dont
come back to it by Dec. 15 this year.
The administration said that for the current
year, about half of the sites users returned. Of
those, about half switched insurance providers
and half opted to stay with the one they had.
States that were able to keep rate increases
down breathed a sigh of relief this week. In Indiana, Anthem Inc. ANTM 2.91 % had asked for,
and was granted, a 3.8% average increase. In Virginia, Anthem reduced an initial request of 13.2%
to 8.6%. In Arkansas, BlueCross and BlueShield
was approved for an average increase of 7.15%.
Write
to
Louise
Radnofsky
at
519
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Me
louise.radnofsky@wsj.com and Stephanie Armour at stephanie.armour@wsj.com

The pain should be fully felt by the 2016 election.
This entire mess was entirely predictable. In
fact, I did predict it, right from the administrations Gruber-driven condescension to the driving
up of medical care costs by telling, nay, encouraging and facilitating the utilization of marginal
medical care services, such as screenings, very
few of which actually change mortality. You
"cover" more people, tell them to see their doctor early and often, and compel that health plans
cover these marginally valuable visits as well as
a plethora of other dubious care...what did you
think would happen? Now, health plans will raise
rates, scream that people are using too much care
and providers are charging too much, and then
they will eventually bring down the next wave
of managed care. The people getting rich from
Ocare are health plan, hospital, and drug co. execs, politicians and lobbyists. Everyone else just
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gets screwed.
YourPersonalAffordableCareActDOTcom.
@Vikram Khanna Hospitals are not getting
rich from the Obamacare plan, because reimbursements dropped for Medicare patients. Hospitals are closing and laying off workers.
The Left wanted ObamaCare. Now they own
the mess.
a Family
Musical Head Start
SubscribeSign In
Subscribe
Customer Service
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Tools & Features

Ads
More
All Rights Reserved
www.djreprints.com.
522
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Chapter
79
General Mills Recalls

Some of Its Green
Beans Due to Listeria
General Mills Inc. GIS 1.97 % has voluntarily
recalled some Cascadian Farm Cut Green Beans
because one package tested positive for the bacteria listeria.
No illnesses have been reported in connection
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with the product.

The green beans in question are 10-ounce packages produced over two days in March 2014.
The better used by dates are 10APR2016 and
11APR2016.
General Mills is just the latest company grappling with listeria contamination problems. Blue
Bell Creameries LP in April pulled its products
from stores after identifying listeria in samples
and resumed selling its ice cream in August. And
Sabra in April recalled 30,000 cases of hummus
over listeria concerns.
Food-safety experts say listeria is a particularly tricky and virulent pathogen that blossoms
in refrigerated environments, and has previously
prompted food companies to shutter plants entirely since it is difficult to destroy even through
exhaustive plant cleanings.
Listeria typically doesnt cause significant illnesses in healthy people but poses a high risk
for pregnant women, newborns, older adults and
people with weakened immune systems.
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According to the CDCs website, there were

four listeria outbreaks in 2014, compared with
one in each year from 2011 to 2013. Last year,
a federal judge sentenced two Colorado brothers
whose farms cantaloupes were linked to a 2011
listeria outbreak that caused the deaths of 33 people and sickened 147 others in 28 states. The
brothers received five years probation, including
six months of home detention.
Write to Angela Chen at angela.chen@wsj.com
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Chapter
80
Report: VA Falls Short

on Mental-Health Care
Despite Hiring Push
The Department of Veterans Affairs lacks enough
full-time psychiatrists to meet demand for services and those on staff arent being used efficiently, despite a multiyear, multibillion-dollar effort, says a report from the departments internal
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watchdog.
The VA hasnt been fully effective in hiring psychiatrists or in using those it has, the
VAs Office of Inspector General reported Tuesday, adding that the department has focused on
meeting overall hiring goals rather than on hiring
personnel to fill gaps at specific facilities.
The VA did not effectively use psychiatrists in
its efforts to improve veterans access to psychiatric care, the inspector general said in the report, adding that poor clinic management practices resulted in unused capacity of its psychiatrists.
In fiscal year 2014, the department spent
nearly $4 billion on outpatient mental health
services, the report says, yet the inspector general identified 94 of 140 facilities that year that
needed additional psychiatrists to meet demand
and found that 25% of psychiatrists time wasnt
used effectively.
The report serves as a follow-on to a 2012 study
that identified wait times of more than a month
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for psychiatrist appointments by veterans and a

large number of vacant psychiatrist positions.
In 2012, then-Secretary Eric Shinseki announced an initiative to hire 1,600 mental health
professionals, bumping up pay scales to help recruit them. In 2014, Secretary Robert McDonald
announced another hiring initiative as part of a
broad reform package pushed through in the wake
of a departmentwide scandal that led to the resignation of top officials, including Mr. Shinseki.
Since then, the VA hasnt come up with effective hiring goals or an effective departmentwide
system for managing psychiatrists, leaving these
determinations to local hospital networks that
havent been fully effective,the report says.
Earlier this year, Congress passed further legislation to help bolster mental health care, including student-loan forgiveness for psychiatrists, the
category of providers the VA has said are among
the most difficult to recruit and retain.
This VA OIG report highlights some very important areas for improvement, said the Iraq and
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Afghanistan Veterans of America, an advocacy

group, in a statement. The group continues to
recommend the VA conduct regular analyses of
staffing needs to continually track current and
predict future needs for mental health clinicians,
including psychiatrists, it said.
Sen. Johnny Isakson (R., Ga.), chairman of
the Senate Committee on Veterans Affairs, said
in a statement that the report does not appear to
reflect any sense of urgency to address the shortages or operational inadequacies. He added that
he will be asking the VA secretary to reconsider
addressing the recommendation in a more timely
manner.
The VA concurred with the reports findings
and said it has laid out plans to improve efficiency and management techniques as well as
establish more effective hiring goals. The department said it already has begun to make improvements, including requiring mental health
providers to maintain productivity targets and
establish staffing benchmarks for each facility.
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The Department of Veterans Affairs appreciates the review by the Office of Inspector General, and the opportunity to improve services
we provide to our Nations Veterans, said a
spokeswoman for the department in a statement.
Most of the improvements have a target completion date of September 2016.
Write
to
Ben
Kesling
at
benjamin.kesling@wsj.com
530
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Chapter
81
FDA Grants Priority

Review to Sarepta
Drug Candidate
U.S. health regulators granted priority review
status for Sarepta Therapeutics Inc. SRPT 4.88
% s treatment of a rare genetic disorder.
Sarepta is developing eteplirsen to treat
Duchenne muscular dystrophy, a condition that
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destroys muscles and frequently kills patients by

their 30s. The disease affects roughly one in every
3,500 boys world-wide.
The Food and Drug Administrations targeted
action date on Sareptas new drug application is
Feb. 26, the company said.
The FDA had previously granted fast-track,
orphan drug designation, and rare pediatric disease designation for eteplirsen. Priority review
indicates the FDA intends to take action within
six months.
The move comes after tension between the regulatory agency led to the resignation of its chief
executive, just as the company readied to seek
regulatory approval for eteplirsen.
Last month, Sarepta hired Henri Termeer,
Genzyme Corp.s former chief executive, as an
adviser to help with its lead drug candidates application.
Sarepta shares, which have more than doubled
in value this year, have swung wildly as hopes for
the drug have risen and fallen. On Tuesday, the
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stock rose 3.7% to $33.80 in late trading on the

Nasdaq Stock Market. NDAQ 1.74 %
Write
to
Maria
Armental
at
maria.armental@wsj.com
533
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Chapter
82
Lilly: U.S. Court Rules

in its Favor on Alimta
Patent
Eli Lilly LLY 3.63 % & Co. said a federal court
ruled that generic products proposed by a Teva
Pharmaceutical Industries Ltd. TEVA 0.95 %
unit would infringe a U.S. patent for the drug
makers blockbuster cancer drug Alimta.
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A Teva spokesman said we are disappointed

with the district courts decision and we are evaluating our options to appeal.
The patent, which covers the administration of
Alimta to patients with a vitamin regimen, provides intellectual property protection until May
2022, potentially preserving U.S. market exclusivity for Alimta until then, rather than allowing generic competition in 2017 when a separate
patent expires.
The court previously upheld the validity of the
vitamin regimen patent, which Teva had challenged, in a March 2014 ruling.
Write to Tess Stynes at tess.stynes@wsj.com
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Chapter
83
Former Morgan
Stanley VP to Be
Released on $2 Million
Bond
A federal judge in Brooklyn, N.Y., has ordered
that Vitaly Korchevsky, a former Morgan Stanley MS 4.85 % vice president arrested for al536
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legedly trading on confidential corporate information stolen by hackers in Ukraine, be released

on $2 million bond.
Mr. Korchevsky, 50 years old, also will be required to pay a $200,000 cash deposit, surrender his and his familys passports, wear an ankle
bracelet for location monitoring and restrict his
movements to certain parts of Pennsylvania and
New York.
Prosecutors had pressed for the judge to keep
Mr. Korchevsky detained in federal custody.
They alleged that Mr. Korchevsky was one of
the biggest beneficiaries of an elaborate scheme
in which overseas hackers stole nonpublic corporate information stored in newswires systems
and gave it to financial traders, who used the
press releases to make lucrative bets.
Mr.
Korchevsky alone made more than
$17 million in profits from the insider-trading
scheme, prosecutors allege, and $10 million of
that already has been frozen by the government. Mr. Korchevsky has pleaded not guilty to
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the charges, which include securities fraud and

money-laundering conspiracy.
Officials have said the case, which is being handled by prosecutors in Brooklyn and New Jersey
as well as the Securities and Exchange Commission, is the largest known collaboration between
traders using insider information and hackers.
In deciding to release Mr. Korchevsky, U.S.
District Judge Raymond Dearie appeared to be
influenced by his close community and religious
ties.
Mr. Korchevsky has been a Baptist pastor for
decades, and dozens of his friends, family and
congregants came to support him at Wednesdays
hearingan estimated 80 to 90 people, according to Mr. Korchevskys lawyer Steven Brill. So
many people packed into the Brooklyn federal
courthouse that an overflow room had to be set
up, which is unusual for a routine bail hearing.
Some showed up from as far away as Spokane,
Wash., Mr. Brill said.
Judge Dearie said the level of support for Mr.
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Korchevsky was somewhat unprecedented.

If you dont play ball, youre going to disappoint a lot of people, Judge Dearie said to
Mr. Korchevsky, citing the faith that hundreds
of people have placed in him.
Mr. Korchevsky is one of five defendants arrested in the U.S. for the alleged scheme. Criminal charges also have been filed against four others who are still at large in Ukraine. International
warrants have been issued for their arrest.
Mr. Korchevsky is a former vice president at
Morgan Stanley who later ran a hedge fund. At
the time of his arrest, he was living in Glen Mills,
Pa., a suburb of Philadelphia, with his wife and
two children, who were present at the bail hearing. He was born in the former Soviet Union but
later became a naturalized U.S. citizen.
Two defendants in this case, Alexander
Garkusha and Leonid Momotok, also are expected to appear for bail hearings soon in Brooklyn. A federal magistrate judge in Gainesville,
Ga., had released Mr. Garkusha on $75,000 bond
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and Mr. Momotok on $150,000 bond, but those

decisions have been put on hold pending their
bail hearings in Brooklyn.
Suzanne Hashimi, Mr. Momotoks lawyer, said
she believed the governments request to detain
him was unreasonable and was pleased the
magistrate judge agreed with her.
Jerome Froelich, Mr. Garkushas lawyer, said
his client is entitled to a bond, saying he played
a minimal role at best in the scheme, based on
his reading of the indictment.
Prosecutions of two other defendants, father
and son Arkadiy and Igor Dubovoy, will be handled by the U.S. Attorneys office in New Jersey. A federal magistrate judge in Atlanta has
set a $3 million bond for Igor Dubovoys release,
although he hasnt yet been able to satisfy the
bond. Arkadiy Dubovoy was ordered to remain
in federal custody.
Bruce Morris, Igor Dubovoys lawyer, declined
to comment. A lawyer for Arkadiy Dubovoy
didnt immediately respond to a request for com540
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ment.
Write to Nicole Hong at nicole.hong@wsj.com
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Chapter
84
Workers Get New

Tools for Airing Their
Gripes
If you work in a big company, chances are youre
getting more feedback latelywhether you know
it or not.
Recent revelations about Amazon.com Inc.
AMZN 7.38 % s competitive work culture de542
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scribed a company feedback system in which employees sent gripes to co-workers bosses about
their performance, sometimes without the coworkers knowledge. Invoking a workplace version of Lord of the Flies, workers said that some
used the tool, called Anytime Feedback, to gang
up on rivals or oust low performers.
The retailers system may strike some as harsh,
but peer reviewing has been in offices for a while.
So-called 360 reviews allow co-workers and managers to weigh in on one anothers performance.
A host of firms have lately been experimenting with online tools that allow co-workers to
send one another criticism or praise, sometimes
anonymously.
While systems like Amazons
are comparatively rare, workforce-technology experts say, anonymous and peer feedback features come standard in widely used performancemanagement software by Workday Inc., Cornerstone on Demand Inc., Salesforces Work.com
and others.
Many firms are hesitant to give employees un543
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fettered access to feedback tools, fearing that a

free-for-all of commentary will encourage petty
complaints or lead to a deluge of observations
with no discernible value. In some systems, companies can disable elements like unsolicited feedback, allowing employees to comment only when
a worker or manager requests input.
Peer feedback, delivered via internal social networks, forms or short surveys, is part of a bigger
workplace shift as employers like General Electric
Co., Accenture and Deloitte drop annual performance reviews in favor of constant, instant assessments for staff. Usually, that feedback comes
with names attached, but some firms are trying
anonymous systems, too, with mixed results.
The majority of customers using Cornerstones
performance-management product have experimented with anonymous or peer-to-peer feedback, with many currently piloting the features,
said Chris Stewart, a vice president at Cornerstone who works directly with clients. It isnt
yet clear whether many will permanently adopt
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them, he said.
Troubles can arise when employers lack a plan
of action after employees hear more about their
performance, said Mr. Stewart, a former HR director at Ticketmaster. Employees are receptive to the feedback, but when they go to look
for training, resources or mentoring, they are not
there, he said. That tends to defeat the purpose
and create a negative sort of environment.
Unsolicited positive reviews motivate employees, but negative comments by workers rarely improve performance, since managers perceive it as
noise and whining, said Jason Averbook, a
former workforce-technology consultant and now
chief executive of TMBC, a firm that advises
companies on managing performance.
Other challenges arise when employees can
covertly sound off to a colleagues boss, as noted
in a New York Times story this month about
Amazon. Workers may rightly fear that their colleagues are stabbing them in the back or bringing
up petty complaints, said Mr. Averbook.
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When that happens regularly, it indicates a

culture thats kind of childish and competitive,
said Patty McCord, the former chief talent officer at Netflix Inc., a company that experimented
with many types of feedback processes during her
tenure. She helped craft a set of values for the
company; one behavior aligned to those values
was You only say things about fellow employees
you will say to their face.
Even when managers put such guidelines in
place, criticisms are often leveled without any evidence, said Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management.
As an HR executive in previous jobs, he found
himself going down rabbit holes to try to figure
out the motivation behind workers critiques, to
determine if the feedback was legitimate. That
happened often enough to create frustration and
a lot of wasted time.
An Amazon spokesman said Anytime Feedback
is just another way for people to give feedback
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throughout the yearlike walking into a managers office, calling, or sending an email. He
added, most Anytime Feedback is positive, and
its up to each manager to decide how to use the
feedback.
Indeed, employers worry theyll get too much
positive reinforcement and not enough honesty
in peer review systems, said Jason Corsello, Cornerstones vice president of corporate strategy
and development. Managers are in an awkward
spot when employees praise a member of a team,
but the manager thinks theyre a low performer,
he added. Human-resources executives struggle
with encouraging managers and workers to offer
candid comments, or constructive criticism, in
cubicle-speak.
Employees and managers at Hearsay Social,
a maker of digital marketing software for the
financial-services industry, rely on peers for semiannual 360 reviews and regular hotwash sessions after meetings to rehash what went well and
what could improve.
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Steve Garrity, Hearsays founder and chief

technology officer, said hes also considering
short, weekly surveys to get a regular read on how
things are going for his 175 employees. Continuous peer feedbackparticularly when it is anonymousisnt on the menu for now.
We are giving people regular feedback on
things that matter, he said, adding that anonymous feedback may be too prone to abuse to actively encourage people to take potshots anonymously, said Mr. Garrity.
Realizing that staff craved more feedback, professional services firm PwC last year introduced
Snapshot, an app allowing workers to request
short, instant assessments from their managers
on areas such as technical abilities and business
acumen.
The idea, said Tim Ryan, PwCs vice chairman, is to help employees develop themselves
in real time, rather than once a year, although
managers still have annual meetings about performance and development with its 42,000 U.S.
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staff. We analogize it to athletes. They get feedback every time they come off the court, he said.
Snapshot comments are visible to an employees HR manager, career coach, direct supervisor and the partner in charge of their team, but
management can also pull aggregate data to determine, for example, whether bosses are grading
employees too generously. Workers are expected
to regularly seek out constructive criticism.
So far, only employees can solicit feedback on
the app. PwC has mulled allowing managers to
seek input on their staff, said Mr. Ryan, but it
will have to wait until everyone gets comfortable
with frequent, candid conversations. In all, he
expects the total integration of this feedback system to be a five-year journey.
Josh Bersin, principal of a Deloitte-owned consultancy that advises companies on talent management, said that despite HR hand-wringing,
anonymous feedback will be bigger a part of office
life. Managers will have to set limits, he said.
You dont want to create a bad relation with
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the recipient, and the person giving the feedback doesnt want to get in trouble or look like a
crank, he said. You might need to monitor and
possibly moderate some of the comments.
Write
to
Lauren
Weber
at
lauren.weber@wsj.com and Rachel Emma Silverman
at rachel.silverman@wsj.com
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Chapter
85
Snapchat Names
Former Mattel
Executive Drew
Vollero Its Finance
Chief
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Snapchat Inc., one of the most highly valued private tech startups, finally hired someone to run
its finances.
Drew Vollero, a former finance executive at
toy maker Mattel Inc., MAT 1.45 % is joining
Snapchat as vice president of finance and acting
chief financial officer, the company told The Wall
Street Journal on Tuesday. Mr. Vollero will report to Imran Khan, a former technology banker
hired last year to oversee strategy at the mobile
messaging company.
Snapchat is taking steps to turn its free app for
disappearing messages, used by about 100 million people daily, into a moneymaking business.
The company has sold video ads to marketers including Coca-Cola Co. KO 1.95 % and Samsung
Electronics Co. SSNHZ 0.00 % and experimented
with new types of ads, such as custom filters
placed on photos taken by users when they are
inside a McDonalds Corp. MCD 4.32 % store.
The company expects to generate around $50
million this year, according to a person familiar
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with the matter. That revenue target was earlier

reported by tech blog Recode.
Mr. Vollero will be tasked with building the
companys finance department and helping to
prepare for an initial public offering. Chief Executive Evan Spiegel said during a tech conference in May the company has a plan for an IPO,
though he declined to specify how soon that could
happen.
WSJ.D is the Journals home for tech news,
analysis and product reviews.
It also is unclear if Mr. Vollero will take on the
CFO job permanently or be replaced. The company has every expectation he will eventually
become permanent CFO, said a spokeswoman.
Snapchat, which was valued at $16 billion by
investors earlier this year, began its search for a
finance chief in late 2014, a time when demand
for that role surged in Silicon Valley. Airbnb Inc.
last month hired Blackstone Group BX 5.96 %
LPs former finance chief, Laurence Tosi, after
searching for a CFO for nearly a year. Uber
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Technologies Inc. has yet to hire a new CFO

since Brent Callinicos departed the company in
March.
Mr. Vollero, who was a senior vice president at
Mattel, is leaving the worlds largest toy company
as it has struggled to compete in an age of digital
toys. Bryan Stockton was fired as chief executive
in January after failing to produce a hit holiday
toy and reporting several quarters of declining
sales. Mattel shares have been sliced in half from
their peak of $47.58 in December 2013.
In more than a decade at Mattel, Mr. Vollero
oversaw corporate development, strategy and investor relations. Previously, he held roles in marketing and finance at Taco Bell and its parent,
Yum! Brands.
One of the main opportunities to sell ads in
Snapchats app revolve around its Discover section, where publishing partners such as Vice Media and National Geographic show articles and
videos that last one day and share revenue from
ads they run alongside that content. The com554
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pany said more than 60 million users view Discover content every month.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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Chapter
86
Splenda Sweetener
Getting a New Owner
The artificial sweetener brand Splenda is changing hands, as Heartland Food Products Group
agreed to buy it from a subsidiary of Johnson &
Johnson. JNJ 4.83 %
Financial terms werent disclosed. Heartland
said private-equity firm Centerbridge Partners
LP assisted in sealing the deal and would become
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a shareholder in Heartland after the acquisition

is completed.
Splenda sweetener products contain sucralose,
a no-calorie sweetener. The brand, known for its
yellow packaging with blue lettering, can be used
as a substitute for sugar.
Johnson & Johnsons McNeil Nutritionals unit
is selling the rights to the Splenda brand that consumers buy in groceries or use at restaurants and
coffee shops. Tate & Lyle TATYY -0.25 % PLC,
which helped discover sucralose in the 1970s, will
retain the rights to use the Splenda brand name
when sucralose it manufactures is used as an ingredient in food and drink products, according to
people familiar with the brand.
Many of Tate & Lyles patents for sucralose
ended almost a decade ago, allowing manufacturers around the world to produce the sweetener.
One of those is Heartland, which already makes
sucralose, as well as stevia, saccharin, aspartame
and other sweeteners.
Acquiring Splenda would allow Heartland to
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use the brand on packaging of sucralose it already produces. The company, based outside Indianapolis, said the acquisition is expected to result in more than 100 new jobs across its manufacturing, distribution and corporate operations.
Johnson & Johnson said that the sale was part
of its ongoing strategy to concentrate on key consumer areas such as baby care, pain care and oral
care. The transaction is expected to close before
year-end.
The sale comes at a time of rising consumer
awareness of artificial sweeteners, a $2 billion
industry, according to the analytics firm IHS
Chemical. This month, PepsiCo Inc. rolled out
a new version of Diet Pepsi that substitutes sucralose for aspartame, an artificial sweetener better known as Equal and NutraSweet. PepsiCo
said the change was prompted by consumer desire for aspartame-free diet soda.
A 2005 study by the European Ramazzini
Foundation of Italy labeled aspartame a carcinogen, stoking consumer concern about the sweet558
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ener. But the Food and Drug Administration

later discredited the study and the European
Food and Safety Association in 2013 ruled out
any associated risk of genetic damage or cancer
from aspartame.
The change at Diet Pepsi positioned the soda
opposite aspartame-sweetened Diet Coke. CocaCola continues to stand by that ingredient, which
helps give Diet Coke the distinctive taste that has
made it the top-selling diet soda in the U.S.
Sucralose remains one of the largest sweeteners
by volume, but there has been increasing competition in the category from Chinese companies
like Niutang Chemical Plant Co. and JK Sucralose Inc. Tate & Lyle this year announced it
planned to restructure its sucralose division and
make Splenda sucralose a low-cost and sustainable business.
Heartlands pending acquisition of Splenda for
consumers could further cut into Tate & Lyles
sweetener sales, which declined 15% in the year
ending March 31. Tate & Lyle sells sucralose it
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makes to Johnson & Johnson, which uses it in

the Splenda packets and zip-seal pouches it sells
to restaurants and grocers.
Mike Esterl contributed to this article
Write to Tripp Mickle at Tripp.Mickle@wsj.com
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Chapter
87
Accenture to Allow
New Parents to Travel
Less for Job
Consultants who are new parents may be able to
spend less time on the road.
Accenture, ACN 3.15 % the large professionalservices firm, is announcing today that it is allowing mothers and primary caregivers to work
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locally during the year after they return from

parental leave, instead of traveling for out-oftown engagements.
The benefit is only available for Accentures
North American staffers, who number more than
51,000 employees; last fiscal year, about 750
North American employees took parental leave
as primary caregivers.
Ellyn Shook, Accentures chief humanresources officer, said the move was suggested by
employees in a parenting group. Ms. Shook said
some new-parent employees opted to leave their
jobs altogether because they were anxious that
their professional-services jobs might entail too
much time on the road. Other employees worked
out one-off deals with their managers to reduce
travel, but there was no companywide policy, she
said.
We hope to get out of it that our people understand how much we care about them as human beings, said Ms. Shook. Do I think there
will be tangible benefits of lowering attrition and
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raising productivity? Absolutely.

Ms. Shook said shes not aware of other
professional-services firms publicly announcing
similar reduced-travel policies for new parents.
Likewise, Anne Weisberg, senior vice president
at the Families and Work Institute, which researches workplace policies, said she hasnt heard
of other firms with similar programs.
Accentures move comes as many firms have
introduced enhanced benefits for new parents, in
part to attract and retain women, who are still
most often primary caregivers during a babys
first year. International Business Machines Corp.
will pay for employees to ship home breast milk
pumped during business travel in temperaturecontrolled packages. Private-equity firm KKR &
Co. recently said it would pay for employees to
bring new babies and their nannies on business
travel during a babys first year. Other firms, including Adobe Systems Inc., Microsoft Corp. and
Netflix Inc., have recently announced significant
extensions to their parental leave programs.
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In March, Accenture also doubled its parental

leave benefits to 16 weeks for birth mothers, and
extended its parental leave programs for other
primary and secondary caregivers. The company
also is planning to allow new mothers to ship
breast milk home for free if they choose to travel
for business, among other benefits for new parents.
Write to Rachel Emma Silverman at
rachel.silverman@wsj.com
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Chapter
88
Arizona Iced Tea Pops

Open a Can-Do Spirit
For seven years, Don Vultaggio stood and
watched as the rest of the world flooded into a
beverage niche that he and his partner had energized with their Arizona iced tea.
Why? Because that is how long he and John
Ferolito were locked in a bitter court battle over
control of the company they co-founded.
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Now, despite lost time, lost market share and

missed opportunities to win investors such as
Coca-Cola Co. KO 1.95 % , Mr. Vultaggio, who
secured control in May, is hitting the gas pedal.
He is more than doubling the size of Arizona
Beverage Corp.s New Jersey manufacturing facility, rolling out an all-natural tea called Good
Brew this month and launching a beer called
Crazy Cowboy this fall.
One thing he wont change: the 99-cent retail
price for the 23-ounce can that hasnt budged
since 1998.
Mr. Vultaggio says his goal is to double company sales in five years. I tell the guys, Now we
have to turn every rock, he said in his first interview since the court-approved settlement that
gave him and his sons 100% of the company.
That is a tall order. The pink, turquoise and
yellow can with the distinctive Southwestern motif has a lot of ground to recover in the estimated $10 billion U.S. market for ready-to-drink
teas. Deep-pocketed beverage giants like Coca566
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Cola Co., PepsiCo Inc. PEP 3.18 % and Nestle

SA NSRGY 0.42 % are gaining steam with an
expanding line of brands that attacks Arizona at
higher and lower price points.
A decade ago Mr. Ferolito began looking to
sell his half share in Arizona, but to do that the
estranged co-founders had to agree on a valuation. As they squabbled over the price, industry sales of liquid tea grew at an annual average
rate of 6.5% in the five years through 2014, faster
than water, juice and soda. But Arizonas market share during the period fell to 20.7% from
24.9%, according to Citis equity research.
Mr. Vultaggio calls the ownership fight, which
generated 1,000 affidavits and nearly $200 million
in estimated legal fees, a decade of waste and
foolishness. He figures he spent 70% of his time
in recent years on litigation instead of running
the business.
The legal battle discouraged suitors: ending
acquisition discussions with Nestle SA in 2009
and 2010; quelling expressions of interest from
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Tata Global Beverages Ltd. 500800 -0.93 % that

had begun in 2005; and chilling on-again, offagain interest by Coke, according to court documents.
Coke, Tata and Nestle declined to comment on
any current interest.
Meanwhile, PepsiCo and Unilever UL 1.24 %
PLCs tea joint venture has cemented a nearly
30% U.S. market share with brands including
Lipton, Brisk and Pure Leaf. Coke, whose tea
brands include Gold Peak, Fuze and Honest Tea,
and Dr Pepper Snapple Group Inc. DPS 2.13 %
s Snapple brand each has roughly a 10% market
share. Nestle has a smaller slice of the market
through its Nestea brand. Supermarket brands
are also a problem, although most of the growth
these days is in high-price brands.
Competition has surrounded it, said Tom
Pirko, a beverage-industry consultant who testified on Mr. Vultaggios behalf in court. Theres
a whole army of them now.
The 63-year-old Mr. Vultaggio said he has got568
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ten bank financing to buy out Mr. Ferolitos half

of the Woodbury, N.Y., company, the value of
which is confidential as part of a court-approved
settlement reached in April. Last October, the
court estimated the company was worth $2 billion. Mr. Vultaggio says he has no plans to sell.
Mr. Vultaggio isnt your typical beverage industry executive. The Brooklyn native never
went to college, didnt board an airplane until his
30s and still doesnt use a computer, email or cellphone. He spends much of his time in impromptu
hallway conversations at the companys Long Island headquarters, where he himself wallpapered
the lobby and a bathroom. On his birthday, he
encourages employees to wear pajamas and he
makes them pancakes.
I do it the old-fashioned way. You talk, look
people in the eyes, says the scraggly bearded,
6-foot- 7-inch entrepreneur who wears shorts and
no socks even in winter.
He started a beer distribution business from a
Volkswagen bus with Mr. Ferolito in the early
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1970s. In 1992 they launched Arizona, betting they could beat Snapple, another Brooklyn
startup, by offering 50% more tea for the same
price.
The business made both men very richin 2000
Mr. Vultaggio built a 17,000-square foot mansion
on a stretch of Long Island coastline once owned
by William Randolph Hearst and chronicled in
The Great Gatsby. Mr. Ferolito declined to be
interviewed for this article.
In June Mr. Vultaggios sons, Wesley, 34, and
Spencer, 31, both of whom attended Boston University, overhauled Arizonas website for the first
time in a decade.
Arizona launched a higher-priced Arizona tea
this summer sweetened with sugar instead of high
fructose corn syrup and recently rolled out a
new tea brand called Oak steeped with American
oak chips. The company is also launching Good
Brew, made from tea leaves instead of powder.
This spring Mr. Vultaggio also launched Coco
Nutz, a coconut-flavored malt beverage. He plans
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to soon start shipping a lager called Crazy Cowboy. He predicted beer could make up 25% of the
business by 2020, up from about 2% now.
The company recently began producing Arizona in Colombia and Mr. Vultaggio says he has
had lots of conversations recently about distributing in Africa and Asia, including China.
Arizona has been sold for several years in Mexico
and Europe.
Both Coke and Pepsi began ad campaigns for
tea brands recently. But Mr. Vultaggio said
he would continue skipping traditional advertising to keep costs down. Since the court dispute
ended, the company has hedged the price of aluminum for the first time and found ways to shave
5% from freight expenses.
Now weve got all this time to do great things,
said Mr. Vultaggio, as his two sons filled up his
offices dining room table with prototypes for new
tea and beer cans and bottles.
Write to Mike Esterl at mike.esterl@wsj.com
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Chapter
89
D.C. Regulators Reject

Pepco-Exelon Merger
Utility regulators for the District of Columbia on
Tuesday rejected Exelon Corp. EXC 3.42 % s
$6.8 billion bid to purchase Pepco Holdings Inc.,
POM 3.95 % tossing a wrench into a deal that
would create a large power utility company serving customers across several East Coast states.
Regulators in Delaware, Maryland, New Jersey
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and Virginia have approved the deal, as has the

Federal Energy Regulatory Commission.
The Public Service Commission of the District
of Columbia, where Pepco is based, was the last
regulatory body whose approval was needed for
the deal to be completed. The companies can
appeal the decision.
We are disappointed with the Commissions
decision and believe it fails to recognize the benefits of the merger to the District of Columbia and
its residents and businesses, Exelon and Pepco
said. We will review our options with respect to
this decision and will respond once that process
is complete.
The companies have 30 days to ask for the commission to reconsider its decision.
Exelon owns a large fleet of power plants and
utilities that serve the Chicago, Philadelphia and
Baltimore metropolitan areas. Pepco operates
electric utilities in Maryland, Delaware, New Jersey and Washington, D.C.
Shares of Exelon fell nearly 7% to $30.40.
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Pepco fell 16% to $22.51, both in 4 p.m. New

York Stock Exchange trading Tuesday.
D.C. regulators made their decision public during a meeting on Tuesday. Commissioners said
they didnt like the proposed management structure of the new company, which they said would
diminish Pepcos influence and make their job of
regulating the utility more difficult.
The regulators also said they believe that
a conflict of interest at the company could
prevent Pepco from becoming a cleaner and
greener utility that uses more renewable energy.
They also felt that management bureaucracy
could constrain Pepco from adapting to current
changes in the energy industry.
The companies had hoped to complete their
merger by September. It was originally announced in April 2014.
Write to Cassandra Sweet at cassandra.sweet@wsj.com
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Chapter
90
Lixil Director Aims to

Lead the Charge
Against Japans Glass
Ceiling
TOKYOThirty-six years ago Barbara Thomas,
then an American corporate lawyer, visited
Japan as a tourist, drawn by her interest in
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the countrys porcelain. Now, as Lady Barbara

Judge, chairman of the Institute of Directors, a
British business networking club, she wants to
help Japan break its glass ceiling for women.
This summer Ms. Judge, a former member
of the U.S. Securities and Exchange Commission
and a Commander of the Order of the British
Empire, added to her portfolio of directorships
in North America and Europe by joining the
board of Lixil Group Corp. 5938 1.76 % , a
Japanese provider of building materials and bathroom equipment that owns the American Standard and Grohe brands.
Ms. Judge, 68 years old, is taking on the new
role as Japan Inc. wrestles with its latest accounting scandalsone of them at Lixil, which
is investigating problems involving off-the-book
loans at an insolvent Chinese subsidiary. Meanwhile, Toshiba Corp. TOSYY 6.24 % recently
shook up its leadership after an investigation
found that the company had overstated its profit
by $1.2 billion over several years.
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Ms. Judge, who in the 1990s briefly worked at

News Corp., NWSA 2.16 % which later acquired
Dow Jones & Co., owner of The Wall Street Journal, is one of a handful of non-Japanese women
serving as corporate directors. She says foreign
women could be part of the solution to Japans
governance problems, because they are more willing to stand up and ask management tough questions.
The Journal caught up with Ms. Judge this
month in Tokyo after her second monthly board
meeting at Lixil.
WSJ: Why did you decide to join Lixils board?
Ms. Judge: I was happy to do it and I
think they actually need me. Not Lixil, but the
Japanese business community needs an articulate
woman director with a lot of experience in order
to be a role model for both women and men.
WSJ: How can women help improve corporate
governance in Japan?
Ms. Judge: I think a foreign woman is like a
secret weapon. If theyve invited a foreigner to
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join its because they respect what they have to

say, or they wouldnt have made the effort.
WSJ: Are there enough qualified female candidates to serve on Japanese boards?
Ms. Judge: Theres always more women than
you think. Theres lawyers, theres accountants,
facile with numbers. They always start with academics, but academics are actually not the best
directors. The best woman directors are lawyers
and accountants, because theyre already in business. Thats what they do. They are not afraid
of numbers or documents. Also, we should educate women the way we educate mento understand what a balance sheet is, what an income
statement is, whats strategy, whats financial reporting. Thats basically what the barrier is.
WSJ: Prime Minister Shinzo Abe says he
wants more women in senior positions, but things
havent changed much. What do you think about
his womenomics program?
Ms. Judge: Its not his fault. Progress is slow
when youre trying to push women up to board
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level. Frankly, what I think is really important is

women going up to the executive group, not just
the nonexecutive group. The fact that theyve
raised the issue at all is progress.
WSJ: You used to oppose quotas for women
on boards, which have been adopted in several
European countries, but now you say you support
them. Should Japan adopt quotas, too?
Ms. Judge: Sometimes you have to kick the
ball in order for it to get going in the right direction. You dont have to keep them forever, but
you have to get the game started. My theory is
that the push by the government will not lower
the quality, it will just make you look harder, or
even look at all. I think a government push is
necessary in order to make something happen.
Otherwise people wont do it.
I think it has to happen here too. Here
more, because upsetting the status quo in Japan
is harder than anywhere. The culture of the
Japanese is not to change. Its to do it as we
always did it because it works. The only way to
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make the culture change is to have it imposed by

the government.
WSJ: What kinds of questions have you been
asking since you joined Lixils board?
Ms. Judge: I said what I really want to do is
go to a showroom and see the products. The first
day I came here I went over to the showrooms.
First I wanted to see the products, and then:
How do we sell them? What are the channels
of distribution? How are we doing with them?
What are the global risks around where we are?
Those are the questions Ive been asking. I asked
a lot of questions for someone who is new.
WSJ: Are you satisfied with Lixils answers
about the investigation into the problems in
China?
Ms. Judge: I think theyre doing all the right
things. I think doing business in China is a very
difficult thing. I know from my other businesses
that the Chinese are very tricky, and that they
dont have the same corporate culture that we do,
and that you have to be very careful. I dont want
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to be derogatory, but I think having a problem

with a Chinese company is not unique. The most
important thing is to learn your lessons.
WSJ: Some people in Japan say theres no
point trying to add foreigners to Japanese company boards because of linguistic and cultural
barriers.
Ms. Judge: Lixil is doing something great,
which is that theyre not using language as a barrier. They have a simultaneous translator. It
worked perfectly at the Lixil board meetings. I
made a lot of comments, and they were translated. Everybody had an interest.
WSJ: You speak some Japanese, though, right?
Ms. Judge: I speak arigatou gozaimasu [thank
you], which I learned on the airplane. My speech
is thank you and good morning, and a few
other words like that.
Write to Eric Pfanner at eric.pfanner@wsj.com
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Chapter
91
Mexican Regulator
Investigates Telmex
Over TV Agreements
MEXICO CITYMexicos telecommunications
regulator is investigating whether America Movil
AMX 0.86 % s fixed-line unit Telmex violated
its concession through its commercial agreements
with satellite television provider Dish Mexico,
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America Movil said Tuesday.

The company controlled by billionaire Carlos
Slim said the Federal Telecommunications Institute notified Telmex of the investigation, which
aims to determine whether Telmex made unauthorized direct or indirect use of a public TV concession.
Telmex, a former state monopoly that was privatized about 25 years ago, is banned from offering television service. The company has long
sought to change the concession to be able to
compete with cable companies that offer video,
broadband and telephone, or triple play service.
America Movil could seek authorization to offer television once it has complied for 18 months,
to the satisfaction of regulators, with the regulations it faces as the countrys dominant fixed-line
and mobile operator.
The investigation also seeks to determine
whether Telmex, through its agreements with
Dish Mexico, violated the must offer provisions
of new telecom laws under which broadcasters
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Grupo Televisa and Azteca must provide their

main broadcast channels to pay television systems free of charge.
The probe is related to Telmexs marketing,
billing and equipment leasing agreement with
Dish Mexico, and to Telmexs Internet-based
video channel Uno TV.
Dish Mexico is a joint venture between Mexicos MVS Comunicaciones and EchoStar Corp.
SATS 3.21 % of the U.S.
America Movil said it and Telmex are analyzing the scope, grounds and legal motivation for
the probe into supposed violations and will take
whatever defensive measures may apply.
Dish Mexico and Telmex were fined in January
for failing to provide regulators with details of
their agreements.
Write
to
Anthony
Harrup
at
anthony.harrup@wsj.com
584
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Chapter
92
BlackRock Embraces
Robo Finance Advice
with Acquisition of
FutureAdvisor
A big asset manager is embracing robo finance
advice.
BlackRock Inc. BLK 2.86 % said Wednesday
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it is purchasing FutureAdvisor, a privately held

pioneer in the fast-growing business of using automated computer models to build and manage
investment portfolios.
The terms of the deal, which is expected to
close in the fourth quarter, werent disclosed.
BlackRock said the financial effect isnt material.
With over $600 million in assets under management, FutureAdvisor will continue to serve both
existing and new individual clients from its offices
in San Francisco. But BlackRock is most interested in selling FutureAdvisors automated advisory services to the banks, securities firms and
insurance companies that are customers of BlackRock Solutions. That unit, which accounted for
$161 million of BlackRocks $2.9 billion in revenue in the second quarter, sells a system that
allows financial institutions to place trades and
assess how those trades will affect their portfolios risk profiles, among other features.
The service will be branded FutureAdvisor
Powered by BlackRock Solutions.
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FutureAdvisor as a website providing digital

advice will continue to be there, said Robert
Goldstein, chief operating officer and global head
of BlackRock Solutions, in an interview. But as
BlackRock looks to grow the company, our focus
is going to be on working with our partners.
A lot of our interest was sparked by our clients
coming to us and asking for help serving investors who havent amassed enough in savings to
meet the investment minimums required to work
with a financial adviser, Mr. Goldstein said.
When an individual investor goes to FutureAdvisors website and answers a questionnaire that,
among other things, asks when he or she plans to
retire, the service recommends a portfolio of index funds. For a 0.5% annual fee, the firm makes
the recommended trades and its computer model
automatically monitors and rebalances the portfolio. Do-it-yourself investors can get investment
recommendations alone free.
Mr. Goldstein said securities firms have expressed interest in offering the service to investors
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with smaller accounts that they serve through a

centralized office staffed by telephone representatives rather than through individual advisers.
The brokerages have also expressed interest in using such a platform to enable financial advisers
to be more efficient about handling mass-affluent
clients, typically viewed as those with less than
$1 million in assets, he adds.
FutureAdvisor will continue to use exchangetraded funds from BlackRock as well as investments from other companies. Clients may decide
to customize the product, for example by using
their own asset-allocation models, said Mr. Goldstein.
The deal follows recent acquisitions of roboadvisory firms by companies including Northwestern Mutual Life Insurance Co. In March,
Northwestern bought privately held LearnVest
Inc. of New York for an undisclosed sum. The
goal was to secure LearnVests planning tools for
Northwesterns agents.
FutureAdvisor ranks fifth in assets under man588
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agement among 12 robo-adviser startups tracked

by Boston research firm Aite Group LLC. At the
top of the list are Betterment LLC and Wealthfront Inc., each of which oversees about $2.6 billion for investors.
This list doesnt include Vanguard Group and
Charles Schwab Corp., which recently launched
services that provide online advice coupled with
access to individual financial advisers. Vanguard
had $22 billion in assets in that service at the end
of June, according to the firm.
Sophie Schmitt, a senior analyst at Aite,
projects assets managed by robo-advisers and
traditional firms with online offerings will reach
$50 billion to $60 billion this year, up from $29
billion now and $16 billion at the end of 2014.
That is still a small piece of the $19 trillion U.S.
wealth advisers manage, according to Aite.
Write to Anne Tergesen at anne.tergesen@wsj.com
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Chapter
93
Cell Carriers Battle for

Wi-Fi Airwaves
A battle is brewing among tech giants over the
future of Wi-Fi, the ubiquitous and unregulated
wireless connections at the core of the mobile Internet.
Verizon Communications Inc. VZ 3.82 % and
T-Mobile US Inc. TMUS 2.18 % are preparing to
broadcast cellular signals over some of the same
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free airwaves currently used by Wi-Fi networks.

The wireless carriers plan to begin rolling out the
technology next year.
That worries startups like Republic Wireless as
well as companies like Google Inc. GOOG 8.00
% and Cablevision Systems Corp. CVC 3.10 %
that have built services that rely on Wi-Fi networks. They argue Verizons and T-Mobiles signals could take up space Wi-Fi services normally
use and crowd them out. Wi-Fi networksin
homes, offices, airports and coffee shopsalready
carry more than half of mobile data usage globally.
Google officials wrote a letter in June to
the Federal Communications Commission urging caution. Google said the new technologyis
particularly worrisome because wireless carriers may view some Wi-Fi providers, such as cable companies offering Wi-Fi hot spots to their
customers, as competitors.
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Verizon and T-Mobile say the expansion is

needed to manage the surging consumer demand
to stream videos and surf the Web on smartphones and tablet computers. The carriers say
using the unlicensed airwaves is an inexpensive
way to quickly increase capacity and speed on
their congested networks. Theysay the new technology, called LTE-U, can coexist with Wi-Fi
harmlessly.
Wi-Fi is very important to us because its very
important to our customers, said Patrick Welsh,
director of federal government affairs at Verizon.
Every test that weve done shows that LTE-U
is as good of a neighbor to Wi-Fi as Wi-Fi is to
itself.
The debate has turned political. Late last
month, six Democratic senators wrote a letter
toFCC Chairman Tom Wheeler expressing concern of possible Wi-Fi harm and asking him to
intervene.The FCC has opened a proceeding to
study the issue. The supporters of LTE-U insist
there is no need for rules or any intervention, and
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point out that the airwaves Wi-Fi uses arent limited to a single technology. A senior FCC official
said the agency is monitoring the situation and
doesnt expect to take any action at this time,
but is considering the submitted comments.
The existing rules for using unlicensed spectrum are light. They only limit transmission
power and ensure that signals dont bleed into
other channels.
The new LTE-U technology is a modified version of the fourth-generation cellular standard
that carriers use to route phone calls and data on
their networks. Wi-Fi operates over unlicensed
airwaves, checking for an open channel before
broadcasting. LTE-U checks, but will broadcast
on the least congested channel rather than wait
for an open one. That means that Wi-Fi signals
could get shoved around, critics say, and reduce
the speed and quality of their connection.
Earlier this month, Julius Knapp, the head of
the FCCs Office of Engineering and Technology,
wrote a letter to Verizon and other backers of
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LTE-U asking technical questions about the technology, including why it would be able to transmit on an already occupied channel.
Verizon created a group called the LTE-U Forum in April 2014 along with equipment vendors
such as Qualcomm Inc. QCOM 5.16 % and Ericsson ERIC 2.86 % to develop the technology.
That process is taking place alongside efforts at
international bodies to create standards for similar technology. Unlike LTE-U, the global standards are expected to have a listen before talk
mechanism similar to Wi-Fi.
Verizon and T-Mobile say they arent going to
wait for the international groups to finish setting those standards. Both carriers say they plan
to begin adding LTE-U radios to their networks
next year, potentially giving them a two-year lead
over operators that wait.
We are going way, way, way beyond what anyone could require in rules to make sure it will
work well, said Dean Brenner, Qualcomms senior vice president for government affairs.
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AT&T Inc., T 2.80 % which operates a large

network of Wi-Fi hot spots, has urged the FCC
to not set new regulations around the use of
unlicensed airwaves but hasnt set any plans to
launch LTE-U. A spokesman for the company
said it is supportive of LTE use of unlicensed
bands as long as it can properly coexist with WiFi.
The debate over the new technology comes as
the price for licensed airwaves is rising. The
FCCs last auction raised more than $40 billion,
including $18.2 billion from AT&T and $10.4 billion from Verizon. An auction set for 2016 might
raise more. The cost makes it hard both for new
businesses to enter the market and established
ones to maintain their networks. Verizon said
earlier this year that airwaves had become so expensive it would look to new technologies to improve network speeds.
Meanwhile, consumer reliance on Wi-Fi has
grown significantly. Wi-Fi first gained popularity in the early 2000s after it became standard
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on Apple Inc. AAPL 5.74 % computers, allowing users to access the Internet without plugging
their computers into a cable. Then, wireless carriers encouraged customers to log on to Wi-Fi
with their smartphones as a way to ease network
congestion. Consumers got used to the typically
faster Wi-Fi speedsand importantly, their lack
of data capshelping fuel Wi-Fis growth.
Upstarts like Republic Wireless and Scratch
Wireless Inc. offer cheap cellphone service that
runs primarily over Wi-Fi signals and only falls
back to cellular networks when Wi-Fi is out of
range. Firms like Google and Cablevision are
also using Wi-Fi to offer similar services. All of
the efforts are nascent, and have tiny subscriber
bases compared with the more than 100 million
subscribers on Verizon.
Wi-Fi is the only alternative network to wireless carriers, said David Morken, co-founder and
chief executive of Republic Wireless, a division of
Bandwidth.com Inc. It is in their best interest,
and importantly perhaps strategic long-term in596
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terest, to marginalize Wi-Fi as much as possible

as an alternative open, creative ecosystem, Mr.
Morken said of the carriers.
Verizon and other wireless carriers reject the
idea they intend to harm Wi-Fi. They say their
intentions are only to improve the wireless experience for existing customers. Ericsson says the
addition of LTE-U could improve network speed
by 150 megabits per second, a considerable bump
over current cellular networks.
Harold Feld, senior vice president at Public Knowledge, a consumer-advocacy group, said
Wi-Fi is too important to wait and see how LTEU affects it. Even if the impact is minimal,
allowing LTE-U to proliferate could give carriers the ability to slowly strangle Wi-Fi, he said.
You dont have to kill it to make a really potent
weapon against the competing services, he said.
Write to Thomas Gryta at Thomas.Gryta@wsj.com
and Ryan Knutson at ryan.knutson@wsj.com
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Chapter
94
Back to School
Shopping Is a Digital
Holdout
For Jennifer Fishkind, the end of August evokes
memories of Ticonderoga pencils and Crayola
crayons. Together with her three sons, ages 10,
13 and 16, she scours the aisles of Target Corp.
TGT 3.92 % for colored folders, pencil cases and
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other school supplies.

Ms. Fishkind doesnt buy these items online.
Instead, she says, shopping for school supplies
with her children in stores helps them mentally
prepare for the start of the school year. If I ordered online and the items showed up in a box on
my doorstep, it wouldnt help them with the transition, says Ms. Fishkind, a Bloomfield Hills,
Mich., mother and writer of a cooking and crafting blog called Princess Pinky Girl.
As children become increasingly attached to
screens and technology devices, some parents are
savoring the back-to-school shopping tradition as
a way to bond with their children before their
hectic fall schedules begin. They scan newspaper circulars, websites and catalogs, then head
to stores in search of the best deals. Back to
school is one of retailings most lucrative selling
seasons, with volume second only to the December holidays, yet it hasnt succumbed to many
high-volume selling tactics, like Black Friday-like
sales events and early morning door-buster dis599
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counts.
Moms are really busy, but this is a time when
they can make sure they are interacting with their
kids, said Syndi Stark, a Lands End vice president overseeing childrens merchandise. Kids
are much more involved in the purchase decisions
today than they ever have been in the past.
Aidan, Ms. Fishkinds 10-year-old son, said: I
like picking out my own stuff. High on his list
this year: Michigan State stickers to decorate his
locker.
Children want to be part of the process. Their
desks and their backpacks are two areas of life
they can control, and they are often picky about
choosing the hottest new erasers, highlighter colors or decorations for their gear.
Some 85% of shoppers said they would do
the majority of their back-to-school shopping in
stores this year, according to a survey conducted
by Market Track, a research firm. In 2014, 6%
of total retail dollars was spent online during the
back-to-school season, according to eMarketer, a
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research firm. That compares with 9% during

the year-end holiday season. The figures include
spending on automobiles and gasoline.
Jill Summer and her 8-year-old daughter Dylan
relish their back-to-school routine, which involves
scanning the catalogs of L.L. Bean, Pottery Barn
Kids and Lands End before heading out to shop.
I look forward to it. Dylan looks forward to
it, Ms. Summer said.
Dylan has particular tastes. The backpack and
lunch box have to match. This year, she chose
a pink backpack from Target decorated with images of cupcakes and sprinkles. For clothing, they
hit Gap, Target and Old Navy. Picking out her
outfit for the first day of school is a big deal, Ms.
Summer said.
Their tradition started back when Ms. Summer was a girl and would spend the last days
of August shopping for school supplies with her
mother. My mom died 19 years ago, so maybe
that is why its so significant for me to do all these
things with my daughter, Ms. Summer said.
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Not all parents are sentimental about getting

their children ready for school. And unlike in past
generations, when a stop at the local mom-andpop was sufficient, back-to-school shopping today
can involve a head-splitting array of decisions and
destinations.
Shopping around for all that stuff is stressful,
and a lot of the time the stores are out of it,
said Andrea Leigl, a stay-at-home mom in St.
Charles, Ill. Last year she had trouble finding
a red two-pocket folder with three holes, so this
year she ordered everything online through her
schools PTA. The cost for the first grade package: $55.
Parents with children in grades K-12 are expected to spend $24.9 billion this year, compared
with $26.5 billion a year ago, according to the
National Retail Federation. Spending on school
items can fluctuate, because parents typically
dont replace all items every year.
Despite the seasons significance to retailers,
many stores are missing an opportunity to create
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an emotional connection with shoppers, according to Leeann Leahy, the president of The VIA
Agency, an advertising firm that counts Sams
Club, Welchs and Unilever UL 1.24 % as clients.
Ms. Leahy said retailers could do more to get
shoppers excited by hosting in-store events that
could offer tips for packing school lunches or organizing homework.
Retailers create these emotional experiences
for Thanksgiving and Christmas, Ms. Leahy
said. But I think theyve forgotten about the
emotions of back-to-school.
One challenge is that back-to-school lacks the
type of promotional holidays similar to the Friday
after Thanksgiving that galvanize consumers to
shop. Instead, promotions are scattered throughout the season and many parents wait for their
states tax-free holiday to make their purchases.
More than a dozen states have tax-free shopping
days and they often take place in mid-August.
Some retailers are trying to up their game.
Famous Footwear has been airing a television
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commercial titled Happy New School Year that

shows images of children returning to school
against the soundtrack of Auld Lang Syne.
We are really trying to ramp up our emotional
connection with our customers, Mr. Smith said.
Target Corp. this year created School List Assist, a page on its website that highlights the
most common K-8 supplies and offered free shipping for online orders through Aug. 15. It was
the first time Target made site wide free shipping
available for this time period, said Amy Joiner, a
Target spokeswoman.
At Amazon Inc.s back-to-school store, parents
can buy everything from backpacks to glue to uniforms and sports gear. Teachers can build their
lists and share them with parents through links
and emails, according to Lori Richter, a company
spokeswoman.
But for sheer convenience, many moms opt to
order through their PTA. Since the service often
doubles as a fundraiser for schools, the prices can
be high, but some moms say it is worth it.
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It was so convenient, said Roberta Lasky of

Chappaqua, NY, who bought supplies for her son
and daughter this way last year. Ms. Lasky said
the time she saved made up for the additional
cost, which at $50, was about a third more than
she had spent in previous years.
Write
to
Suzanne
Kapner
at
Suzanne.Kapner@wsj.com
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Chapter
95
3-D Rarities Review:

When the World First
Loved 3-D Movies
First, we had the silents.
Next, we had
the talkies. And thirdand lastwe have the
roundies. So speaks actor Lloyd Nolan in a 1952
short film with the catchy title of M.L. Gunzburg
Presents Natural Vision 3-Dimension. That at606
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tempt at a shorthand phrase for 3-D never caught

on, even though the process itself did for about
three years, during which time Hollywood released 50 feature films in 3-D. That period is
generally known as the Golden Age of 3-D, despite the recent renaissance of the medium, epitomized by Avatar, the top-grossing film of all
time. But, as a new 3-D Blu-ray disc titled 3D Rarities extensively documents, 3-D cinema
goes back to 1915. Thus, 2015 (a year in which
virtually every one of the top-grossing films was
released in 3-D) marks the hundredth anniversary
of the medium.
The release is a production of the 3-D Film
Archive, whose founder, Bob Furmanek, has been
actively preserving and restoring classic stereoscopic films for over 30 years. The earliest known
showing of a 3-D movie occurred in New York
on June 10, 1915a special industry screening
presented by pioneering director Edwin S. Porter
that included shots of Niagara Falls and of an
exotic dancer doing her stuff (which would be a
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recurring subject for the medium). That footage,

alas, is lost, as is the first 3-D feature film, The
Power of Love (1922), but the new 3-D Blu-ray
begins with the earliest surviving 3-D film, Kelleys Plasticon Pictures: Thru the Trees, Washington, D.C. (1922), depicting parks and gardens in the Washington area. As you might expect, the silent images do look like a turn-of-the20th-century stereopticon in which, yes, the images and the people therein are actually moving.
For roughly 30 years, the idea of stereoscopic
motion pictures was the province of experimentalists, inventors and promoters. The new Bluray, which features 150 minutes of material, includes shots from 1935 of a Negro League baseball team (the Brooklyn Royal Giants) and images of a locomotive factory. The most impressive
of these early efforts is New Dimensions, which
was exhibited at the Chrysler pavilion of the 1940
Worlds Fair in New York; by the time the fair
closed, 4.5 million people had watched this imaginative short in which a 1940 Chrysler is assem608
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bled part by part right before their eyesin vivid

Technicolor and 3-D via stop-motion animation.
Hollywood turned to 3-D again in 1952 as a
result of its standoff with another medium: television. The smash hit Bwana Devil (preceded
by the Gunzburg film as a kind of prologue)
launched the 3-D trend in a big way. The Golden
Age of 3-D hit its pinnacle in 1953, when the
process briefly convinced audiences that rather
than stay home and stare at a small, flat, blackand-white screen, they should put on their 3-D
glasses and immerse themselves in the big, colorful, fully dimensional fare at the neighborhood
cinema. However, by the end of 1953, newer processes like CinemaScope (driven by the idea of a
wide screen rather than a deep screen) were on
the rise in movie theaters, and 3-D began to be
perceived as a fading fad.
Mr. Furmanek believes it was a lack of quality
control in the projection booth that sabotaged
the medium. In too many theaters, the shutters were out of phase and the poor alignment
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gave people headaches, he said in an interview

at his home in Clifton, N.J. It was shoddy projection that killed 3-D. (Mr. Furmanek knows
all about projectionhe has a full-scale setup in
his basement with two vintage 35mm projectors.)
The original 3-D boom differed from the current one in at least one important aspect: Today, nearly all the movies using the digital 3-D
medium are animated or action films. But in the
1950s, while there was no shortage of sci-fi, horror and action epics (westerns, war and jungle
movies), there were also highly prestigious 3-D
musicals, comedies, crime and detective stories,
and dramas, most famously Alfred Hitchcocks
dialogue-driven Dial M For Murder (1954).
One of the gems of the 3-D Blu-ray is the trailer
for what was advertised in 1953 as The First All
3-D Program. The main attraction is the iconic
alien invasion epic It Came From Outer Space.
The trailer also contains a few moments from a
musical featurette starring Nat King Cole, making him, to this day, one of very few musical su610
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perstars to be documented in 3-D.

The disc also features footage of a stand-up
comedian, a burlesque show (and, as a bonus,
an excerpt from The Bellboy and the Playgirls,
a 1962 cheesecake flick directed by Francis Ford
Coppola), and a singularly novel cartoon in which
Casper the Friendly Ghost battles evil walking
trees on the moon. The most surprising item is
Doom Town (1953), an early hybrid of newsreel and documentary. Ostensibly a film of an
atomic weapons test in Nevada, the soundtrack
commentary by Gerald Schnitzer (who, at 98, is
still with us) doesnt wave any flags, but dwells
on the death and destruction that resulted from
splitting the atom. Its hard to say which aspect
of the film more presciently points to the future,
the 3-D technology or the movies startling antinuclear stance.
Mr. Friedwald writes about music and popular
culture for the Journal.
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Chapter
96
Manager at Video
Game Maker Accused
of Trade Secret Theft
A manager at a maker of a popular videogame
was arrested last week as he tried to board a
plane for Beijing after allegedly stealing trade secrets, according to a federal criminal complaint
unsealed Tuesday.
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Jing Zeng, 42 years old, of San Ramon, Calif.,

allegedly downloaded data on how users interact
with Game of War: Fire Age, one of the topgrossing games in Apple Inc. AAPL 5.74 % s
App Store. Mr. Zeng was a director of global infrastructure for the games maker, Machine Zone
Inc.
The case could make Mr. Zeng, a naturalized
U.S. citizen, the latest face in American officials
efforts to stop alleged theft of trade secrets from
U.S. firms.
His attorney didnt immediately respond to a
request for comment.
After working at a string of Chinese and U.S.
technology jobs, Mr. Zeng landed at Machine
Zone in late2014, according to his LinkedIn profile. The Palo Alto, Calif., firm produces Game of
War, an online medieval videogame that features
knights and dragons. Its commercials, which
have appeared on the Super Bowl, feature the
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model Kate Upton.

By spring, Mr. Zeng was unhappy with his
boss and wanted to change teams, the complaint
said, but his bosses declined. After managers told
Mr. Zeng he had to leave the company, he began
downloading data on user behavior from a proprietary company database, according to the complaint, which cites log files from Machine Zones
tech department.
Confronted by company executives, Mr. Zeng
tried to use the files as a bargaining chip for a
severance agreement, according to the complaint.
The company appeared open to a three-month
package, while Mr. Zeng wanted six or seven
months, the complaint said. He then allegedly
gave conflicting accounts of how many copies he
made and whether some of the storage devices
holding the files were in China or San Ramon.
The company, in the meantime, contacted the
Federal Bureau of Investigation. Agents arrested
him as he tried to board a flight Aug. 20.
The complaint doesnt specify what Mr. Zeng
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planned to do with the stolen information. It

doesnt accuse him of stealing source code for
Game of War but data related to how users interact with the game and spend money while using it. Game of War allows users to navigate
a virtual world and engage in virtual commerce
through so-called micropayments.The data Mr.
Zeng allegedly stole provide valuable insight and
a huge competitive advantage over other online
game providers and competitors, according to
the criminal complaint.
On his LinkedIn profile, Mr. Zeng says that he
left Machine Zone last month.
His current position: Ready for next adventure.
Sarah E. Needleman contributed to this article.
Write to Danny Yadron at danny.yadron@wsj.com
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Chapter
97
Workdays Job Isnt

Finished
The trading days couldnt end soon enough for
Workday Inc. WDAY 3.40 % s shareholders recently.
Although the software provider isnt particularly exposed to China, commodities, interest
rates or any of the other scary themes that have
been behind the market tumult, its shares fell
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by 18% in the week ended Monday. Those investors who have been with the cloud-computing
company for some time, while probably not enthused, have been through worse. In the spring of
2014, Workday and its peers went through what
analysts at Evercore ISI dub the SaaS Crash.
Software as a service, or SaaS, company valuations bounced back from a steep drop then,
but they never completely recovered. Workday,
for example, went from trading at 27 times debtadjusted market value to forward revenue to just
half that multiple in under three months. Its recovery sputtered and it now fetches less than nine
times.
That makes Workday a bargain relative to its
formerly loftier valuation. But it is far from
an outright bargain, barring some fantastic news
when the company reports fiscal second-quarter
results on Wednesday.
Analysts polled by FactSet see Workday reporting a loss of 38 cents a share for the period
through July, unchanged from a year earlier. Also
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unchanged is a string of predicted losses. Those

stretch for as far as analysts have been willing to
make projections for the fast-growing company.
Without earnings for at least the next three or
four years, one valuation anchor is what larger
companies have paid for software as a service
companies in the past. The Evercore ISI team
looked at eight deals between 2011 and 2014 by
Oracle Corp. ORCL 4.12 % , Salesforce.com
Inc. CRM 5.12 % and SAP SE. SAP 0.48 %
These were done at an average of 6.6 times debtadjusted market value to forward revenueabout
where the sector trades today but far below
Workdays multiple.
Those three companies desire to get some
cloud mojo is evident in their recent conference calls: the word appeared 113, 69 and 87
times, respectively (compared with just 11 times
on Workdays own call). But the propensity to
pay top dollar may wane with stock-market exuberance, which probably is why Workday was so
volatile recently.
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Revenue growth is dandy, but an investment

thesis based on the desperation of deep-pocketed
suitors doesnt look particularly stable.
Write to Spencer Jakab at spencer.jakab@wsj.com
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Chapter
98
Las Vegas Readies

Airport for Possible
Uber, Lyft Rides
LAS VEGASTravelers flying to Las Vegas may
soon be able to hail a ride from Uber or Lyft.
Officials have been developing plans allowing
the ride-hailing companies to pick up and drop
off passengers using McCarran International Air620
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port.
The option wont be available until at least
late October when county commissioners are expected to consider new rules for business licenses
and airport operator permits for the so-called
transportation network companies.
Companies would need both before offering airport rides, as well as approved regulations expected to be considered by the Nevada Transportation Authority at a Sept. 11 meeting.
Once that happens, airport officials say their
working plan would likely allow drivers to dropoff passengers in front of terminals and pick up
passengers in designated spaces inside two terminal parking garages.
Copyright 2015 the Associated Press.
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Chapter
99
Is a Hacked Vehicle
Also Defective?
Loyal Moore has a new item on the wish list for
when he goes car shopping next year: cybersecurity.
After hearing that researchers earlier this summer commandeered a Jeep Cherokees engine and
brakes remotely from a laptop, the 48-year-old
Mr. Moore wonders whether hackers could take
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control while he is behind the wheel. Its kind

of scary, says Mr. Moore, a Robbins, Ill., truck
driver and married father of five. I dont want a
car that allows any potential hackers.
Mr. Moores concerns are shared by lawmakers, regulators and car makers. After the Jeep
demonstration, and others spotlighting hacking
vulnerabilities in connected cars, they are debating to what degree a vehicles inability to withstand a cyberattack constitutes a safety defect.
The ultimate outcome presents potentially significant consequences for auto makers facing an
unprecedented safety crackdown.
Over the past 20 months, more than 90 million
vehicles in the U.S. have been recalled to address
faulty ignition switches, rupturing air bags and
other problems. Vehicles deemed defective trigger costly recalls that dent car companies reputations and provide headaches for consumers.
Auto makers liken vehicle hacking to slashing
a tire: a purposeful act by a troublemaker that
doesnt necessarily mean a car is defective.
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We would reject a blanket assertion that a cyber risk is a defect, said Mitch Bainwol, head
of the Alliance of Automobile Manufacturers, a
Washington lobbying group representing a dozen
car companies including General Motors Co. GM
3.01 % and Toyota Motor Corp. TM 3.94 %
There is a difference between a routine function
of a vehicle where a problem arises and the intervention of a bad actor.
Mr. Bainwols group recently helped create a
research initiative aimed at evaluating and sharing information about cybersecurity threats.
Regulators and some lawmakers, concerned
about vehicles being hacked at highway speeds,
insist the problem is deeper. Two U.S. senators
earlier this summer introduced legislation requiring regulators to develop standards for safeguarding vehicles from hackers, suggesting a cars wireless communications should be scrutinized much
like other components.
A cybersecurity vulnerability is a safety defect in the same way an exploding air bag or a
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malfunctioning ignition switch is a safety defect,

said Sen. Edward Markey (D., Mass), one of the
bills sponsors. Auto makers cannot ignore their
responsibility to ensure the cars they sell are safe
from hacking.
The auto maker recalled more than a million
vehicles in July to address cybersecurity flaws.
Sources: National Highway Traffic Safety Administration; staff reports
Retailers, banks, airlines and the U.S. government have all suffered cyberattacks that in
some cases have compromised personal information. No deaths or serious injuries have yet
emerged from cyberattacks against cars, which
so far mostly involve hackers garnering publicity
through demonstrations at conferences or other
venues after having prolonged physical access to
vehicles. Auto makers have quickly fixed problems hackers exposed, often through wireless updates that dont require trips to the dealer.
But the proliferation of driverless features such
as automatic braking and increased wireless com625
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munications in cars are heightening cybersecurity concerns. With cars, hackers have exposed
gaps that can risk motorists physical safety in
addition to personal information, and an uncertain landscape where regulators are responding
to threats case by case.
The tension between government officials and
auto makers was on display in July when Fiat
Chrysler Automobiles FCAU 2.92 % NV, the
hacked Jeeps manufacturer, recalled the sportutility and more than a million other vehicles in
the U.S. with a similar cybersecurity flaw.
Fiat Chrysler asserted the vehicles werent defective, an unusual disclaimer in a safety-recall
report that usually requires auto makers to concede a defect and the percentage of vehicles affected.
The National Highway Traffic Safety Administration, in a routine letter acknowledging the recall, said it does not agree with the companys
assessment.
The agency views the Cherokee and similar
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Fiat Chrysler vehicles as defective because an improperly open port in the software system allowed
hackers to remotely access critical safety systems
that could take control away from a driver, said a
NHTSA spokesman. Those factors, and the hackers intention to publicize the security vulnerability, constituted a defect causing an unreasonable
safety risk, said the spokesman.
The auto maker provided software patches and
other measures to fix the problem.
To our knowledge, there has not been a single
real-world incident of an unlawful or unauthorized remote hack into any [Fiat Chrysler] vehicle, said a company spokesman.
Fiat Chrysler hasnt had to classify the problem as a defect, reflecting a practice regulators
have at times allowed to negotiate speedier recalls and repairs with car makers.
Researchers have hacked into several kinds of
cars, including Tesla Motors Inc. TSLA 2.19 %
s Model S, but few recalls have emerged. Tesla
issued a security update.
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A researcher in July demonstrated an ability

to remotely locate, unlock or start a car using
General Motors Co. GM 3.01 % s OnStar smartphone system by installing a gadget underneath
the vehicle. GM quickly addressed the problem
and alerted consumers to the fix without a formal
recall.
The overarching federal automobile safety law
was passed in 1966, long before the advent of connected cars. Current regulations tend to focus on
seat belts, brakes, air bags, and how well vehicles
can withstand crashes.
There really is not precedent for a hacking situation, said Allan Kam, a former senior NHTSA
enforcement lawyer who now runs consulting firm
Highway Traffic Safety Associates LLC.
Under current laws and regulations, government officials would need to show a vehicles cybersecurity vulnerability made it far more susceptible to hacking than other cars to find it constituted a defect that could withstand a companys
challenge, Mr. Kam said. In addition, publicly
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identifying a cybersecurity gap through a recall

process could alert otherwise unaware hackers,
though a quick over-the-air fix could ameliorate
that risk, he said.
Write to Mike Spector at mike.spector@wsj.com
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Chapter
100
Connecting Your Car

to Your Smartphone
Can Make Auto Data
Work for You
If your car could talk, you might be surprised by
how much it has to say.
Ease up on the gas pedal, buddy.
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Dont forget to expense these miles.

Hey! That valet with the smirk is taking me
for a joyride.
Yet hearing from your car is no longer strictly
the domain of Knight Rider, the dumbest show
about TVs smartest car. My modest 2013 Volkswagen VLKAY 2.60 % communicates all of this
and more with the help of a type of gadget that
opens up the computer under the hood.
The devices, including the Automatic, the Mojio and the Zubie, can fast forward to the future almost any car built after 1996 by connecting it to the Internet. Plugged into diagnostic
ports most vehicles already have under the steering wheel, they collect data about the engine,
fuel efficiency, the cars location and even your
propensity to slam brakes in a way that perturbs
your mother. Different from Apple CarPlay and
Android Auto, which let the infotainment systems draw from your phone, these devices unlock
information about whats happening deep inside
the vehiclelike a Fitbit for your car.
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When the $100 Automatic debuted as a smart

driving assistant in 2013, its app was mostly
designed to nag about bad driving and fuel efficiency. This appealed to car nuts and nervous
parents of teen drivers. For a wider audience,
unlocking the data in a car was at best a novelty
and at worst a scary reminder that cars are now
hackable.
Now connected car gadgets are gearing up for
a second act. Newer models, like the $150 Mojio
and the $100 Zubie, come with independent cellular data connections so they can report what
your car is up to and its location, even when you
arent driving it.
Better yet, all three devices are opening up to
outside app makers. So instead of just a backseat
driver, now a connected car can be a mechanic,
accountant, household manager and even insurance broker.
If cars are at the center of your family or work
life, the latest Automatic and the more capable
and more expensive Mojio are worth installing,
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because they make driving safer, simpler and less

costly.
My eureka moment came on a business road
trip. Normally, I forget to do all the paperwork
to get reimbursed for driving my own car. But
the latest Automaticand soon Mojio and Zubiehas the ability to connect directly to my
companys expense management system, called
Concur. As I parked at my destination, one tap
on my phone (or Apple Watch) added the trips
mileage and destination to an online expense report. In two trips, the gadget paid for itself.
But wait a minute: Why dont cars already do
this on their own? Its infuriating that the most
expensive piece of technology I own is also the
dumbest.
Automakers have been slow to push into
smartphone-style connectivity because of long development cycles, reluctance to be locked into
outdated technology, an abundance of caution
about breakdowns and a fear that tech companies
might displace their service relationships. Some
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new cars, including 2015 Lincoln and Chevrolet

models, are starting to come with wireless connections, and automakers like Ford are beginning
to open up car data to outside apps.
For now, most of us have to retrofit our cars
to help them catch up to the smartphone-driven
world. Installing any of these three devices isnt
difficult, if you know where to look. Most cars
built after 1996 have a mechanics port known
as an OBD-II (short for on-board diagnostics),
usually located under the steering wheel. I
needed a flashlight to find mine and plug in the
three devices I tested, which each look like a
phone charger-size USB thumb drive.
Its wise to be wary of putting any computer
onto the Internet, particularly one designed to
travel at 65 mph. Yet so far, none of these three
devices has proven to be a safety risk. Unlike
some other OBD devices, neither Mojio nor Zubie
has the ability to write to the cars systemjust
read from it. The only thing Automatic can command your car to do is clear the check-engine
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light.
Once youre up and running, all three devices
can perform certain basic tasks. Through phone
apps, they run diagnostics to make sure your car
is humming along and provide alerts when things
go awry. (Not every car shares the same information with these devices; my Volkswagen, for example, doesnt share data needed to remind me to
get gas.) They also track your trips on a map using GPS, logging details like speed, fuel efficiency,
the route you took and where you parked.
The Automatic does the best job of making it
simple to access this information. Every time you
get gas, it fills in its own estimate, based on your
location, of how much you paid and uses it to
calculate the cost of each trip.
The Zubie is a little more complicated, but includes handy coupons for services like tire and
battery replacements. The Mojio splits its basic capabilities into three separate apps, which is
potentially powerful but also more confusing to
use.
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The Mojio and Zubie, however, have another

trick up their sleeves. With their own cellular connections, they send to the Internet information about whats happening in your car
and, most importantly, where your car is located.
Automatic must connect via Bluetooth to your
phone, including to send a message to your emergency contacts when theres an accident. The
company sells a version with an independent cell
connection, but only to businesses.
There are extra service costs for independent
connection. After the first year, the Mojio
charges $5 per month, and the Zubie charges $100
per year.
I was on the fence about this feature until my
neighbors car got stolen. If hed been using a
Mojio or Zubie, it would have alerted himor his
watch, Knight Rider-styleabout the car moving unexpectedly. The police might even have
been able to track it down via the GPS. (A thief
could unplug the device, but youd get an alert.)
This kind of surveillance is a comfort if you live
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in a city, or frequently valet park. And its useful

if you share a car, or if your brood has multiple
cars frequently dispersed all over town.
The smartest thing all of these devices do is
open up to outside developers, who dream up new
ways to use their data. A few apps already stand
out:
For house calls by mechanics, who get
beamed diagnostic info, theres YourMechanic
(Automatic), Urgently and RepairLync (Mojio).
To avoid parking tickets, theres SpotAngles
(Automatic).
For business trip expensing and invoicing:
Concur, FreshBooks and Expensify (Automatic)
and Easy Auto Log (Mojio).
And if you want to warm up your house
before you get home, connect into Nest (Automatic).
The devices are making cars much more like
smartphones, and the best choice for you is the
one with the apps you need. Zubie is behind in
the race but has plans to launch its own app store
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in September. Today, Automatic works with

more apps that are useful in my life. But I suspect Mojio, which has the benefit of an alwayson 3G connection and put much of its effort into
building out an app store, will catch up.
There are even nascent efforts by all three systems at providing personalized insurance coverage. Zubie is working with Progressive to offer
safe-driver discounts, based on a one-time data
feed from Zubie to Progressive. Automatic is
running a similar pilot with several carriers it
wouldnt name. Mojio goes a step further with a
service called Onsurance, which uses data about
your drivingsuch as the frequency of hard stops
and fast accelerationsto shop on your behalf
across multiple carriers. For that one, though,
you have to be comfortable letting an insurance
company monitor your driving.
But how different is that than driving with
your mom in the backseat? Cars have a lot to
communicate, and its time to start listening.
Write to Geoffrey A. Fowler at geof638
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frey.fowler@wsj.com
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Chapter
101
Stocks Surge, Posting

Strong Gains at Close
Stocks soared to their biggest daily percentage gain in nearly four years on Wednesday, as
nascent signs of stabilization lured buyers back
to the market.
The Dow industrials surged 619.07 points, or
4%, to 16285.51, following a six-day rout fueled
by worries that a slowing Chinese economy would
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weigh on the rest of the worldincluding the U.S.

In that time, more than $2 trillion in market capitalization was wiped out from U.S. stocks.
The rally came after markets steadied across
the globe, with the notable exception of China.
U.S. Treasurys and gold fell as investors anxiety
eased. Some emerging-market currencies, like the
Brazilian real, the South African rand and the
Indian rupee, strengthened slightly against the
dollar.
Few investors were ready to call a bottom to
a selloff that pushed major stock indexes both
in and outside the U.S. into a correction, defined
as a 10% drop from a recent peak. But many
fund managers took advantage of the respite to
scoop up battered shares that were trading at
more attractive valuations than just days ago.
Further bolstering sentiment was an upbeat
reading on business investment. Demand for bigticket manufactured goods rose by more than expected in July, and a reading for June was revised
upward. Investors viewed that as a signal that
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U.S. growth remained healthy even as the expansion in China, the worlds second-largest economy, slows.
As the dust settles, people come back to the
market and realize wow, things have been overdone, said Sam Peters, portfolio manager at
ClearBridge Investments. People are stepping
in and saying this doesnt make sense, there are
some very good valuations here.
For much of Wednesday, traders were bracing
for a possible repeat of the previous session, when
a sharp early rally buckled, partly due to redemptions by retail investors. On Tuesday, the Dow
industrials swung from a 442-point gain during
intraday trading to a 205-point loss. Instead,
stocks surge strengthened in the final hour of
trading.
So far this month, the Dow industrials have
fallen 7.9%. But some investors said a silver lining to the recent selloff is that it has brought
valuations for U.S. stocks down from lofty levels
reached earlier this year.
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As of Tuesdays close, the S&P 500 is trading

at 16.6 times its trailing 12-months earnings, according to FactSet. That is slightly above its 10year average of 15.7 times earnings. As of Aug.
17, before the stock markets tumble began, the
index was trading at 18.7 times earnings.
The market at todays levels is not demanding a lot of earnings growth, which should make
it more attractive should you have the fortitude
and the patience to be a long-term investor, said
Charles Kantor, senior portfolio manager for the
Neuberger Berman Long Short Strategy.
In recent trading sessions, many investors were
taking note of the lower valuations and buying
shares of companies they felt were unfairly beaten
down.
Carlton Neel, a portfolio manager who oversees about $1.4 billion at Virtus Investment Partners, VRTS 3.80 % said he had a little bit of cash
coming into this recent downturn and has started
buying stocks in the consumer-discretionary, auto
and housing sectors.
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Yesterday we started finding some things that

we thought were at a good discount and started
nibbling, he said, adding he is picking stocks
that are tied to the U.S. economy. This oil decline and really low energy prices is...going to be
a positive for the consumer, he said.
Leading the climb higher Wednesday were
the corners of the stock market that have
shown the most potential for earnings growth,
such as biotechnology stocks, health-care shares,
consumer-discretionary names and tech companies. The Nasdaq NDAQ 1.74 % Biotechnology
Index jumped 5.1%, though it remains off 6.5%
over the past week.
Still, many investors remain cautious. Along
with concerns about slowing growth in China and
developing countries such as Brazil, Turkey and
Russia, the question of whether the U.S. Federal
Reserve will lift interest rates from near zero in
September looms large.
I think everyones kind of waiting to see what
happens and if theres a next shoe to drop, said
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Darren Wolfberg, head of U.S. cash equity trading at BNP Paribas. BNPQY 2.80 %
On Wednesday morning, Federal Reserve Bank
of New York President William Dudley said the
case for a September rate rise has grown less compelling, casting new doubt on whether the U.S.
central bank will finally begin ending its easymoney policy stance next month.
Mr. Dudley reiterated the position that any
decision would be data-dependent. It could take
time for any fallout from the market turmoil to
appear in the indicators scrutinized by the Fed,
he said, adding that the U.S. economy is performing quite well.
In other markets Wednesday, the panEuropean Stoxx Europe 600 index turned lower
around the time U.S. stock markets opened and
ended down 1.8%. The index gained 4.2% Tuesday and has fallen more than 8% over the past
week.
The market is trying to find a flow, said
James Barty, European equity strategist at Bank
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of America Merrill Lynch. The U.S. has been

moving quite significantly in the past days, so it
is not unusual for markets to be choppy when
they are trying to find a flow, he said.
Chinese markets had another volatile session
Wednesday as fresh measures to ease monetary
policy late Tuesday failed to settle investors
nerves. Chinas central bank cut interest rates
and flooded its banking system with liquidity via
a cut to banks reserve ratio requirements. The
Shanghai Composite Index swung between gains
and losses before closing 1.3% lower.
Some investors worry the Peoples Bank of
Chinas moves, which many anticipated, wont
be enough to steady markets after the selloff of
the past week. Some economists expect further
moves by the Chinese government.
At the heart of investors concern is whether
the pace of economic growth in China is slowing
from the governments target level, said William
Fong, investment director at Baring Asset Management.
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China is targeting growth of 7% in 2015, compared with its nearly 10% average annual growth
for the past three decades.
Markets want to hear from China a plan on
how the slowdown is going to be managed, said
Thomas Flury, head of currency strategy at UBS
Wealth Management, which oversees about $2
trillion in assets.
Volatility is spectacular on equity markets
right now, he added.
Saumya Vaishampayan contributed to this
article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com and Chiara Albanese at
chiara.albanese@wsj.com
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Chapter
102
Emerging-Market
Currency Risk Shifts
to Lenders
Higher yields and appreciating exchange rates
drew billions of dollars into emerging-market
bonds issued in local currencies in recent years.
But now foreign buyers are feeling the pinch from
both sides.
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Heavy losses from a widespread weakening

of emerging-market currencies have more than
wiped out the interest income earned on many
bonds. At the same time, yields are falling in
many developing countries along with economic
growth and commodity prices, making the debt
less attractive for new investors.
So far this year, local-currency emergingmarket debt has posted a negative total return
of 12.3%, counting price action and periodic payments, as measured by the J.P. Morgan GBI-EM
Global Diversified index. The losses would extend the losing streak for the asset class into a
third year. In contrast, emerging-market bonds
issued in hard currencies, such as the dollar and
euro, are down 0.6% this year.
Outflows from emerging-market local bond
funds are accelerating, amounting to $1.3 billion
during the first seven months this year, according
to Morningstar Inc. MORN 2.11 % In comparison, emerging-market hard-currency debt bonds
lost only $263 million.
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Global emerging-market local-currency bond

funds tracked by Morningstar are down about
10% on average so far this year, with some down
5% in just the past month, both big declines for
bond funds.
On the local currency side it has been a
tough year, said Esty Dwek, global strategist at
Loomis Sayles & Co., which oversees $242 billion
in assets. Ms. Dwek said that hard currency investments, which her firm focuses on, have been
more resilient.
The pain is the flip side of a trend that has
made a currency-related debt crisis less likely in
emerging markets.
Since the financial crisis, many emerging markets borrowed heavily, taking advantage of low
rates and plentiful cash at home and overseas.
Emerging-market countries and companies borrowed a record $1.4 trillion last year and already
this year these borrowers have raised $750 billion,
according to data from Dealogic.
But instead of selling debt in foreign curren650
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cies, which has been at the heart of previous

financial crises as an appreciating dollar drove
up debt payment obligations at a time when domestic earnings were falling, many countries did
much of their borrowing in their own currencies.
China, Brazil, India and Mexico were among
the top issuers of local-currency debt, according to the World Bank. Only 1.7% of Chinas
renminbi-denominated debt was owned by foreigners, in part reflecting the countrys nascent
fixed-income market. But in Mexico, Poland, Indonesia, Malaysia and South Africa, foreign investors held more than 30% of their local debt as
of the end of 2013.
Issuers that did step up their borrowing in foreign currencies such as dollars over the past year
to take advantage of cheap rates are now finding
it more expensive to repay.
Indonesia-based PT Gajah Tunggal PTGJY
-9.49 % Tbk, the largest tire manufacturer in
Southeast Asia, was downgraded earlier this summer because of its rising debt and the weakening
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rupiah. The publicly traded company, with a capacity to produce almost 160,000 tires a day, has
seen yields on its U.S. dollar bonds surge almost
23 percentage points since the beginning of the
year to 33%.
A similar currency mismatch has hit other Indonesian companies like PT Japfa Comfeed Indonesia JPFA 2.56 % Tbk, one of Indonesias
largest agri-food companies, and PT MNC Investama BHIT -3.88 % Tbk, an investment company
focused on the media industry. Both were downgraded by Standard & Poors Ratings Services
earlier this year as well.
Meanwhile, investors who bought those localcurrency bonds are among the biggest losers of
the recent selloff. They are getting hit with losses
on the currencies and on the bonds themselves,
which are increasingly difficult to trade.
The $7.2-billion Pimco Emerging Local Bond
fund fell 13.3% year to date and the $1.1-billion
Goldman Sachs Local Emerging Markets debt
fund was down 13.9%, according to Morningstar.
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The $234-million TCW Emerging Markets Local

Currency bond fund was down 10.9%.
Among the top performers was the $104.5million Babson Capital Emerging Markets Local
Debt fund, which was down 5%. The fund in
part benefited from its currency hedge which accounted for nearly 30% of the holdings.
Weve become more defensive as China depreciated its currency, said Ricardo Adrogue, a
portfolio manager of the fund.
Some analysts say its a source of vulnerability to have a large portion of local-currency debt
owned by foreigners, as the perception is foreigners might flee in times of stress, driving down
prices and pushing up yields. But much of the
debt is owned by specialized emerging-market
debt managers and institutions, who are longterm investors and less likely to be driven by
market volatility. It also takes time to build up
a position in local-currency debt.
Malaysia, considered one of the most vulnerable countries because of a political scandal and its
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dependence on commodity exports, will test investor appetite for its debt when it sells 3 billion
ringgit (around $700 million) of 10-year government bonds in an auction that closes Thursday.
Malaysias external debt is 60% of its GDP,
one of the highest in emerging markets, and the
ringgit has lost almost a quarter of its value so far
this year, hitting fresh 17-year lows every day this
week. The yield on a similar bond has jumped
from 3.7% to 4.4% in the past month.
Weaker economic growth in emerging countries, especially the uncertainty around Chinas
growth, suggests that emerging-market currencies could fall further.
Even though it has been weak for a while, it
doesnt necessarily mean that one should boldly
embrace the asset class right now, because we still
have some downside here, said Peter Lannigan,
an emerging-markets strategist at CRT Capital
Group LLC.
Christopher Whittall contributed to this article.
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Write
to
Anjani
Trivedi
at
anjani.trivedi@wsj.com and Carolyn Cui at carolyn.cui@wsj.com
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Chapter
103
A New Computer
Glitch is Rocking the
Mutual Fund Industry
The U.S. fund industry was in turmoil Wednesday as executives scrambled to respond to a computer glitch that prevented dozens of mutual
and exchange-traded funds from promptly pricing their securities.
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The outage, which wasnt believed to be related to the market turbulence Monday that included the largest-ever intraday decline in the
Dow Jones Industrial Average, prompted emergency meetings Wednesday at banks, fund companies and financial intermediaries, as directors
and executives sifted through pricing data and
addressed likely legal ramifications of any mispricings.
The promise of accurate, readily available pricing lies at the heart of the industrys pitch to investors and any problems could have significant
implications for the industry, analysts said.
Bank of New York Mellon Corp. BK 4.47 %
said it was having problems with a SunGard Data
Systems Inc. system that has impacted a limited number of fund accounting clients and the
processing of net asset values of certain mutual
funds and ETFs, a spokesman said in a statement Wednesday. Bank of New York Mellon acts
as a custodian for asset management firms, providing accounting services that include calculat657
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ing the price of the funds securities each day.

The company relies on SunGards software system to calculate those prices.
The problem, which began earlier in the week,
has affected a number of large mutual fund firms,
including Federated Investors, Prudential Financial Inc., Guggenheim Partners LLC and Voya
Investment Management.
Mondays trading turmoil, which saw more
than a thousand shares halted, unleashed wild
trading in the ETF universe in which some investors complained they were unable to buy or
sell securities. And the glitch was the latest example of an unexpected technology problem reverberating across the market.
Many of the recent glitches have taken place
inside stock exchanges. NYSE halted trading on
its exchange for nearly four hours in July after a
software update caused problems. Trading continued on other exchanges, but it highlighted issues around the fragility of the technology infrastructure on Wall Street.
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The ETF pricing outage set off alarm bells in

mutual fund firms, where pricing issues are rare,
say analysts and experts, and mistakes can carry
broader implications for investors. Its the first
widespread issue that asset managers have faced
in at least a decade.
Funds have very sophisticated systems for
dealing with this, so it doesnt happen very often, said Niels Holch, the founder of the Coalition of Mutual Fund Investors.
Executives used back-up accounting systems
for calculating the net asset values of their funds.
Emergency meetings were called with each mutual funds board of trustees, a group of independent directors that is involved in the pricing
of fund shares. At BNY Mellon, executives were
holding multiple conference calls throughout the
week with affected fund companies, according to
people familiar with the calls.
The SunGard system became available with
limited capacity late yesterday. Our teams have
been working together to clear the backlog and
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we are working with SunGard to resume normal

processing as soon as possible, the bank said.
By early afternoon Wednesday, some fund
companies had received correct net asset values
from Bank of New York Mellon and were trying to reconcile those numbers with what they
had reported earlier in the week, according to
people familiar with the process. In a statement
Wednesday morning, First Trust Advisors L.P.
said that the net asset values it had reported on
four of its exchange-traded funds contained errors greater than 1%. A First Trust spokesman
didnt immediately return a call for comment.
Guggenheim Partners LLC, which offers 64
ETFs to investors, said it had to use older data
from previous days because of the problems with
Bank of New York Mellons systems.
Once we receive actual net asset values from
our third-party administrator, adjustments will
be made and reposted to our website, as necessary, said Ivy McLemore, a spokesman for
Guggenheim.
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In a statement, Federated Investors said it has

experienced a significant delay in the availability
of net asset values for dozens of its mutual funds.
The problems could result in a need to reprocess
trades, the company said.
A Voya spokesman said in a statement said
that it was unable to publish net asset values for
its registered investment funds and commingled
funds where it serves as a trustee. The company
is working closely with BNY Mellon to publish net asset values for Tuesday and Wednesday.
Voya has been providing investors and its intermediary partners periodic updates during the
situation, the company said.
A SunGard spokesman didnt return calls for
comment. A spokeswoman for Prudential declined to comment.
Write to Kirsten Grind at kirsten.grind@wsj.com
and Bradley Hope at bradley.hope@wsj.com
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Chapter
104
Judge Dismisses
Lawsuit Inspired by
Flash Boys
http://www.wsj.com/articles/judge-dismisses662
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lawsuit-inspired-by-flashboys-1440623785
A federal judge on Wednesday dismissed a lawsuit against Barclays BCS 2.45 % PLC that was
inspired by the best-selling book Flash Boys: A
Wall Street Revolt.
The suit filed in the Southern District of New
York by the city of Providence, R.I., and other
investors cited the book and alleged that Barclays
and the U.S. stock exchanges defrauded investors
in its dark pool, a private trading venue, and gave
high-frequency traders an unfair advantage over
others.
Judge Jesse M. Furman said in his opinion
that the plaintiffs failed to show their complaints
were legally sufficient. The plaintiffs may opt to
amend their complaint and refile, the judge said.
We are pleased with the courts thorough and
well-reasoned decision dismissing all the allegations in the complaints concerning Barclays LX
and concluding that the plaintiffs were unable to
identify any materially false or misleading statements by Barclays, Barclays spokesman Marc
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Hazleton said in a statement.

Lawyers for the city of Providence said they
were still discussing the judges decision and
hadnt yet decided whether to appeal. Frank Bottini, a lawyer for another plaintiff, Great Pacific
Securities, said he was planning to amend the
complaint and seek to have it moved to California where it was originally filed.
Representatives of NYSE Group, a unit of Intercontinental Exchange Inc., ICE 3.06 % Nasdaq OMX Group Inc., NDAQ 1.74 % and BATS
Global Markets Inc. declined to comment. The
exchanges have previously denied allegations that
they were creating an uneven playing field for investors.
Judge Furman said in his opinion that he
wouldnt wade into the larger public debate
about HFT short for high frequency trading.
Flash Boys author Michael Lewis and the
critics of HFT may be right in arguing that
it serves no productive purpose and merely allows certain traders to explain technological inef664
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ficiencies in the markets at the expense of other

traders, the judge wrote.
Other lawsuits inspired by the book have
failed. In April, another Southern District of New
York judge dismissed three federal class-action
lawsuits against stock exchanges.
Harold Lanier, one of the plaintiffs in the case
dismissed in April, alleged exchanges were creating an unfair marketplace by giving some trading
firms and banks a faster data feed for stock prices
than the data feed used by other market participants.
In those cases, the judge ruled that the Securities and Exchange Commission had approved of
the way exchanges distributed data.
Write to Bradley Hope at bradley.hope@wsj.com
Corrections & Amplifications: Judge Furman
said in his opinion that the plaintiffs failed to
show their complaints were legally sufficient
and that the plaintiffs may opt to amend their
complaint and refile. An earlier version of this
article incorrectly identified those who filed the
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suit as defendants. (Aug. 26, 2015)

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www.djreprints.com.
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Chapter
105
Emerging Market
Turbulence to Hit
Luxury London
Property
LONDONWealthy investors from Russia,
China and other parts of Asia have been scooping
up homes in the U.K. capital for years, turning
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high-end property here into one of the hottest

global assets.
Now, with many of those emerging economies
slowing sharply, some analysts are predicting
that parts of the London market could soon feel
the pinch.
Recent market turmoil in Asia means the highend housing market in London will definitely suffer, according to Dorian Beresford, group director of strategy and business development at realestate consultancy Strawberry Star.
While there is still interest from abroad, that
part of the market will take a hit, Mr. Beresford
said.
Foreign investors have tended to target the
priciest London pads. Buyers from Russia and
the Middle East typically gravitated to mansions
and penthouses in posh locales. Asian buyers
have been big investors in high-rise condominium
projects that have proliferated across London and
the rest of the country.
Those off-plan sales to Asia have started to
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slow, said Simon Durkin, head of research at BNP

Paribas Real Estate. Given the devaluation of
the currency [in China], it will put the brakes on
a bit, he said.
London hasnt been alone in attracting robust
demand from abroad. New York, Vancouver
and San Francisco are among other cities that
have proven popular with foreign investors seeking havens. The demand in London, alongside an
acute housing shortage, has seen average home
prices rise over 70% since 2009, according to the
Office for National Statistics data.
But home prices in Londons prime market
have been falling. In the prime London market,
the average price paid a square foot was 0.9%
lower in the second quarter of 2015 from the same
quarter of 2014, according to data firm LonRes.
Transactions were down 23%. Prices near historical highs, the strength of the sterling, and a
change to key property tax are among chief culprits, analysts said.
Even before the escalation of the global market
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tumult in recent days, foreign investment flowing

into the most expensive London property from
some ailing emerging economies had waned.
In Londons prime central housing market,
3.8% of buyers were from China in the first half
of 2015, down from 4.1% in the same period last
year, according to real-estate broker Savills.
Russians buyers have also pulled back, making
up 2.9% of buyers in central London in the first
half of 2015, down from 4.1% in the same period
last year, according to real-estate broker Knight
Frank.
Even though overseas inward investment
makes up a relatively small number of deals, its
those trades that push or pull the whole market,
said Peter Rees, professor of places and city planning at University College London.
In China, recent stock market volatility came
after the central bank devalued the currency. The
yuan has lost 9.2% of its value to sterling since
the peak in April.
The economy in Russia, faced with low oil
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prices and Western sanctions, is in recession. The

ruble has lost 45% of its value to sterling since
last August.
Russians looking to splash their cash on big
signature properties are gone, said Roman Grigorjev, property buying agent at LonGrad Ltd.
There are a lot of Russians whose fortunes have
changed in the last year.
Up until the end of last year when the ruble
collapsed, there was still strong demand from
Russians. Then it slowed down completely, Mr.
Grigorjev said. Those who were flying private
jets are now looking to sell.
For Chinese buyers, some analysts say it is still
early to see what the full effects will eventually
be. When the Chinese stock market dropped precipitously Monday, I thought this could be what
is needed to prick the bubble, said Mr. Rees.
But it might not be that simple, he said. We
may find that this increases the desire to get
money out of these regions. That could just push
the market in London up even further, he said.
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Write to Art Patnaude at art.patnaude@wsj.com
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Chapter
106
Got Losses? A Tax

Break Could Soothe
the Pain
Uncle Sams tax rules on deducting investment
losses can ease the sting of market declines. But
they contain traps for the unwary.
Some investors cope with the turmoil by selling
poor-performing positions and using the losses to
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offset taxes on any capital gains. Up to $3,000 of

losses that exceed total investment profits can be
deducted against wages and other ordinary income each year. Unused losses carry over to future years and dont expire.
Another strategy, tax-loss harvesting, often
involves the sale of a losing position and the purchase of a similar security as a way of maintaining the bet and reaping future gains. Ideally,
these moves produce a tax-deductible loss and
tax-deferred profits in the years ahead.
You have to take advantage of what the market gives you, and harvesting losses can improve
your tax situation, said Joel Dickson, a tax specialist with Vanguard Group who said he did so
in his own portfolio Monday as the market closed
down nearly 600 points after dropping more than
1,000 points during the day.
But tax specialists caution that for some investors, the costs of this approach can outweigh
the benefits. Here are some potential pitfalls:
Raising your capital-gains tax: Selling losers
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creates capital losses, but purchasing a similar

investment also lowers the positions cost basis,
which is the starting point for measuring a future
taxable capital gain. Thus, a purchase can increase the potential tax on the position, although
it is deferred until the holding is sold.
There are four effective rates on long-term capital gains on investments held longer than a year.
They are 0%, 15%, 18.8% and 23.8% and consist
of a statutory rate plus a surtax for most married couples with adjusted gross income above
$250,000 ($200,000 for singles).
The danger, said Pinnacle Advisory Group
principal Michael Kitces, is that low and midbracket taxpayers will reset their cost basis lower
and wind up owing tax at a higher rate in the future, either because they are in a higher bracket
or because Congress changes the law. People in
the zero bracket shouldnt do tax-loss harvesting
because it can raise their taxes, he said.
On the other hand, a tax-loss-harvesting strategy can provide benefits if the taxpayer expects
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to have a similar or lower tax rate in the future.

This can happen if the investor is retiring or moving to a lower-tax state, will donate the appreciated security to a nonprofit charity, or hold the
position until death when capital gains up to that
point become tax free.
Running afoul of Internal Revenue Service
rules: The tax code suspends the use of losses
if a substantially identical security is purchased
within 30 days before or after the sale of the losing position. The IRS doesnt fully explain what
this means, however.
Robert Gordon, a tax strategist who heads
Twenty-First Securities in New York, said to beware of replacing one fund with another if both
are contractually obligated to track the same
portfolio. Thus, he wouldnt substitute an S&P
500 index fund with an S&P 500 index exchangetraded fund.
It is clear, however, that taxpayers cant reap
losses in a taxable account and repurchase the
same security in a nontaxable account, such as an
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IRA or 401(k). Also, a husband cant sell from his

own account and repurchase in his wifes account,
said John Sweeney, an executive vice president
with Fidelity Investments.
Selling the wrong shares: To optimize tax
strategies, investors with taxable accounts should
tell brokers they want to choose specific lots of a
holding when they sell, because some lots may
have much higher gains or losses than others.
If taxpayers dont specify, the IRS default
method for stocks is first in, first out, in which
the first-bought shares are assumed to be the first
sold.
That limits your options, Mr. Gordon said.
Mutual-fund holdings often track an average
cost, and investors should consult their advisers
as to whether they can switch to the specific identification method.
Write to Laura Saunders at laura.saunders@wsj.com
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Chapter
107
Latest Victim of
Chinas Pollution
Problem: Iron Ore
SYDNEYA parade planned in China to mark
the 70th anniversary of the end of World War II
is the latest threat hanging over the depressed
global iron-ore market.
Beijing has invited many world leaders to at679
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tend the event scheduled for Sept. 3, and its efforts to put on a good show include cleaning up
pollution. The capital is frequently blotted by
smog from heavy polluters in nearby provinces
such as Hebei, which produces nearly a quarter
of Chinas steel.
Last year, Chinas push for clear skies at a
global summit in the city led to factories and
steel mills being temporarily closed. Now, the
iron-ore sector is grappling with a sense of dejà
vu as Chinese authorities order steelmakers and
other heavy industry to switch off. China is the
worlds No. 1 steelmaker and buys nearly twothirds of all iron ore traded internationally.
The shutdown last November, ahead of the
Asia Pacific Economic Cooperation forum nicknamed APEC Blue, resulted in a more-than 6%
slide in Chinas monthly crude-steel output. The
price of iron ore tumbled more than 5% in the
two weeks leading up to that summit.
Iron ore has already recorded a 40% decline in
prices over the past year and recently sank to a
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decade low amid record output from Australias

major miners including Rio Tinto RIO 1.20 %
PLC and BHP Billiton Ltd. BHP 3.52 %
The official Xinhua News Agency said Chinese authorities aim to reduce air pollution in
and around Beijing by as much as 40% for the
parade. It said the temporary controls, to last
from Aug. 28 to Sept. 4, would result in more
than 10,000 factories reducing or stopping production and work on nearly 9,000 construction
sites stalling.
Beijing is also placing restrictions on road traffic, clamping down on drones and sprucing up the
city with millions of flower pots.
Compared to APEC Blue in November 2014,
the area affected by Parade Blue is even bigger,
suggesting that the impact on production could
be deeper, especially among heavy industry, said
Jianguang Shen, economist at Mizuho Securities.
The suspension order for factories and steel mills
covers a total of seven provinces.
Chinas steel production has already cooled in
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recent months as the government tries to stamp

out overcapacity and domestic appetite for the
material used to build everything from cars to
skyscrapers eases. Steelmaking capacity is meanwhile being shifted away from Hebeiwhere the
government has ordered provincial officials to
cut production capacity by almost a quarter by
2020to coastal towns.
Many analysts reckon expectations of shutdowns prompted a temporary surge in Chinas
imports of ore in July, and helped keep ironore prices stronger than they may otherwise have
been recently. Chinas imports of iron ore were
15% higher last month compared with June.
The temporary closures could help swell stockpiles of the raw material at Chinas ports to
roughly 96 million tons by the end of September
from about 82 million tons at July-end, Australia
and New Zealand Banking Group ANZBY 2.03 %
analysts said in a note. They said iron-ore prices
could head back below $50 a ton as a result.
Iron ore fell as low as $44.10 a ton last month,
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its lowest level in a decade. Iron ore priceswhich

hit a record of $191.90 a ton in 2011have stabilized in the mid-$50s in recent weeks and closed
at $53.10 a ton on Wednesday.
Some forecasters think improvements in
Chinas construction marketthe biggest consumer of its steelwill aid iron-ore demand later
this year, while others expect supply to outstrip
demand and send prices to a fresh nadir. Citigroup C 4.81 % analysts expect prices to fall into
the $30s before the end of the year.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Biman Mukherji at
biman.mukherji@wsj.com
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Chapter
108
With Yuan Down, Dim

Sum Debt Loses Favor
Chinas devaluation of its currency two weeks ago
has led to record losses for dim sum bonds as
the yuan weakens and appetite for Chinese assets
fades.
While issuance of dim sum bondsyuandenominated debt issued outside China by firms
such as Caterpillar Inc. CAT 2.51 % and domes684
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tic giants like Bank of China Ltd. BACHY -0.34

% is down this year from last years record,
prices were holding up until Beijing allowed its
currency to move more freely on Aug. 11. Now,
the market is slumping and investors are withdrawing money from funds that buy dim sum
debt, marking a setback for Beijing in its effort
to internationalize its currency, analysts say.
And in an odd twist, yuan have become scarce
in the offshore market, briefly sending short-term
borrowing costs for banks as high as 20% in Hong
Kong.
Prices of dim sum bonds have fallen by
5.7% since the devaluation. Until this month,
the FTSE-BOCHK Offshore RMB Bond Index,
which rose 2.9% this year until the devaluation
and has tracked dim sum debt since its inception, had never dropped more than 4.5%. That
decline came in September 2011, when Greeces
debt crisis was roiling markets.
The current stress point for dim sum bonds
is the FX risk, said Crystal Zhao, an analyst at
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HSBC Holdings HSBC -0.23 % PLC. The Peoples Bank of Chinas move this week to cut interest rates to boost the economy, while largely expected, will lead people to send yuan, also known
as renminbi, out of the country, analysts predict.
Renminbi is likely to weaken further against
the U.S. dollar, Ms. Zhao said.
The so-called offshore yuan, which can trade
freely, is down 4.5% against the dollar since the
devaluation. In the domestic market, where the
yuan is more controlled, the currency has fallen
3.5%.
The gloomy outlook for Chinas currency is
prompting investors to flee, magnifying declines
in values of several bond funds.
For instance, the value of a yuan bond fund
managed by Deutsche Asset & Wealth Management has shrunk by 18% since the devaluation.
The price of units in the fund has fallen by
6%, and withdrawals by investors have taken
the funds total value still lower, according to
Thomas Kwan, who manages the portfolio.
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London-based Stratton Street Capital LLP has

a yuan bond fund whose price has fallen 6.6%
since the devaluation. The price of units in a $73
million fund managed by Taiwan-based SinoPac
Asset Management (Asia) Ltd. is down by 7.5%.
The redemptions mark a turnaround for a market that had posted rapid growth for years. New
bond issuance surged more than fivefold to a high
of $33.4 billion last year from less than $6 billion
when dim sum bonds started to take off in 2010,
according to Dealogic, a data-tracking company.
This year, however, just $16 billion in dim sum
bonds have been sold. A $1.1 billion offering by
Deutsche Bank AG DB 2.72 % was the largest.
Until this year, when concerns about China began to build up, such bonds had been a popular tool for global investors seeking exposure to
Chinas largely closed capital markets.
We expect the near-term risk for the renminbi
to remain elevated.
The fall in bond prices has been reflected in
soaring yields, which move inversely to prices.
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Even the yield on debt issued by Caterpillar,

which is widely seen as creditworthy, has taken
off, rising to as high as 7.2% from 4% before the
yuans devaluation. Its yield currently stands at
5.6%, which means Caterpillar would have to pay
more than before if it issued a bond now.
And despite the selloff in dim sum bonds, investors arent looking for bargains. We expect
the near-term risk for the renminbi to remain elevated, said Arthur Lau, co-head of emergingmarkets fixed income at PineBridge Investments,
which manages $77.7 billion of assets.
With dim sum bonds out of favor, yuan have
become scarcer in the offshore market, which is
most active in Hong Kong. Investors who cash
out of yuan bonds are given yuan, but banks
in Hong Kong, which handle most of those payments, have limited supplies of the currency.
Most yuan they hold is tied up in clients time
deposits.
Banks have scrambled for short-term cash to
meet their needs, driving up interest rates. Short688
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term borrowing rates for the yuan soared as high

as 20% on Tuesday, compared with between 1.4%
and 2.5% in most of July and early August. Hong
Kongs de facto central bank then channelled
yuan into the market, bringing the rate banks
charge one another for overnight loans back down
to about 3%.
Write to Fiona Law at fiona.law@wsj.com
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Chapter
109
When Bad Things

Happen to Expensive
Stocks
http://www.wsj.com/articles/whats-next690
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when-bad-things-happen-to-expensive-stocks1440618562
Investors have gotten a painful reminder this
month that when stocks are expensive, bad things
can happen. And things could get worse still
given how dear they actually remain.
But past crises show how quickly squalls can
pass, and that stocks can easily get richer still.
For all the recent tumult, the U.S. seems like
a fine place to invest now. The economy is growing steadily, and the job market continues to
strengthen. Households have substantially repaired their balance sheets since the financial crisis, and companies have big cash cushions. Banks
are well capitalized.
Plus, while some areas of the economy, and
companies, will get dinged by Chinas slowdown
and the popping of its stock-market bubble, others will benefit. Reduced sales to China and intensified competition from Chinese manufacturers will hurt, but lower gasoline and import prices
are a boon to U.S. consumersand companies
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that sell to them.

With inflation and, therefore, interest rates
looking as if they will be lower for longer, the
outlook for a housing market that has regained
its footing looks brighter.
Nevertheless, the U.S. stock market has been
unusually sensitive to Chinas troubles: Even after Wednesdays gains, the S&P 500 is about 9%
below its July closing high. The last time the index has been hit so hard was in 2011, when the
U.S. government-debt crisis and Europes woes
represented far greater threats to a still-fragile
U.S. economy than China poses now.
The problem is prices: The S&P 500 now
trades at about 17 times its constituent companies earnings over the past year. That isnt as
high as mid-Julys 18 times, but is still well above
the multiple of 11 it plumbed in the 2011 selloff.
And at a time when profit margins are historically high, and more likely to narrow than widen,
stocks may be even more expensive than implied
by the price/earnings ratio.
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Indeed, the cyclically adjusted price/earnings

ratio popularized by Yale University economist
Robert Shiller, which seeks to smooth away temporary swings in S&P 500 earnings, is now above
24 times. To reach the 20 times it has averaged
over the past 50 years, the index would have to
fall by nearly one-fifth.
The thing about stocks falling when they are
expensive, as opposed to when they are cheap, is
that investors dont have as compelling a reason
to swoop in and buy them. Witness the difficulty Berkshire Hathaway BRK.A 3.24 % chief
Warren Buffett lately has had finding companies
he considers a value or his public admission that
the price he agreed to pay for Precision Castparts
PCP 0.17 % earlier this month was very high.
That is why investors should be careful before
declaring the selloff over. It may take some combination of lower prices and a real sense that the
situation in China has stabilized before that can
happen.
But they should also be careful about think693
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ing U.S. stocks will make a long-term move to

less expensive levels. Ahead of the 1997 Asian financial crisis, stocks were more expensive than
they are now. By early 1998 they were even
pricier. The situation repeated itself, at even
more eye-watering valuations, during the 1998
Russian debt crisis.
If history repeats, investors could get a lot
more scared before the year is out, and be sorry
for it by next spring.
Write to Justin Lahart at justin.lahart@wsj.com
a Family
Musical Head Start
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Chapter
110
Schlumberger Wants
Camerons Company
in Oil Slump
Misery loves company.
Schlumberger SLB -3.35 % s planned $12.7 billion, cash-and-stock acquisition of Cameron International CAM 41.11 % looks like a natural
next step as the biggest oil-field-services compa696
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nies hunker down amid a serious slump in activity

among their customers. The pair has had a joint
venture, OneSubsea, for two years. The deal effectively allows the two companies to extract the
type of cost savings found there across the rest of
their businesses.
Those savings are much needed, with the latest declines in the oil price set to further squeeze
spending at oil-and-gas companies. Schlumberger thinks it can find pretax benefits of $600
million in the second year after the deal, most of
which will come from cost-cutting.
Taxed and capitalized, those more than justify the premium the company is paying over
Camerons 20-day average share price. While the
56% premium to Camerons latest, beaten-down
share price is eye-catching, the deals price tag
is still 10% below where Cameron traded a year
ago.
This deal doesnt totally reshape the sector, as
Halliburton HAL 2.87 % s merger with Baker
Hughes BHI 3.06 % aims to. Nor should it at697
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tract the same skeptical eye from customers and

antitrust regulators.
But it does reflect how the business of oil-field
services is changing after oils tumble. The downturn represents an opportunity to add equipment
at bargain prices. Rounding out a portfolio is
crucial in an environment where customers will
increasingly seek better deals, from fewer suppliers, for a wider range of services.
In the longer term, Schlumberger also thinks it
can integrate drilling systems with surface operations in a new push for efficiency.
In tough times, it is better to find a like-minded
shoulder to cry on than to grieve alone.
Write
to
Helen
Thomas
at
helen.thomas@wsj.com
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Chapter
111
Let the Bad Times

Roll for Dollar General
Buddy, can you spare a buck?

Inflation means that panhandling for a measly
dime isnt worth it, but dollars are still nice. Likewise, dollar stores are the new five and dimes.
That is why the selloff in shares of category
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leader Dollar General Corp. in the recent market

tumult seems overdone. Hard times are bad for
the bottom lines of retailers generally, but recent
experience shows dollar stores are an exception.
After being taken private in 2007, Dollar General returned to the public markets in November
2009, even before the great recession was declared over. It turned out to be a great buying
opportunity: Since then, the shares have gained
three times as much as the S&P 500.
The rebound in wealth and the disproportionate benefit Americas well-off households have
reaped from easy monetary policy are widely understood. The flip side, a thriftier lower and
lower-middle class, has been a boon to dollar
stores. Even Wal-Mart Stores Inc., which got its
start as a five and dime, is going back to its roots
with Neighborhood Markets.
But while the recovery has been good, the
downturn was great. For example, in the fiscal years ended in January of 2007, 2008 and
2009, Dollar Generals same-store sales growth
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was 2.1%, 9% and 9.5%., respectively. Target

Corp., which has a better-off clientele, saw a
change of 3%, minus-2.9% and minus-2.5% during the same stretch. Upscale Nordstrom Inc.
did even worse with 3.9%, ,minus-9% and minus4.2%.
The impact of that sales divergence was magnified by the time it hit those chains bottom
lines due to an equally stark impact on merchandise margins. Target and Nordstrom saw a
2.5-percentage-point decline on average between
the fiscal years ended January 2007 and January
2009. Dollar General enjoyed an impressive 3.4percentage-point expansion. Wal-Marts margins
were up slightly.
The problem: Investors have caught on. By
July 20, Dollar Generals stock fetched its
highest-ever forward price/earnings multiple of
more than 19 times. That compares with an average of 15.7 times during its current incarnation
as a public company. Recent market weakness,
though, has pared that to 17.3 times ahead of
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Dollar Generals fiscal second-quarter results due

Thursday.
Since bad times arent so bad for the retailer,
investors now have the chance to get a dollar for
eight dimes and a nickel.
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Chapter
112
European Banks Face

More Pain From
Operational Errors
When banks behave badly, it isnt just the fines
they now need to worry about.
Regulators are making more use of capitalsucking charges for operational risk, a broad term
that covers all ways in which a bank can lose
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money through error, negligence, or illegality.

However, regulators are inconsistent in applying those charges, which take the form of an addition to risk-weighted assets, the balance-sheet
measure used to set core capital ratios. This
leaves investors with another hard-to-predict effect on bank capital needs, and thus returns.
Recent half-year results illustrated the issue.
Swiss bank UBS saw its regulator cut 4.2 billion Swiss francs from its operational risk charge
in the second quarter after it settled foreign
exchange investigations with U.S. authorities.
However, Barclays, BCS 2.45 % which was part
of the same settlement, saw no reduction from
U.K. regulators in its charge.
Deutsche Bank then reported a 5 billion increase in its operational risk handicap precisely
because it had finally reached a settlement in the
interbank lending rates, or Libor, scandal. Marcus Schenck, chief financial officer, added that
Deutsche expects its charge to grow further this
year.
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The answer to this riddle is partly that UBS is

a special case. The Swiss regulator hit the bank
with higher charges earlier partly to restrict its
dividend paying ability ahead of expected fines
or compensation payments.
For other European banks, past performance
on litigation is used as a guide to the future, according to Mr. Schenck. So, big settlements or
provisions are taken as a signal of higher risk leading to higher charges.
Operational risk charges typically go up in reaction to operational errors, according to Morgan
Stanley. Such errors arent only mis-selling mortgage bonds or manipulating Libor, they include
many other things such as failures in modeling or
IT functions.
These charges have increased by almost half
on average globally over the past 2 years. U.S.
banks, which have paid out more in settlements
than European rivals, have the highest average charge with operational risk accounting for
28% of risk-weighted assets, according to Morgan
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Stanley.
UBS however, still carries the highest individual charge with operational risk making up 36%
of risk-weighted assets.
The good news is that the more time that
passes without any slip-ups, the more these operational risk charges will be reduced. And UBS
having been hit early by its regulator should see
charges fall further.
The bad news, however, is that U.K. and European banks are in general further behind with
an average operational risk charge at just 12%.
That number is likely to tick up for Europeans
in coming quarters, which will use up precious
capital and add another drag to returns for investors.
Write to Paul J. Davies at paul.davies@wsj.com
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Chapter
113
China Has Big Eyes,

Little Stomach for Oil
Sometimes, China and oil just dont mix.
The worlds No. 2 economy has spooked investors into selling off commodities across the
board in recent days, likely more out of sentiment
than fundamentals. In the case of oil, however,
China is hurting the fundamental case as well,
especially once investors look past a few headline
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figures.
On the surface, China is guzzling the stuff.
Over the first seven months of the year, the
worlds largest marginal buyer of oil imported a
daily average of 6.7 million barrels of crude, according to London-based consultancy Energy Aspects. Thats nearly 640,000 barrels a day more
than in 2014, perhaps the biggest jump since
2011.
Yet those imports are coming at the expense of
someone elsesbecause the products this crude
is refined into are increasingly being re-exported.
China has built a vast and still expanding complex of state refinery capacity that is producing
more than underlying demand.
The only outlet for the excess refined production is exports, which so far this year have averaged about 670,000 barrels a day, roughly equivalent to the rise in crude-oil imports. In three
of the past four months, China exported more
products than it imported, says Energy Aspects.
Though China is still a net product importer in
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annual terms, a tinkering to the refinery complex

may change that, too. Earlier this year, regulators allowed small, mostly private-sector refineries to access imported crude, previously reserved
for big state operators.
While these refineries will increase crude imports by an extra 450,000 barrels a day, they
will also increase the supply of diesel and gasoline within China, Citigroup C 4.81 % s Ivan
Szpakowski calculates. The country will swing
to a net exporter of products in 2016, he says.
A big upturn in Chinas underlying demand
could save the daybut that looks difficult. Use
of diesel, Chinas key oil product, is slowing along
with heavy industries. Though demand for gasoline has held up, growth there too may slow in
coming months. Car sales fell in June and July,
the first consecutive down months since 2009.
On top of slowing demand, China has even increased its own supply of crude. The country
extracted 4.4 million barrels a day in the second
quarter from 4.2 million in 2014, according to the
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International Energy Agency, mostly because the

state offshore producer Cnooc CEO 6.27 % began
tapping new fields. Cnooc is set to start production on further projects later this year.
Some investors may buy into oil and other commodities in the short term if their anxieties about
the global economy recede. Still, the fundamental case China makes is still one against oil.
Write to Abheek Bhattacharya at abheek.bhattacharya@wsj.com
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Chapter
114
Betfairs Winning
Hand in Paddy Power
Deal
Betfair BTFRF 10.51 % s investors may be entering the bonus round.
The gaming company on Wednesday announced talks to merge with larger rival Paddy
Power. The proposed 6 billion ($8 billion) deal
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would create one of the largest of its kind with

annual revenues of 1.1 billion. The deal was
announced just weeks after British bookmaker
Ladbrokes LDBKY -2.56 % agreed a 2.3 billion
merger with rival Gala Coral.
Sector consolidation is driven by a race to chase
scale online, particularly mobile gaming. Both
Betfair and Paddy Power dominate in that category, with the latter also owning retail stores.
Details havent been disclosed, but cost-saving
potential is substantial given their overlapping
U.K. and Italy markets.
Both companies
also have complementary strengths, with Paddy
Power a strong player in Australia, while Betfair
runs the largest peer-to-peer betting exchange.
Shares in Betfair jumped 20% while Paddy Power
rose 18% following the announcement.
The combination makes strategic sense and
will likely allow the new entity to increase investment to stay competitive. Betfair chief Breon
Corcoran previously worked as chief operating officer at Paddy Power. He knows both compa712
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nies intimately and is expected to also take the

helm at the renamed Paddy Power Betfair. That
should help defuse integration risks.
If successful, Paddy Power shareholders will
own 52% of the new company, and receive a special dividend of 80 million ($91 million). But
Betfairs investors appear to have been dealt a
better hand.
The smaller of the two companies, Betfair will
contribute about 40% of combined earnings before interest, taxes, depreciation and amortization, Merrion Capital reckons, but will own 48%
of the new company. Its expected sales growth is
also lower, forecast at 12% for 2015 versus 20%
for Paddy Power, according to FactSet. One reason is Australia. Paddy Power saw a 46% increase
in revenue here and it contributed nearly half of
profits in the years first half.
On the other hand, Betfairs exchange is
extremely cash generative, notes Shore Capital. That allows for investments into future
growth, including a fixed-odds sports-book busi713
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ness. Such online gambling potential had helped

power its shares, which are trading at a substantial premium at nearly 38 times forward earnings
compared with about 27 times for Paddy Power.
So while the combination should prove a winner for both sides, the odds favor Betfairs investors.
An earlier version of this article incorrectly
stated the deal size would be 6 billion ($8 billion). The deal would create a group valued at
$7.6 billion based on the companies current market capitalizations.
Write to Thao Hua at thao.hua@wsj.com
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Chapter
115
Big U.S. Banks Can

Weather China Storm
Fears of China-inspired financial contagion have
taken a toll on U.S. banks. So far, though, there
arent obvious signs of deeper stress. That is a
positive for financial-sector stability and the U.S.
economy.
It also suggests the shellacking big-bank shares
have takenthey are all down sharply since the
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start of Augustisnt wholly warranted.

In recent years, regulators and banks have undertaken a herculean set of tasks to set U.S. banks
on firmer ground. As a result, big banks are less
exposed to trading losses, financed with far more
capital and are far less dependent on wholesale,
short-term financing. As well, they are armed
with arsenals of safe, liquid assets they can sell
in dire straits.
Whats more, regulators have conducted years
of big-bank stress tests. While those didnt necessarily envisage todays China slump/commodity
meltdown scenario, they are still useful in regularly testing banks mettle.
Results released this March, for example,
tested 31 banks that collectively hold 80% of U.S.
banking assets against adverse and severely adverse economic conditions. Among test assumptions were scenarios in which stock markets fall
by 25% and 60%. According to the Fed, none of
the banks would see their capital levels fall below
regulatory minimums in either case.
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In short, the banks have been testedand

given passing gradesagainst what are actually
tougher environments than investors are now seeing.
That doesnt mean banks wont be buffeted
by financial-market ripples. They have all had
their net interest margins, the difference between
what they pay for funds and what they charge on
loans, squeezed due to the ultralow interest-rate
environment. Many investors had expected that
rising rates and a steeper yield curve would lead
to better margins and rising net interest income.
It is now more likely banks wont see improved
interest margins in the near future. Only shortterm rates are higher than they were a year ago,
while long-term interest rates have noticeably declineda situation that could actually mean margins are squeezed further.
The upshot is that earnings forecasts will have
to be revised downalong with expectations for
share prices.
That is far different, though, from being at the
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epicenter of a crisis. This doesnt seem to be the

case today. Chinas banking system is largely
closed to outsiders, so exposures are limited.
Citigroup C 4.81 % had around $21.1 billion
in China exposure as of June 30, for example.
That is equivalent to only about 1.1% of average
assets. Exposures were of a similar level or even
less at J.P. Morgan Chase, JPM 5.01 % Bank of
America, BAC 5.24 % Wells Fargo, WFC 4.56 %
Goldman Sachs GS 3.47 % and Morgan Stanley.
MS 4.85 %
Of course, U.S. banks have shown a stubborn
ability to surprise investors with bad news. And
financial contagion remains a risk, especially if
it causes a meltdown at a big client that then
blows back on a bank. It is also possible trading
desks could be caught on the wrong side of jarring
market moves.
Even then, higher levels of capital and liquidity, along with lower leverage, should help them
withstand unforeseen nasty surprises.
So while a dimmer view of future earnings
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could continue to weigh on big-bank shares, investors shouldnt confuse that with questions
about their soundness.
Write to John Carney at john.carney@wsj.com
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Chapter
116
Dialing Up Dividends
With AT&T, Verizon
The stock market hasnt been particularly kind
to AT&T T 2.80 % and Verizon VZ 3.82 % Communications over the past year.
Amid a bruising wireless price war and a gradual shift in investor focus toward growth, as opposed to yield, shares of the two telecom giants have underperformed the broader market.
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Shares of AT&T have fallen 5.8% over the past

12 months, while Verizons are down 9.5%, versus
a 4% decline for the S&P 500.
But as the stock-market volatility of the past
week has shown, investors may once again begin
to seek safety in dividends. High-growth stocks,
with high multiples, tend to be the hardest hit
when investors get spooked. For AT&T and Verizon, which have yields of 5.7% and 4.9%, respectively, such a shift could mean a return to
the spotlight. That is especially the case given
falling long-term government-bond yields and resulting questions about the timing of any Federal
Reserve move to increase interest rates.
Granted, that spotlight may be somewhat
dimmed by continuing pricing pressures due to
ramped-up wireless competition. Verizon is in
a later phase of repricing its wireless subscriber
base than AT&T, so it may be feeling more of
that pain.
As for AT&T, it must tackle the integration of recently acquired DirecTV and justify
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the strategic wisdom behind its decision to purchase a satellite-TV provider at a time when consumers are increasingly dropping traditional payTV subscriptions.
Still, the DirecTV deal is a blessing when it
comes to the safety of AT&Ts dividend. Investors began to question that last year when
dividend payments as a percentage of free cash
flow reached an uncomfortable 97%. Thanks to
DirecTVs free cash flow, AT&T expects that to
drop to the mid-70% range in each of the next
three years.
Growth is all well and good until it gets called
into question. Investors reaching for the stability
of yield may again return telecoms call.
Write
to
Miriam
Gottfried
at
Miriam.Gottfried@wsj.com
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Chapter
117
Germanys Fate
Doesnt Depend on
China
If investors were to judge by the German stock
market, they might be concerned that the eurozones engine room was seizing up. But the
German economy looks resilient, even with the
growth of fears about China.
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The DAX has had a wild ride this year. It was

up 26.2% by April 10, but by Mondays close the
index had given up all its gains and more, falling
into the red. Even after Tuesdays rally, spurred
on by a Chinese rate cut, it was lagging many
European peers on a year-to-date basis, up 3.2%.
Germanys economy expanded 0.3% in the first
quarter from a quarter earlier and 0.4% in the
second. The apparent inability of the economy
to accelerate much could be cause for concern
in an environment of weaker global growth, particularly given Germanys export franchise. But
there are reasons to believe that Germany can
rely on domestic support.
True, in the second quarter, German exports
provided the biggest growth impetus, figures
published Tuesday show. And in 2014, China
was Germanys fourth-biggest export market, accounting for EUR74.5 billion of German exports.
That is equivalent to 6.6% of total exports, or
2.6% of German gross domestic product.
But the rest of the eurozone, U.S. and U.K.,
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where growth has picked up, account for 52.6%

of exports. While some 25% of exports do go
to emerging markets, according to Berenberg,
slower growth in these nations isnt a new phenomenon, even if markets are only now panicking
about it; Germany has kept its head above water.
Eastern European countries, like Poland, Hungary and the Czech Republic, where Germany
has major export exposures, are proving resilient.
Tuesdays IFO survey also offers hope that
Germany isnt being blown off course, even
though the domestic economy was disappointing
in the second quarter with household consumption up just 0.2% on the quarter and investment
proving a drag.
While manufacturers were more cautious, the
outlook for retailers and construction brightened,
the IFO Institute said. The business climate indicator for servicesmore driven by domestic factorsrose to a record. Meanwhile, real wages
are rising, supporting consumption. Low interest
rates may encourage some higher saving, but the
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fall in oil prices should act as a tax cut: it should

boost spending power by about 30 billion ($34.5
billion), or 1% of GDP, UniCredit UNCFF 0.95
% thinks.
The DAX might not reflect that, however. The
index isnt particularly exposed to rising domestic demand, Societe Generale SCGLY 3.91 %
says. China accounts for 9% of DAX sales and
15% of earnings per share, dominated by the auto
sector, according to Deutsche Bank, DB 2.72 %
which calls this the indexs Achilles heel. Markets in this instance may be concentrating risk
exposure rather than diversifying it.
The DAX might be a source of gloom, but investors shouldnt assume the German economy is
in the same state. China is important, but there
are offsetting factors. Germany should carry on
posting solid, although unexciting, growth.
Write to Richard Barley at richard.barley@wsj.com
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Chapter
118
China Eases but

Stench of Crisis
Remains
At least Beijing isnt wasting its crisis.
China fired a double-barreled easing shot after its stock market plunged yet again Tuesday. This included an interest-rate cut and a reduction of bank reserve-requirement ratios, both
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aimed at both cushioning the stock-market fall

and spurring the real economy.
But in a significant long-term move, the central
bank took another step toward liberalizing interest rates. The Peoples Bank of China said banks
would now be free to offer what they wanted on
rates for one-year deposits. These apply to accounts in which savers must keep their money in
the bank for a year, similar to a certificate of deposit.
That follows a move in May, when the PBOC
gave banks additional leewaythough not total
freedomto set deposit rates on short-duration
deposit accounts.
Letting banks set their own deposit rates is the
final step in Chinas shift from a command-andcontrol banking system to one that is more market determined. Banks have been free, in theory,
to set lending rates since 2013. But with deposit
ratesand so the cost of borrowing capitalstill
regulated, banks havent been fully free to charge
what they want.
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Liberalizing deposit rates in theory will help

the economy allocate capital better. It would also
let the PBOC exercise a more traditional monetary policy, where the central bank targets interest rates that feed through the banking system
and can adjust them up and down accordingly.
Those changes are positive for Chinas ability to
manage the economy in the future.
But the shift also increases risk and raises the
possibility that even if China gets through its current troubles, it is setting itself up for problems
in the future. The history of interest-rate liberalization around the world is littered with crises.
Nordic countries in the 1980s liberalized interest
rates as a way to spur growth. Banks and shadow
lenders used the new freedom to offer easy loan
terms, but combined with a rush of capital from
abroad, that resulted in destructive housing bubbles and recessions.
The other question is whether the PBOC follows through on the deposit-rate promise. After
it loosened its grip on the deposit rate in May,
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the PBOC later quietly asked banks not to exercise the new freedom. The central bank feared
that if too many banks raised their deposit rates,
it would undermine the efficacy of a rate cut.
Of course, Chinas moves Tuesday werent
spurred by a desire to pursue market reform. It
was an act of desperation given free-falling markets and the tepid response in the real economy
to previous rate cuts.
Still, previous rate moves, contrary to popular
wisdom, have been having some effect, with borrowing costs dropping, at least in nominal terms.
Bank and real-estate stocks listed in Hong Kong,
which was mostly insulated from Chinas irrational market mania this year, should welcome
the moves when markets reopen.
The problem for China at this point is that so
many policy moves, so quickly, have rattled investors. Until the stock market finds its bottom,
and the real economy shows convincing signs of
health, the stench of crisis will remain.
Write to Alex Frangos at alex.frangos@wsj.com
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Chapter
119
Restoration Hardware
Makes a Play for Teens
Many of todays teens have been catered to

with products and services since they cruised
to mommy-and-me interpretive-dance classes in
deluxe strollers and designer onesies. Now theyre
getting their own teen furniture and room decor.
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Restoration Hardware in September will

launch home furnishings for the teenager who has
everythingexcept a tufted linen bed set (twin
bed $1,599, plus $949 for the quilted headboard)
or a white Mongolian lamb butterfly chair ($649).
There is plenty, too, for teens who wont spend
thousands for a bedroom makeover, including
jewelry, wall art, lamps and pillows.
Called RH Teen, the furnishings offer storage
such as under-bed drawers, and space-saving devices like beds on stilts that can make a bedroom
feel like a studio apartment. But the look is more
sophisticated than most furniture aimed at middle and high schoolers: There is nary a whiff of
childhood in the floor-to-ceiling drapes, crystal
chandeliers, and art pieces that include fine art
photography.
The idea is to capture teens at the moment
theyre breaking out on their own as consumers
and home decorators. Its the first time in
life when you start to feel liberated, says Gary
Friedman, Restoration Hardwares chairman and
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CEO. Theyre looking for their own identity.

Restoration Hardware is also launching RH
Modern, which will focus on modern design, and
will join an expanding set of businesses, including RH Interiors, RH Lighting and RH Baby &
Child. The company will soon be called RH, says
Mr. Friedman, as it breaks away from its past as
a Craftsman-style furnishings source. The business is no longer about nostalgic sort of knickknacks from the founders past, he says.
Mr. Friedman says the companys approach
and some of its choices have been informed by
his own twin 13-year-old daughters, Alexis and
Arianna. When they turn 13, they walk through
an imaginary wall into their own world, he says.
They used to be Daddys little girls.
The strategy has been devised without the aid
of focus groups, market research, or even colorpalette trend studies, all of which the company
eschews. No focus group would have developed
the iPod, says Mr. Friedman, who says he is
sure there is going to be a big market for teen
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furnishings even though he says he cant share

an estimate of its size.
Instead of using market research, RH makes
decisions by gut feel and the personal experience
of Mr. Friedman and the companys executives.
That willingness to go with the gut may help
explain why RH Teen furniture lines, illustrated
in a large catalog and online, seem to be marketed
to remarkably stereotypical personality types.
There is a whole room designed for the overachieving male teen with a placard on his wall
reading Leaders Arent Born, Theyre Made.
A surfer-skater dude has textured hemp drapery
and bedding designed to look like it was made
from vintage sweatshirts.
Female teens choices lack an overachiever;
they vary from the romantic waif whose wall
placard reads Live Your Dream to the angelic rockerAll Good Things Are Wild and
Free. There is plenty of fodder for Instagram
and Pinterest-savvy teen girls with a linen pinboard for inspiration photos and metallic leather
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picture frames.
The imagery and personality types are aimed
at marketing directly to teensnot their parents.
Trust me, I am not dictating whats in my girls
room and neither is their mom, says Mr. Friedman.
There are 26.9 million teenagers in the U.S.,
according to 2014 research by the Statistic Brain
Research Institute using data from the Rand
Youth Poll, Seventeen Magazine and Marketingvox.
Products bought by and for teens
amounted to $258.7 billion. Of the girls, 79%
identified shopping as one of their hobbies.
Restoration Hardware isnt the first to the market. With PB Teen, Pottery Barn (which Mr.
Friedman formerly oversaw as president of its
parent Williams-Sonoma) was one of the first
to enter this market. PB Teens cheery offerings tend to be more colorful and younger-looking
than RH Teen furnishings.
Mr. Friedman acknowledges that the name RH
Teen is uncomfortably close to its rival. We tried
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all kinds of words other than teen, he says. We

just couldnt come up with a better name.
Write
to
Christina
Binkley
at
christina.binkley@wsj.com
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Chapter
120
Bulbs That Bloom in

the Fall
EVERY YEAR, they catch me off guard. After
the nights have turned cooler and the trees are
dappled with yellow leaves, my flower beds begin sprouting clusters of bright pink and fuchsia
flowers, like visitors meant to arrive in springtime
who got lost for six months.
My fall-blooming bulbs are called colchicum,
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and when they open, they resemble crocuses on

steroids. Theyre just one example of a littleknown class of flower that seems confused about
what time of year it is, since most bulbs, as well
as perennials and shrubs, issue their flowers in
spring to take advantage of the bounty of bees
buzzing around then.
These unusual plantswhich include the
diminutive Crocus sativus, a violet flower that
produces the fragrant orange spice saffron, as
well as the more statuesque Sternbergia lutea,
with bright yellow bloomsare overlooked and
underused, said Sam Hoadley, a horticulturist at
Longwood Gardens outside Philadelphia, though
he added that he is seeing them more frequently
in public and private gardens these days. They
add a whole other layer and dimension to the
garden when things are starting to go dormant,
he said.
At the San Francisco Botanical Garden, curator Don Mahoney plans to introduce colchicum
into an area of the garden designed to mimic the
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growing conditions of the Mediterranean, which

has the dry-in-summer quality that these bulbs
prefer. They are very rarely seen here in California, and they should be, he said. I think
they are wonderful.
Colchicum bulbs will last for years in your
yard, but they are a little perverse. If you plant
them now, the flower blooms will pop up in four
to six weeks. But colchicum bulbs wont produce any of their leaves until next spring, when
most plants do; even more odd, the thick, wide
foliage turns yellow and disappears over the summer. That creates two design challenges: how
to disguise the dying leaves, and how to fill the
holes in your flower beds until colchicums autumn blooms arrive.
The foliage is kind of a hassle, admitted Jacob Burns, curator of perennial plants at Chicago
Botanic Garden. Cutting off the leaves isnt an
option because they deliver needed nutrition to
the bulbs. You have to suffer through that yellow phase, he said. But he finds that the flowers
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charms outweigh its downsides.

Theyre part of a little-known class of flower
that seems confused about what time of year it
is.
One trick is to plant the bulbs beneath a low
ground cover. Ivy, vinca, ajuga, liriope or another thick-growing plant will disguise the dying
leaves in summer and provide support for the delicate blooms when they arrive again next fall.
Other fall-blooming bulbsincluding the
aforementioned Crocus sativus and Sternbergia luteagenerally produce their leaves along
with their flowers, and are easier to integrate
into perennial beds.
Either way, now is the time to act: Depending
on where you live, the blooms will begin to show
between late September and December. Just try
not to plant on top of them next spring.
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Chapter
121
Southampton Home
Lists for $42.5 Million
Private-equity executive Gary Garrabrant is asking $42.5 million for his traditional Hamptons
home.
The Southampton nine-bedroom measures
about 16,500 square feet and sits on roughly 3
acres on Halsey Neck Pond, according to listing
agent Geoff Hull of the Corcoran Group. Mr.
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Garrabrant and his wife, Susan, built the cedarshingled home in 2012, after purchasing two lots
and demolishing the existing houses, Mr. Hull
said.
The three-story home has ocean views from
the top two floors, Mr. Hull said. Four of the
bedrooms have mahogany sleeping porches with
screened windows, which hark back to the days
before air-conditioning. The house has a game
room and a movie theater with a popcorn maker.
Theres also a flower-cutting room with a sink
and a long counter used to arrange flowers from
the perennial gardens. Susan loves fresh flowers
in our home, Mr. Garrabrant wrote in an email.
The grounds include a 55-foot-long saltwater
swimming pool and a tennis court. There is also
an exercise pavilion and a pool house.
Mr. Garrabrant stepped down from his role
as chief executive of Sam Zells Equity International in 2012, and in 2013 founded the realestate private-equity firm Jaguar Growth Partners.
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Building the new firm and the travel it requires means the couple is no longer able to spend
as much time in Southampton, Mr. Garrabrant
said. We love our home, however, our family
is small and traveling more than ever away from
New York, he added.
Candace Taylor
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Chapter
122
Birding in the Digital

Age: A Primer
SUMMER MAY be on the wane, but its still a
great time to go birding. Although many species
migrate south for the winter, this journey happens in waves, not en masse. In New York Citys
Central Park, for example, you can take in the
warbler migration in late summer to early fall,
followed by various sparrows and finches winging
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their way south in autumn. And many species

tough out the cold in winter: Blue Jays, owls,
nuthatches and hawks, among others.
Birding requires little gearand buying great
binoculars no longer requires tapping your nest
egg. The midrange and less expensive models
are so much better than they used to be, said
Cornell University conservation scientist Ken
Rosenberg.
Here, a field guide to the gear youll need to
spot everything from sandpipers to swallows.
First thing you need to know when buying
binoculars is that they come in different sizes:
Youll see numbers like 10x42 or 8x36.
The first number indicates the binoculars
magnification level. The second is size: the diameter, in millimeters, of the larger lenses (known
as the objective lenses). Larger lenses let in more
light, resulting in a brighter image.
So you want the most magnification and largest
lenses, right? Its not that simple. Increasing the
magnification may reveal more detail, but it also
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narrows your field of view, which makes it more

difficult to track birds on the move. And big
lenses add bulk and weight.
Most birders go for a magnification of 6 to 10,
and an objective size of 30 to 42 mm. For Robert
DeCandido, who leads birding walks in Central
Park when hes not studying migrating birds of
prey in Nepal, the sweet spot for beginners is
something around 8x32 (not all models come in
that exact size). With 8x32s, Ill be walking
around all day, and I wont feel them around my
neck, he said.
Mr. DeCandido recommends that new birders start with the Nikon NINOY 3.21 % Monarch
($380 for 8x30 model, nikonsportoptics.com), because theyre waterproof, which is handy if youre
birding near a marsh or from a kayak, and they
provide a clear image across the entire field of
view (lesser models will blur at the edges).
Another economical pick: Celestrons Nature
DX ($120 for 8x32, celestron.com). Jessie Barry,
a staffer at the Cornell University Lab of Or746
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nithology, said that its light weight makes this

model especially good for children.
While the average pair of binoculars will give
you a good view of a Black-crowned Night Heron
from 50 feet away, when you look through highend optics, small details, like the herons glaring red eye, pop vividly to life. Mr. DeCandido
favors the Swarovski Optik EL 8x32 Swarovision ($1,979, swarovskioptik.com), while the Leica Ultravid HD ($1,949 for 8x32 model, us.leicacamera.com) earned top marks from staffers at
the National Audubon Society and Cornells ornithology lab.
Choosing which high-end model to buy is
largely an aesthetic question. Lens makers impart slightly different tints to their glass, which
is often the key factor in deciding between a
Swarovski or a Leica. Some people respond
better to slightly cooler tints, some to slightly
warmer ones, said Mr. DeCandido. If youre going to invest four figures in a pair of binoculars,
try before buying.
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Printed field guides may be old-fashioned,

but National Audubon Society program director
John Rowden brings one of the Societys along
when he goes birding with beginners. If were
looking for Indigo Bunting, its easier to show
them a picture than to describe it.
Ms. Barry of the Cornell University Lab of
Ornithology recommends the Sibley Field Guide
series; its precise paintings, by artist and author
David Sibley, capture the essence of each species,
said Ms. Barry. The Peterson Field Guide is another popular illustrated line that is notable because it highlights unique features of each bird
that will help you distinguish it from similarlooking species.
If you prefer photos to illustrations, consider
the Kaufman Field Guide series. Its photos are
digitally enhanced to bring out unique characteristics, like the slightly different wing patterns of
the Huttons Vireo and Ruby-crowned Kinglet.
And then there are titles that are more comprehensive but a bit too heavy for the field. The
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New Stokes Field Guide to Birds series has multiple images for each species, while the photos in
the Crossley ID Guide series are taken at varying
distances, emphasizing recognition of shape and
size over minute details.
Even birding has entered the digital era. Cornells ornithology lab has created an amazing
app for beginners: Merlin Bird ID (free for Android and iOS, allaboutbirds.org). By asking five
multiple-choice questions (e.g., What size was the
bird? What were the main colors?), the app can
help you identify which species youve seen.
Merlin Bird ID has about 400 birds in its
database, but if youre looking for something
more comprehensive, theres iBird Pro ($15 for
iOS, $10 for Android). It has both photos and illustrations of some 900 species, as well as a similar interactive feature. Fans of David Sibleys
print field guide can get it in app form: The Sibley eGuide to the Birds of North America ($20 for
iOS and Android) has photos and illustrations of
over 800 birds.
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All of the apps above include recordings of

each species song and alarm callswhich can
come in handy with the help of a small Bluetooth speaker. Should birds prove elusive when
youre on the trail, Mr. DeCandido suggested
using the speaker to play an alarm call at a decent volume. Birds will pop up to see what the
hell is going on, he said. And it doesnt matter
which species song you play. On a recent walk,
Mr. DeCandido played a warblers cry, piquing
the interest of northern cardinals, crows and an
American redstart.
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Chapter
123
Berlins Waterfront
Heats Up for Travelers
BERLIN IS A SPRAWLY old shard of a thing,
broken, rebuilt and broken again. By May 1945,
some 70% of the city had been leveled, its imperial center area-bombed, in the laconic Royal
Air Force idiom, pretty much flat.
Eighty years on, Berlins vast reconstructed
checkerboard resembles more a Prussian iteration
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of Los Angeles or Atlanta than it does any European city with a tight medieval center. Which
is why it takes a bit of effort to recognize how
much of the brightly polished 21st-century capital lies along the River Spree, and to experience
just how enjoyable it is to spend an afternoon
or an eveningor bothin the bars, restaurants
and clubs along the water. The river hides in
plain sight.
Today the Spree is the stage for restaurant
riverboats, hostel-barges, clubs and a floating
swimming pool called the Badeschiff, or Bathing
Ship, among other amusements. On the riverside across from Angela Merkels Chancellery is
the Metaxa Bay Beach Club, named for the
Greek liqueur, just a few hundred yards from
the politician who, arguably, Greeks hate the
most at the moment. With its 12,000-plus square
feet of imported quartz sand, Metaxa Bay is a
beloved faux-Lesbos summer hangout for the permanently bikini-clad.
The rivers real action lies 2 miles upstream
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from the Greek luau, however.

Here, a
broader section of the Spree that runs through
the leafy 19th-century working-class districts
of Kreuzberg, Friedrichshain and Treptowthe
same stretch where many died trying to swim to
the West during the days of the Wallhas become Berlins party central.
Hats off to Berlins planners and to the German government, said restaurateur and club impresario Walter Potts, contemplatively rolling a
cigarette as we sip coffee out in the funhouseindustrial garden of his massive establishment,
White Trash Fast Food, on the Flutgraben, or
Flood Ditch, the bar-lined former 18th-century
estuary running from the Sprees southern bank
in the Treptow district.
The planners had the foresight and the government had the balls to open these abandoned
properties in the 90s and let different crazy people, such as myself, engage themselves, said Mr.
Potts, originally from Los Angeles. It absolutely
created the boom that were sitting in twenty-five
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years later.
The Spree flows east-west between Kreuzberg,
the West Berlin neighborhood on the south bank,
and the newly-fashionable East Berlin neighborhood of Freidrichshain, on the north. Treptow,
also in the East, lies on the same, southern riverbank as Kreuzberg. The Wall ran about fifty feet
from White Trash Fast Foods property line.
After a decade of running White Trash in its
central East Berlin location, Mr. Potts recently
moved the restaurant-club down to the river playland, into a canalside warehouse that could accommodate its expansion into a full-fledged entertainment emporium, including a recording studio and a catering business. Mr. Potts studied
at CalArts in the early 1990s, and the new White
Trash headquarters resembles a giant Joseph Cornell box with a few voodoo components lifted
from New Orleans and some Ringling Brothers
freak-show renderings on display. Its a heady environment in which you can lounge by the giant
Oklahoma-size barbecue pavilion enjoying some
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pork from the BBQ pit, or go for the Hangover

movie experience and get a tattoo at the in-house
parlor.
As I was leaving, a table of five white-shirted
Berlin executives, jackets over their shoulders,
strolled in accompanied by a solid rock n roll
soundtrack, jockeying for some red meat in the
middle of their trading day. Theyre not obvious
White Trash clientele, but their presence is proof
that the joints award-winning organic barbecue
and burgers power-slices through all demographicshipsters, bikers, foodies, rockers, music nuts,
young, old, biz dudes and the irretrievably unhip,
such as myself.
A few hundred yards north, just across the
brick-turreted, 19th-century Oberbaum Bridge in
Friedrichshain, Tom Michelberger and his partner Nadine May, both from southern Germany,
are crafting exactly the same indie feel in lodging
as Mr. Potts is in club-land.
In the mid-aughts, Mr. Michelberger, fresh off
running a Gowanus, Brooklyn, hotel, was walk755
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ing by an empty, 5-story, 19th-century industrial

building just next to the Oberbaum Bridge and
saw a for-rent sign. In 2009 he and Ms. May
opened the Michelberger.
The Michelbergers lobby is boho-relaxed, with
concrete floors, long, low couches, piles of books
in several languages and, just off the back of the
lobby, a sumptuous bar clad in black subway tiles.
The lobby and the hotels rooms are no-frills
luxecomfortable where they need to be, sensible otherwise. Universal Music and Deutsche
Grammophon are just around the corner, so the
Michelberger bar is inevitably populated with a
cast of local characters taking meetings about art
and recording projects, films and Internet ventures. A democratic place devoid of any holierthan-thou attitude, the bar has become the ad
hoc think tank of the neighborhood. Its Berlins
Algonquin Hotel.
When we opened, we did student groups, Mr.
Michelberger said. Six years on, were getting
musicians from the clubs and recording studios in
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the area, but were also getting artists, business

people and a range of others, young and old, who
hear of us by word-of-mouth. This is how we
want to do business.
Earlier this year, Mr. Michelberger and Ms.
May tossed all major liquor and beer labels from
the bar menu, replacing them with boutique
brands from around the globe. The discerning
drinker in the Michelberger now gets a gin from
the East London Liquor Company or a Buffalo
Trace bourbon from Kentucky rather than Bombay or Makers. In other words, the Michelberger
bar is a connoisseurs dream. Theyve done the
traveling for your drink.
Our suppliers are either people we know or
manufacturers who do things the way we do
them, Mr. Michelberger said. The menu encourages a whole different dialogue between patrons and bartenders, which we find a good
thing.
Three hundred yards across the river from
the Michelberger is a little strip of meadow on
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the Kreuzberg riverbank, hard by the Oberbaum

Bridge. Underneath the meadow, at water level,
is the restaurant Riogrande, snugly built into
some 18th-century stone warehouse vaults which
for centuries were a staging area for the Spree
barges. In 2008, Edith Berlinger, a renowned
Kreuzberg restaurateur originally from Austria,
wanted some waterfront digs, struck a deal with
the town and moved in.
My God, I cant tell you how many people
drowned in this section of river trying to swim the
Wall, the formidable Ms. Berlinger said as she
walked me through a tasting blizzard of appetizers and mains at a waterside table. Theres a wild
asparagus starter with strawberries and grilled
mozzarella; cold grilled octopus with fennel and
tomato chutney; a carrot mash and a delicate
pot-roasted shoulder of beefSchulterscherzl, in
Austrian butchers slangin a wine reduction,
each course paired with exquisite Austrian pinot
grigios, veltliners and reds.
We do what you could call new Austrian cui758
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sine, but which we think of as unique to our

kitchen, she said.
The Riogrande is a restaurant of leisure, just
a few dozen yards from the foot of the bridge
but below the hubbub of the street. The immediacy of the river lends quietnesson the terrace,
the mallards swim by at your feet. For cooler
evenings, the cozy, stone-vaulted 18th-century interior of the restaurant is the place to be.
From Ms. Berlingers terrace, diners can
look across the river at the back of the East
Side Gallery, the well-graffitoed run of formerCommunist concrete that is the biggest standing piece of the Wall left. Out in the middle
of the river at my lunch hour, a wedding party
whooped it up on a little launch, drunk as lords.
The brides white dress and her veil gleamed in
the sunI could spot the Champagne bottle being tilted around. It has been a good twentyfive years since they would have been arrested, or
shot, just for gadding about in joy on the river,
as they are now.
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Make that a very good twenty-five years:

Berlin hasnt just spent the last quarter-century
rejoining itself to its waterfront, or its two halves
to each other. What we should toast on this part
of the River Spree is the fact that Berlin has rejoined the world with such brio.
Getting There: Direct service to Berlin is available from U.S. gateways on several airlines. The
city is surprisingly far north, so bring a sweater:
It can be chilly at nightespecially along the watereven in summer.
Staying There: Though they cant be described
as luxurious, the Michelbergers Luxus category
rooms are large, wittily designed (Swiss chalet,
anyone?) and comfortable (from about $234
a night, Warschauer Strae 38, michelbergerhotel.com).
Playing There: White Trash Fast Food is much
more than the food. Impresario Walter Potts
books 400 bands a year, and, as he puts it so eloquently in his ad copy, theres an in-house tattoo
studio and a cinema where you can smoke. This is
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not a dream (Am Flutgraben 2, whitetrashfastfood.com). The Metaxa Bay Beach Club is the
fake-est fake beach youll ever spread a towel on,
as well as serious high-irony fun. Bring your best
Hunter Thompson Ray-Bans (Invalidenstrae 78,
metaxa-beach.de).
Eating There: The three- and four-course tasting menus at Riogrande cost about $45 per person and are the way to go at this riverside eatery.
The price excludes wine, but its worth shelling
out extra for a number of pairings from the exceptional cellar managed by Edith Berlingers
husband, Dietmar Schweitzer (May-Ayim-Ufer 9,
riogrande-berlin.de). Irish chef Alan Micks finedining background shows in the dishes served in
the Michelberger Hotels restaurant. His inventive and refined preparations of local produce
and meats draw quite a crowd, so be sure to
book a table before heading out to hit the bars
(Warschauer Strae 38, michelbergerhotel.com).
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Chapter
124
A Van Thats a
Tribute to Surfink
Greg Cooper, 63, a custom car painter from Lancaster, Ohio, on his Surfink van:
When I was a kid, I built models of Ed Roth
cars. Big Daddy Roth was a hugely famous California artist and custom car builder, beginning
in the 1950s. He created monster characters for
posters and tee-shirts, most notably Rat Fink,
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his most famous. It was an anti-Mickey Mouse,

and it became the face of a whole hot rodding
movement.
When I started out as a custom car painter,
I contacted Roth. He became my mentor. Not
long before he died in 2001, he asked if Id paint
his casket. So I did. It was some of the best
painting Ive ever done, and now its buried in
the ground where no one will see it.
Five years ago, I started building a van as a
tribute to EdSurfink, after one of his monster
characters. It took four years to build. I started
with a 1970 Dodge van. I wanted it more contemporary hot rod than vintage. With my son Vance
helping, I cut three feet out of the center, did all
the bodywork and painting, and designed and assembled the interior. Purists scoff because I put
a late model Chevy V8 in it. Surfink is about
surfing, so my van is surf-inspired, even though I
live a long way from any ocean.
Ed was an enigma, and so is my van. I think
he wouldve loved it.
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Contact
A.J.
book.com/ajbaime.
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at
Face-
Chapter
125
Pope Francis
Memorabilia Gets
Really Cheesy;
Mozzarella, Anyone?
PHILADELPHIAWhen Joan Leitner joins relatives next month for a potluck papal party to
celebrate Pope Francis visit here, she will bring
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the pontiff himselfin the form of a block of unholey mozzarella cheese shaped to resemble the
Holy Father.
When I first saw it, I thought it might be a
little irreverent, said Ms. Leitner, a 58-year-old
office worker from South Philadelphia. But when
the pastor of her Catholic church offered his blessing, she said, I was right with itIm in.
She preordered four pope cheeses at $20 apiece
from the Pastificio Homemade Pasta Co., down
the street from her home.
If she were so inclined, Ms. Leitner could
spread it on a slice of toast bearing the popes
visage, using the Pope Toaster sold by an area
marketer. She could wash it all down with any of
several papal-themed beers from area breweries,
with names like You Only Pope Once and Holy
Wooder, a play on the distinctive Philly accent.
And for the occasion, she could don one of
many locally flavored T-shirts. Choices range
from the understateda shirt with a waving Pope
Francis amid images of the Liberty Bell and the
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LOVE sculptureto the edgy: Yo Pontiff! and

The Pope is My Homeboy.
Pope Francis six-day visit to Washington, New
York and Philadelphia next month has generated huge excitement among Catholics and nonCatholics alike. The capitalists among them are
pretty pumped, too.
The pope has transcended religion in some
sense, transcended Catholicism, just like Donald Trump has transcended politics, said Jonah
Berger, associate professor of marketing at the
University of Pennsylvanias Wharton School.
That has only broadened the market for pope
gear: Theres some savvy marketers in South
Philly saying, Hey, if I put the pope on top of a
Philly building, somebody will buy that.
Plenty of merchandise specific to the popes
Washington and New York stops is available or
soon will be. But so far the widest array has
emerged in Philadelphia, where more than a million people are expected to attend an outdoor
Mass on Sept. 27.
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Some entrepreneurs have gone with Rockypope mashups, including one selling a bobblehead
with the pope wearing boxing gloves and holding
a cheesesteak.
Pub owner Dennis Hewlett designed a T-shirt
that repurposes an image of Rocky standing on
the art museum steps, arm raised high. He added
a mitre atop Rockys head and put a pint glass
in his right hand. Pope Rocks Philly 2015, the
shirt says.
I wanted it to be respectful, said Mr.
Hewlett, a Catholic whose bar, Pub on Passyunk
East, has long gone by the acronym P.O.P.E. I
didnt want to insult anybody. I thought it was
just cool, innocent.
A spokesman for the Philadelphia archdiocese
said as long as products arent offensive, you
have to kind of take it in stride. He added, Im
so glad to see the enthusiasm.
The more out-there items dont sit well with
some purveyors of Catholic merchandise. Its almost borderline disrespectful, said Gregory DiC768
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occo, operations director at St. Jude Shop, a

family-run business in Havertown, Pa.
Though St. Jude is selling a Pope Francis bobblehead, Mr. DiCocco likened it to a dignified
statue and emphasized it depicts the pope in a
blessing position. Its very popular he said.
In Washington, papal visit-themed mugs, Tshirts, rosaries and holy water bottles are for sale
at the Basilica of the National Shrine of the Immaculate Conception, where Pope Francis will
celebrate Mass on Sept. 23. Retail director Amy
Maloney predicted she would sell 100,000 of the
$1 prayer cards that day alone. Its a little more
solemn here, she said of the traditional product
line. Still fun and exciting and fresh, but not
quirky.
Aramark Corp., official retail vendor for the
World Meeting of Families, a four-day conference
in Philadelphia that precedes the popes visit,
said prayer cards and a Holy Family icon pin are
popular. But its top sellers are the pope bobblehead and a 10-inch plush doll.
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Such products are too much for Kevin Nelles,

marketing director at Nelson Fine Art and Gifts
in Steubenville, Ohio.
We dont make bobbleheads, we dont make
face masks, we dont make pope soap-on-a-rope,
he said. Thats not our game. Our game is to
use our talents in the service of the Lord.
Mr. Nelles, whose firm sells Pope Francis
shirts, mugs, key chains, prayer cards, dog tags,
magnets and more, said the staff does have a
sense of humor. In 2002 they created a life-size
standee cutout of a young Pope John Paul II
from a photo of him sporting sunglasses and a
beret. This year the company is selling two versions of a Pope Francis standee for $160. In both
he wears the traditional white cassock, and in one
flashes a thumbs-up.
Avoiding insult was important for Debby Fireman when she came up with the Pope Toaster: I
spoke to some very Catholic people to make sure
this was tasteful and not going to offend anyone.
Ms. Fireman, who runs a suburban Philadel770
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phia marketing firm called Fireworks, sends her

clients toasters with an insert that puts their corporate logo on toast, and a note saying, Heres
a toast to working together this year.
When I found out the pope was coming to
Philadelphia, she said, I put two and two together and thought, wouldnt it be amazing to
put the popes image on toast?
Ms. Fireman wouldnt reveal sales but said
interest in the $69.95 toasters is strong.
Brendan Sharkey, a 44-year-old insurance executive from Malvern, Pa., bought one and plans
to try it out when his parents, devout Catholics,
visit next month. It will be a breakfast surprise.
Theyll be having some toast and marmalade
and enjoying the pope, he said. Mr. Sharkey
thinks his folks will be amused. Pope Francis is
a pope for the common man, he said, with a
good sense of humor.
At Pastificio Homemade Pasta, co-owners
Frank Sangiuliano and Anthony Messina have received about 50 pope cheese orders. Mr. Messina
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acknowledged it can be hard to make out Pope

Francis face in the six-inch-tall blocks of mozzarella. The likeness is there, he said, but its
not like were Michelangelo making a sculpture.
Write to Scott Calvert at scott.calvert@wsj.com
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Chapter
126
The NFLs Best

Practice: No Wasted
Time
In order to win in the NFL, you still need a quarterback and a solid defense. But this season youll
also have to tackle the same problem facing every office in the world: a solid time-management
plan.
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This is the problem the Buffalo Bills faced

when a new coaching staff, led by Rex Ryan,
came to town this year. Because of recent regulations, practice time has never been more precious. And according to coaches, the attention
spans of their playersmost of whom are millennialshave never been shorter. The old methods
simply dont work anymore.
I remember coaching under my dadoh my
god, said Ryan, who worked under his father
Buddy Ryan in the 1990s. We had two, three
hour practices every day, back-to-back padded
practices. It was the craziest thing Ive ever
seen.
Thats no longer the case. Teams are limited to
one practice a day instead of infamous and grueling two-a-days. Once the season starts, teams
are limited to 14 practices in which players wear
pads. Yet despite decades of technological and
schematic advancement, NFL practices are still
generally the same as they were years ago. Players take turns running plays. It is no frills.
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With these two factors in plain sight, Bills

offensive coordinator Greg Roman identified a
problem with NFL practices: In my experience,
theres a lot of standing around.
So Roman devised a plan to change the way
Buffalo practices. The first part is to effectively
split practice into two practices on separate parts
of the field, so that everyone is running a play at
all timesand theres no more standing around.
In this business, for some reason, smart and
efficient are bad words, said Bills general manager Doug Whaley.
Instead of backups watching starters run
playsor starters getting a breather while watching the backupseveryone on the Bills is operating in their own ecosystem. This, Roman said, is
crucial, because he thinks younger players need
to be more engaged at all times. Attention spans
are shorter than they used to be, he said.
Whaley said this is crucial for roster development. Because third-string players or undrafted
rookies typically get the least amount of reps, he
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said, it is hard to get a read on who is standing out. According to Whaley, an undrafted free
agent who would get 10 plays each practice under a normal schedule, is now getting 20-25 useful
plays each practice.
Last year, it was just ones [starters], go go go,
twos go... now everyone gets an equal amount of
reps, said wide receiver Robert Woods. As Ryan
puts it: Weve added plays without adding time.
Ten years ago we looked at practice and said oh,
well catch up on that later. You cant do that
anymore.
Roman and Ryans time-saving methods are
not limited to running concurrent practices.
They have also found another simple way to ensure their fast-moving practices move even faster:
They dont correct mistakes on the field. They
simply want to run as many plays in practice as
possible, then they will address any mistakes to
players in the film room later.
We are not going to call a timeout and stop the
practice on the field to tell a receiver he needs to
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take a two-yard split inside the numbers, Roman

said. The quickest way to get better at football is
to play football. Not watch football and not talk
about football. It gives players the opportunities
to make mistakes.
Woods, the Bills receiver, said the no-mistakecorrection philosophy has an added benefit for
players because it allows a player to practice
stress-free without walking on eggshells, afraid
of offending their coach with a wrong route. That
will come after practice.
There is no confrontation between the coaches
and players out here in practice, tight end Chris
Gragg said of the no-corrections policy. They
want you to play fast...theres more detail per
play [on film] than Ive been around.
Roman brought these ideas from San Francisco, where he was the 49ers offensive coordinator under Jim Harbaugh. In his first season
there in 2011, Roman tinkered with practice formats because he needed to develop a young quarterback, Colin Kaepernick, while letting starter
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Alex Smith learn the offense. He had previously

split some practices during a stint coaching at
Stanford while trying to install different personnel packages. The balancing of multiple personnel groups is crucial in Buffalo this year, which is
without a clear starting quarterback: Tyrod Taylor, EJ Manuel and Matt Cassel are all allegedly
in the mix for playing time.
Ryan, who jokes that he had trouble whipping his neck around between different sides of
the field in camp, said the new practice structure helps players get as much rest as possiblesomething in which he believes strongly. He
said the veterans are typically done with the bulk
of their work by 7 p.m. Thats when their body
recovers, thats when they can get into the playbook.
Whaley acknowledges that this sort of plan
takes a confident organization, since most teams
want to brag about working hard instead of working smart.
Everyone says oh, hes a grinder, this guy was
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in at 4 a.m. and this guy slept in his office. We

dont subscribe to that, Whaley said.
Write to Kevin Clark at kevin.clark@wsj.com
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Chapter
127
Carlos Correa Seeks to

Avoid Hitting the
Rookie Wall
Three years ago, Carlos Correa was the valedictorian of his high school in Puerto Rico. Today, he
is the 20-year-old shortstop of the Houston Astros and an apparent shoo-in for AL Rookie of
the Year. But he maintains a studious habit.
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On road trips, Correa devours books on the

psychology of performance. One of his favorites
is Relentless, in which basketball trainer Tim
Grover recounts his experiences working with
Michael Jordan, Kobe Bryant and other elite
NBA players. Another is Mind Gym, a sort
of brain training guide for athletes.
The point, he said, is to learn how to withstand
the mental grind of a major-league season. For
the Astros, the lesson is far from academic.
Correa has been one of the driving forces behind Houstons staying power atop the AL West,
a finish that would mark a historic turnaround
under general manager Jeff Luhnow. After debuting on June 8, Correa reached 15 home runs
faster than any other shortstop in the last century. Since 1950, only three other players under
the age of 21 amassed 50 hits as quickly as Correa
did.
But he has also just entered a phase in his season in which hot-hitting rookies tend to hit something of a wall.
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After playing in his 60th game on Aug. 17,

Correa had an on-base plus slugging percentage
of .890, which would be the fourth-highest singleseason mark of all time by a player under age 21
with at least 200 plate appearances.
Since 2007, rookies who had an OPS of .800
or higher in their first 60 games saw that figure
drop by an average of nearly 100 points in their
next 60 games, according to Stats LLC.
The year 2007 is notable because it was the first
year that every major-league stadium had pitchtracking technology known as Pitch f/x. The
data produced by that technology enables opponents to learn a rookies tendencies and identify
his vulnerabilities faster and with greater precision than before.
The game just gets harder, Correa said.
For two other star rookies, it got much harder
at around the point Correa is at. Los Angeles
Dodgers outfielder Joc Pederson posted an OPS
in his second 60 games that was 59 points lower
than in his first 60. For Chicago Cubs third base782
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man Kris Bryant, the drop-off was nearly 200

points in his 61st through 90th games, though
the slump was short-lived. On Monday night, in
his 114th game, Bryant hit a walk-off home run
to lift the Cubs to a 2-1 win over the Cleveland
Indians.
Correa, the first overall pick in the 2012 draft,
is an outlier among outliers. But this season has
already been the longest of his brief professional
career, counting his time in the minors. Now
more than ever, the lessons he draws from his
reading habit will come in handy.
Write to Brian Costa at brian.costa@wsj.com
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Chapter
128
U.S. Track Team Trips

and Stumbles at the
Worlds
BEIJINGIn the womens 1500 meters, Americas Jennifer Simpson was in medal contention
with 600 meters to go when another runner
clipped her shoe from behind, taking out of the
race the reigning Diamond League champion,
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defending world silver medalist and 2011 gold

medalist in that event.
So it goes for the U.S. track team at the 2015
worlds. On Tuesday, the team failed to medal
in any of five finals. Through four days of competition, Team USA, long accustomed to sitting
atop the track-and-field medal table, sat in sixth
place.
The disappointment was especially keen in the
womens 1500 meters and the mens 400 meter hurdles. Going into this meet, the question
seemed to be how much hardware the U.S. would
take home in each of those events. The U.S.
squad originally fielded four athletes apiece in
those races, the maximum allowed, including veteran medal-winners.
Michael Tinsley, the reigning Olympic silver
medalist and winner of the prestigious Diamond
League circuit title in the 400 meter hurdles last
year, toppled several hurdles in Tuesdays final,
finishing in last place.
Jeff Henderson had come into Beijing with the
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three best long jumps in the world this season,

but fouled twice on Tuesday to finish ninth. In
the mens 800 meters, an event in which an American won silver in the last world championships,
the U.S. this year failed to advance anyone to the
final.
Americans were longshots in the womens discus throw, with Whitney Ashley and Gia LewisSmallwood each fouling one of their throws and
finishing in 9th and 11th places, respectively.
In all, the U.S. had won six medals and only
one gold at these world championships, with five
days of competition remaining. After Tuesday,
Kenya sat atop the medal table with nine, including the addition of two golds on Tuesday in
the 800 and the 400 meter hurdles.
In a post on Twitter on Tuesday evening,
Michael Johnson, the 1990s-era Olympic gold
medalist, wrote US team need to turn it around
quick! Competition management has been atrocious with multiple event favorites failing to advance to final!
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Jill Geer, a spokeswoman for USA Track &

Field, said it was clear the Americans hadnt had
their best day but added the team can still turn
it around in the coming days. Americans still
have medal hopes in sprinters Justin Gatlin and
Allyson Felix, who advanced through preliminary
and semifinal rounds of the 200 and 400 meters,
respectively, on Tuesday night.
Other results on Tuesday were more predictable. Kenyan David Rudisha took the gold
in the 800 meters, while Genzebe Dibaba of
Ethiopia won the womens 1500. Both are the
reigning world record holders in those events.
Greg Rutherford of Great Britain, the reigning
Olympic champion, won gold in the long jump.
Nicholas Bett of Kenya ran a world-leading
47.79 seconds in the 400 meter hurdles, a new
world-leading time, to take the win in that event.
As the crowd at the Birds Nest here celebrated, to great applause, a long jump bronze
by hometown favorite Jianang Wang, Americans
reflected on their dismal evening in the belly of
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the stadium.
Tonight wasnt a fair fight, and its no fault
of mine or whatever, but its still unlucky, said
Simpson, 29, who cut up the bottom of her bare
foot in losing her shoe. I didnt get a fair shot
to try to podium, but thats sports.
Write to Sara Germano at sara.germano@wsj.com
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Chapter
129
Any Benefit of Weekly

Home Mortgage
Payments?
Typical borrowers make their mortgage payments
monthly. Some, however, make bi-weekly payments to reduce the term of their loans. Could
weekly mortgage payments speed the payoff even
further?
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The answer in some cases is yesbut usually

not much more than with bi-weekly plans.
Converting to any schedule that increases
payment frequency reduces the principal loan
amount faster, resulting in less interest owed and
a shorter mortgage term, says Jack Guttentag,
professor emeritus of finance at the Wharton
School of the University of Pennsylvania. The
biggest benefit of weekly payments, however, is
not cost savings, but convenience for people who
are paid weekly and like to handle bills accordingly, he adds.
Bi-weekly payments save money over the lifetime of a loan because the schedule results in
the equivalent of 13 monthly payments instead
of 12 over the course of a year, says Lynn Fisher,
vice president of research and economics for the
Mortgage Bankers Association (MBA). But paying weekly leads to no more savings than paying
bi-weekly because 26 and 52 payments both add
up to the same one extra month, or 13 mortgage
payments, instead of 12, per year, she adds.
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The first question to ask the lender is when the

payment will be credited to the principal, says
Mr. Guttentag, who offers tips on his Mortgage
Professor website. Borrowers may assume that
the weekly payment will be applied to the principal immediately when received, but most lenders
apply all payments on the same monthly schedule even if a borrower makes more frequent payments, he adds.
Even if lenders credit the payment when its received, the weekly payment schedule doesnt offer significant savings compared with a bi-weekly
schedule.
For example, take a 30-year, fixed-rate
$500,000 mortgage. At an interest rate of 4.18%,
the monthly payment would be $2,439.26. A
weekly payment would be one-fourth, or $609.82.
If the $609.82 payment is credited when received, a borrower would save about $63,000
in interest, Mr.
Guttentag says.
A biweekly payment applied when received would
save $61,091.57, a difference about $2,000, he
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adds.
If the lender credits all payments monthly, a
weekly or biweekly payment would yield the same
amount of savings ($58,170.43), and a 30-year
mortgage would be paid off in 26 years, according
to a calculator on the Mortgage Professor website.
Lender fees imposed when borrowers formally
switch to a weekly or bi-weekly schedule may
also reduce savings, says John Walsh, president
of Milford, Conn.-based Total Mortgage Services,
which lends in 34 states. Several big lenders, such
as Citibank, C 4.81 % US Bank and TD Bank,
have done away with bi-weekly payment plans in
recent years, he adds.
Borrowers can just as easily, and usually without any fees, make weekly or any payments more
frequent than monthly themselves, Mr. Guttentag says. If discipline is needed, they may
want to schedule automatic payments or set up a
dedicated bank account, he adds.
Or, because the goal is to effectively make 13
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payments instead of 12, another option is to divide the monthly payment amount by 12 months
and add that extra amount to the principal on
each monthly payment, Mr. Guttentag says.
Before switching to any more frequent payment
plan, however, borrowers always should consider
their full financial picture and what else could
be done with the money, says Mike Chadwick,
president of Unionville, Conn.-based Chadwick
Financial Advisors. Jumbo borrowers, with loan
amounts above $417,000 in most parts of the
country and $625,500 in high-priced areas, have
enjoyed low interest rates of about 4% for the
past few years. They may reap a greater return
by maintaining monthly payments and instead
putting that money into investments with higher
returns, he says.
For most people, its more of a psychological
decision than a financial decision to pay off the
mortgage, Mr. Chadwick says. The benefits of a
weekly or any more frequent payment plan, however, could increase as interest rates rise, espe793
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cially if stock market yields decline, he adds.

Here are a few more options when deciding
whether to switch to more frequent mortgage
payments:
Prepayment penalties. Post-mortgage bust
regulations have made these a rarity, but borrowers still should check with lenders to make sure,
says Peter Grabel, managing director of Stamford, Conn.-based Luxury Mortgage Corp.
Variable income. Formal payment plans may
not work well for someone with seasonal or fluctuating income or an annual bonus, Mr. Grabel
says.
Tax savings. Borrowers may also want to
consider that up to $1 million of annual interest
on mortgage debt is tax-deductible, says Eric L.
Green, a partner at Stamford, Conn.-based Green
and Sklarz LLC, a law firm that specializes in tax
matters.
For this reason, borrowers should prioritize
paying off non-tax-deductible debt, such as credit
cards and student loans, he adds.
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Chapter
130
A History of
Star-Crossed Lovers
Breaking up, as Lord Byron wrote in When We
Two Parted, is devastating: If I should meet
thee/ After long years, / How should I greet
thee? / With silence and tears. But there is
something uniquely tragic about lovers separated
by cruel circumstance. Their stories reappear in
literature as a warning about fate, a celebration
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of idealism or a lament for lost love.

One of the oldest examples to come down to
us is the thwarted union between the Roman emperor Titus (A.D. 40-81) and Berenice, princess
of Judea and queen of Chalcis (A.D. 28-sometime
after 81). Like Romeo and Juliet, their relationship was doomed from the outset. Berenice
risked her life trying to preserve the peace between Romans and Jews in the period leading
up to the First Jewish-Roman War, A.D. 66-73.
Titus was the Roman general whose army was
besieging Jerusalem. Nevertheless, the two fell
passionately in love.
Their relationship survived Titus destruction
of the Second Temple in 70 and the subsequent
Roman slaughter of almost a million Jews. But
when he inherited the throne in 79, Rome balked
at the idea of a Jewish empress. Forced to choose
between love and duty, Titus reluctantly chose
duty, establishing a tradition of royal self-sacrifice
that would continue until Edward VIII abdicated in order to marry Wallis Simpson. Titus
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diedkilled, possiblytwo years into his reign.

Berenice disappeared around the same time, her
fate unknown.
In Paris 1,100 years later, a teacher and his
pupil embarked on a secret love affair, leaving
behind a literary legacy that still resonates today. Peter Abelard (1079-1142) was a celebrated
philosopher and theologian, Helose dArgenteuil
(circa 1100-1164) a brilliant young scholar whose
renown brought her to Abelards attention.
After Helose gave birth to a son, the couple
married secretly to avoid scandal. But the marriage became public and Heloses furious family
took their revenge: Hired henchmen broke into
Abelards bedroom and castrated him. The two
lovers became a monk and a nun. But the relationship continued, albeit in a different form,
through their letters.
Abelard became resigned to his fate, but
Helose remained a lifelong rebel. Prefiguring
Second Wave feminism by 900 years, she would
become an inspiration to her modern sisters by
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her denunciation of traditional marriage: What

woman will be able to bear the constant filth and
squalor of babies?
In the 19th century, the House of Habsburg
suffered a catastrophic loss when the bodies of
Crown Prince Rudolf of Austria and his teenage
mistress, Baroness Mary Vetsera, were found on
Jan. 30, 1889, at his hunting lodge near Mayerling. Rudolfs father, it was rumored, had ordered his son to break off the affair, and Rudolf
had chosen death instead of duty. Others claimed
that Mary had died during a botched abortion
and Rudolf had killed himself in remorse.
The mystery of what really happened at Mayerling only ended this summer with the release
of Marys letters, recently discovered in the Austrian National Library. They reveal that the
lovers had indeed made a suicide pact. Dear
Mother / Please forgive me for what Ive done / I
could not resist love. . . I am happier in death than
life, the 17-year-old wrote. Rudolf and Marys
act deprived the Austro-Hungarian Empire of an
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heir. The line of succession moved to Rudolfs

cousin, Franz Ferdinand, whose assassination in
1914 started World War I.
Again, it is Lord Byron who best describes the
impact of star-crossed lovers on historical consciousness: As stars that shoot along the sky /
Shine brightest as they fall from high.
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Chapter
131
Practice Makes Some

Perfect, Others Maybe
Not
When the late, great B.B. King mused about
the roots of his success, he recalled happening
on his uncles guitar as a small boy and picking
out some tunes. Did that jump-start his later
musical accomplishments? Or was it singing in
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the church choir? Maybe it was the death of his

young motherwhich left him with a real feeling for the blues along with a survivors sense of
self-reliance.
Then theres the persistence with which young
B.B. pursued every performance opportunity, not
to mention his tens of thousands of hours of practice.
Its probable that all these influences contributed to Kings extraordinary musical achievements, along with one that he didnt mention:
the unique responsiveness of certain areas of his
brain. A study published in Cerebral Cortex in
July shows that unusual activity in specific neural areas can predict how easily musicians learn
their chops.
In their experiment, neuroscientists Robert Zatorre, Sibylle Herholz and Emily Coffey at the
Montreal Neurological Institute, along with a colleague in Germany, used functional magnetic resonance imaging to assess how music instruction
and practice affect the brain.
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They studied 15 healthy young adults who had

volunteered for keyboard lessons. None of them
had musical training at the outset, nor had they
ever played an instrument before. The goal of
the experiment was to see what would happen to
their brains once they had some instruction and
could pick out some popular tunes on the piano.
First, the volunteers lay in the brain scanner and listened to recognizable songs, like Hey
Jude and Amazing Grace. The researchers
thus had a measure of the subjects baseline neural activity while they were listening to music.
Six weeks of music lessons followed. Though
the participants primarily trained with an online program and practiced on their own, their
electronic keyboards automatically uploaded every detail of their playing to the labs computers.
Then the subjects had another fMRI. While in
the scanner they heard the same familiar songs
from the first round, along with others they now
knew how to play.
By comparing the volunteers levels of brain ac802
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tivation before and after training, the researchers

found that, as they had expected, the brain did
change after learning to play music.
The parietal cortex and the premotor cortex
were more active in the trained subjects when
hearing a song that they had learned, said Dr.
Zatorre, the principal investigator. Both areas, which are recruited in the perception of
sound and in planning and guiding movement,
are clearly important when one has to imagine a
note and play the right key.
The data also point to a distinct starting advantage in some peopleand where that advantage might reside in the brain. A retroactive examination of the first fMRI images predicted who
would be the best learners.
Those with a hyperactive Heschls gyrus (part
of the cerebral cortex that is associated with musical pitch) and with lots of reactivity in their
right hippocampus (an area linked to auditory
memory) turned out to be more likely to remember tunes they had heard before and, after some
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practice, play them well.

The kicker, said Dr. Zatorre, was finding that
neural head start. That gives you an advantage
when youre learning music, and its a completely
different system from the parts of the brain that
show learning has taken place. It speaks to the
idea of 10,000 hours. In his book Outliers, Malcolm Gladwell called 10,000 hours of practice the
magic number of greatness. Dr. Zatorre disagrees, saying, Is it really fair to say that everyones brain is structured the same way, and
that if you practice, you will accomplish the same
thing?
B.B. King was too modest to say so. But I
think the answer is no.
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Chapter
132
Guarding the City of

Angels
The history of the Los Angeles Police Department, like that of police departments in other
major American cities, is one of success and failure, triumph and tragedy. If your source of information on the LAPD is limited to Joe Domanicks Blue: The LAPD and the Battle to Redeem
American Policing, all you will know about is the
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failure and tragedy.

Which is not to say that the polemical narrative in Blue lacks interest. Readers will encounter the troubles that have roiled Los Angeles
and its police department over the past 30 years:
the Rodney King beating of 1991 and the riots it
engendered, an episode that led to the ouster of
the LAPDs longtime chief Daryl Gates; the O.J.
Simpson murder case from the mid-1990s, during
which the citys entire criminal justice system was
subject to fresh scrutiny (and, at times, mockery); the Rampart corruption scandal of the late
1990s, in which some LAPD officers at the Rampart Division (west of downtown) stole and sold
drugs and even shot a man without just cause
before fabricating a case against him and sending him to prison in a wheelchair. Mr. Domanick
includes a few lesser-known incidents as well, like
the 39th and Dalton raid, in which teams of officers destroyed apartments while serving a search
warrant for drugs.
As he rehearses these particular episodes, rev806
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eling in every unflattering detail, Mr. Domanick argues that the LAPD has long been
out of control, and he faults, to varying degrees, a succession of police chiefsDaryl Gates,
Willie Williams, Bernard Parks, William Bratton
and Charlie Beckfor their management failures.
About Gates, of whom he is especially scornful,
Mr. Domanick writes that he led an army of
occupation that waged war on the residents of
black South L.A., Mexican East L.A., and Central American Pico-Union in the name of crime
suppression. Less hyperbolically, Mr. Domanick
documents the many shortcomings that led to the
1997 dismissal of Mr. Williams, Gatess successor, though he fails to mention his own December
1996 op-ed for the Los Angeles Times urging that
Mr. Williams be retained for another five years.
By Joe Domanick Simon & Schuster, 437
pages, $28
Mr. Domanicks overbroad indictment of the
LAPD routinely ignores the political and social
conditions facing the department throughout the
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period he selectively chronicles, not least during

Gatess tenure as chief. In those years (1978-92),
Los Angeles saw its population grow to 3.5 million, an increase of some 700,000 people, yet the
citys politicians failed to budget for a police department that could keep pace with such growth.
The number of robberies in the city more than
doubled during that period, and the number of
homicides grew from 678 to 1,092 annually, even
as the police force grew only slightly.
Though Mr. Domanick refers to the many interviews with police officers that inform his book,
some of which he says that he conducted himself, not a single street cop is quoted in Blue.
With the exception of a sergeant, every LAPD
officer relied on for insight is (or was) a member
of the departmental brass. The realities of dayto-day policingthe experiences of the cop on the
beatare missing.
Mr. Domanick presents instead an LAPD full
of faceless, soulless authoritarians who roam Los
Angeles in search of people to oppress. Of the
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departments motorcycle officers, he writes: Like

the rest of the LAPD, theyd been trained to aggressively seek out crime and to confront and
command a suspect in an aloof, intimidating,
and often arrogant manner, even if that suspect
had committed only a minor infraction, or done
nothing wrong at all. Such phrasing does not
even pretend to judiciousness. At no point does
Mr. Domanick convey a clear-eyed sense of the
persistent threat that is faced by many Los Angeles neighborhoods and by the officers who patrol
them.
I should pause to offer an admission of bias: I
retired from the Los Angeles Police Department
last year after a 32-year career, a span of time
largely concurrent with the one that Mr. Domanick explores in Blue. I witnessed firsthand some
of the events he describes and served under the
police chiefs who figure most prominently in the
book. My experiences are largely at odds with his
perceptions of how the LAPD functioned. In the
area of South Los Angeles I patrolled in the mid809
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to late 1980s, for instance, it was routine on the

evening shift to field just 10 cops and a sergeant
to cover 10 square miles and 150,000 people, hundreds of whom were violent gang members. We
handled two or three murders every week and as
many nonfatal shootings every night. An occupying army? We couldnt have occupied even a
single city block under those conditions.
Of late, the LAPD has been struggling to adapt
to the widespread anti-cop atmosphere that has
followed the fatal shooting of Michael Brown in
Ferguson, Mo., a year ago. Mr. Domanick credits current LAPD chief Charlie Beck with bringing about reform within the department and ridding it of its warrior culture. But recent crime
trends suggest that the LAPD may have become
too passive. Violent crime in Los Angeles is up
almost 20% this year, while arrests are down 9%,
statistics that are reflected in cities across the
country.
Yes, the LAPD has had its scandals and
scoundrels, all of them thoroughly described in
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Blue. But Mr. Domanick does not provide a fair

assessment of the men and women with whom I
served and among whom I witnessed compassion,
dedication and valor. Any account of the LAPD,
or of any other police department, that contains
no mention of bravery or sacrifice is incomplete.
Mr. Horan was police officer in Los Angeles
from 1982 to 2014.
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Chapter
133
Forget the Ferrariat

Concours dLeMons,
People Polish Up the
Pintos
PLYMOUTH, Mich.There were sleek Porsche
911s and muscular Ford GTs parked here last
month, but many car buffs waltzed right by to see
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the real star of the auto show: a Pontiac Aztek,

a crossover wagon once called the ugliest vehicle
ever built.
The best car Ive ever owned, Ryan Walch
said of his 2004 Aztek. He took home the top
prizeWorst in Show. I love it.
This was the Concours dLeMons, a car show
that bills itself as an exhibit of the oddball, mundane and truly awful of the automotive world.
Its name is a play on the word for defective cars
and a send up of the event it shadows across the
country, the Concours dElegance, a set of premier classic car shows that showcase Duesenbergs
and Porsches, Jaguars and Popes.
At the Concours dElegance, contestants compete to be named Best in Show and enter in
classes like British Prewar Sports Cars and
Ferrari Competition. Some models are valued
at millions of dollars.
The Concours dLeMons is for those with a
love for cars so bad theyre good. Its winners
take home prizes with names like Most Danger813
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ous and Biggest Loser. Vehicle classes range

from The French Legion of Horror, to Swedish
Meatballs, and Needlessly Complex Italian to
Soul-Sucking Japanese Appliance.
Bribing LeMons judges with food and drink
isnt only tolerated, it is expected.
LeMons have become a well-attended sideshow
to Concours dElegance shows in Monterey,
Calif., Atlanta and southeast Michigan, carving
out some room for a sense of humor in the classic
car world.
At the July 25 LeMons in Plymouth, there
was a Soviet-era Lada, an orange boxy four-door
with a puny engine, along with aesthetically challenged 1970s models like the Ford Pinto and the
AMC Pacer.
A rust-covered 1958 Edsel Corsair was
equipped with a fire extinguisher. Why?
You never know whats going to happen, said
owner Martin Minton, who said his other hobbies include being heavily into antique tractor
pulling.
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Founder Alan Galbraith, a lifelong car show

and hot-rod enthusiast, launched the LeMons
show seven years ago.
His cheeky goal was simple: Lets ruin the carshow world, he said.
Mr. Galbraith sees his event as the ultimate
in party pooping. He was inspired by 24 Hours
of Lemons, an endurance race for duds costing
less than $500 that draws hundreds of entrants
each year. Mr. Galbraith reckoned there was
more room for glorifying junkers, clunkers and,
yes, lemons.
We get good examples of bad cars and bad
examples of good cars, and thats pretty much
all you need, he said.
Mr. Galbraith lured sponsors like Hagerty
Classic Car Insurance and Grassroots Motorsports and now spends most of his time organizing the events.
LeMons has become an accepted part of the
festivities at the main event, the Concours
dElegance, where fans wander between both
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sites for different reasons. Mr. Galbraith said

the Monterey, Calif., edition of the LeMons show
on Aug. 15 drew 105 cars and between 2,000 and
3,000 guests.
The shows are thriving at a time when interest
in classic cars has gone through the roof. Data
from Hagerty shows revenue from North American car auctions has more than doubled since the
recession to $1.34 billion.
A spokeswoman for the Pebble Beach Concours
dElegance called the LeMons contests a great
counterbalance to what can sometimes be a very
serious competition.
Were honored to be spoofed, spokeswoman
Kandace Hawkinson said.
Some weird modifications have been spotted
at the LeMons shows over the years. Take, for
instance, the fur-covered Ford LTD that once
showed up. A horse head was attached to the
front and in back was a tail that dispensed baked
goods when lifted.
It excreted Ding Dongs or something like
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that, Mr. Galbraith said.

The LeMons isnt entirely about ugly, rare or
awful vehicles. At the entrance of this years Plymouth event was parked a 1999 Mazda Miata.
Some Pintos and Pacers were in near-mint condition.
Deeper inside, there was a Pontiac Trans Am
extensively modified to resemble KITT, the artificially intelligent computer in David Hasselhoffs
car in the 1980s series Knight Rider.
But the stars are cars like Dale Martins bright
orange Lada, made in the old Soviet Union, sold
in Hungary, sporting a 1200cc engine that is better suited to a motorcycle. It won the Russia
class award, netting its owner a trophy, a bottle
of Popov vodka and a can of beets.
Mr. Martin said he has gotten the Lada above
80 miles an hour, but the car struggled. It was
really screaming.
The event is pulling in interest from car
clubs. The local Corvair club attended the Plymouth event, for instance, representing a contin817
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gent of enthusiasts supporting a car featured in

Ralph Naders 1965 book Unsafe at Any Speed.
Mr. Nader highlighted safety problems with
the Chevrolets steering column and suspension,
leading to new safety standards.
Its a good road car despite what Ralph Nader
says, said Kerry Borgne, who has owned Corvairs for most of his life, and used one to pick up
his wife and high school sweetheart, Jan, when
they attended Cooley High School in Detroit.
And then there was Mr. Walchs Aztek, part
of a series of vehicles described in 2000 by former GM executive Bob Lutz as angry kitchen
appliances. A survey by the British newspaper,
the Daily Telegraph, named it the ugliest car ever
made.
Launched that year, the Aztek was widely
panned upon its release for its looks and unusual
proportions. Pitched to young, active Generation
Xers, some models like Mr. Walchs came with a
camping tent and had enough room to transport
a full piece of plywood.
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It was a spectacular failure, selling just over

108,000 models from 2001 to 2005. More recently,
it gained some fame as the car of Breaking Bad
protagonist Walter White.
After entering in LeMons, Mr. Walch figured
he would better his chances at snagging Worst
in Show by handing out beer and Coney Islandstyle hot dogs to the contests judges, an activity
proudly described as bribery.
I knew I had some good bribes, and it just
worked out in my favor, Mr. Walch said after
being awarded a trophy and plaque.
Afterward, many entrants struggled to start
their vehicles and leave.
That drew a warning from Mr. Galbraith.
Take your cars home, he announced. Dont
leave them here. Thats happened before.
Write to Gautham Nagesh at gautham.nagesh@wsj.com
Corrections & Amplifications: Bob Lutz is the
former vice chairman of General Motors. He was
incorrectly called the former CEO in an earlier
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version of this article. (Aug. 25, 2015)
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Chapter
134
Kerrys Invisible
Bridge
Maybe weve been unduly harsh with John Kerry
when it comes to the Iran deal. Weve tried to
judge the agreement according to the likelihood
that it will thwart Tehrans bid to get nuclear
weapons. The Secretary of State, for his part,
seems to be acting out the leap-of-faith scene
from Indiana Jones and the Last Crusade.
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You know the one: Indy, standing at the edge

of a bottomless abyss, sticks out his leg to discover an invisible bridge that will get him to
the other side. On the other edge of the abyss
lieswhat else?the Holy Grail.
In the Administrations version of the scene,
that invisible bridge is the International Atomic
Energy Agency, which is supposed to provide the
unprecedented verification that Mr. Kerry and
President Obama insist is the key to the deals
reliability. So total is the Secretarys faith in the
agency that he agreed to let it reach its own side
deals with Iran over how to inspect the regimes
military sites, without him knowing the particulars of the arrangements.
Last week the Associated Press got hold of a
near-final draft of one of the side deals, which
revealed that the agency would allow Iran to do
its own inspectionswith its own personnel and
equipmentof the military site at Parchin, where
the regime is suspected to have previously carried
out illicit work on weaponizing a nuclear device.
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That includes providing the agency with a total

of nine environmental samples. The closest IAEA
personnel will get to Parchin is a courtesy visit to
the site by the IAEAs director general, followed
by a one-day technical roundtable.
Defenders of the deal initially tried to claim
the APs reporting was misleading, until the AP
released the text of the agreement. Now the company line is that this is all no big deal. The issues
in some cases date back more than a decade,
says National Security Council spokesman Ned
Price, as if its merely a matter of balancing some
old books.
But knowing what Iran might have done at
Parchin is crucial to determining how much time
Iran would need to build a bomb. Thats a point
on which Mr. Kerry was once unequivocal, as in
the following April 2014 exchange with the PBS
News Hours Judy Woodruff.
Ms. Woodruff: Still, another issue: the International Atomic Energy Agency has said for
a long time that it wants Iran to disclose past
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military-related nuclear activities. Iran is increasingly looking like its not going to do this.
Is the U.S. prepared to accept that?
Mr. Kerry: No. They have to do it. It will
be done. If theres going to be a deal, it will be
done. . . . It will be part of a final agreement.
It has to be.
So much for that. As for the IAEA, Director
General Yukiya Amano insists the arrangements
are technically sound and consistent with ourlong established practices. Were not sure what
practices he has in mind; Olli Heinonen, a former
senior agency official, told AP he could think of
no similar concession with any other country.
Weaponization work also does not necessarily
involve radioactive substances, so soil-sampling
wont be of much use to finding out exactly what
Iran has done at Parchin.
Well cut Mr. Amano some slack since his
agency must accept whatever mandate it is given
by the countries that negotiated the overall deal.
Nor does it have any power to enforce the side
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agreements deals it has reached with Iran, other

than to issue periodic reports. Tehran is already
warning the agency that it will not accept any
leaks of its agreements. That shows how dependent the agency will be on the mullahs acquiescence to get anything done, insofar as the IAEA
doesnt have the backing of the United States and
other Western powers to demand full access to
the regimes sites.
The Obama Administration is required by
the Iran Nuclear Agreement Review Act, passed
with overwhelming majorities in May, to provide
Congress with a complete accounting of all of the
terms of the deal, including annexes, appendices,
codicils, side agreements, implementing materials, documents, and guidance, technical or other
understandings, and any related agreements.
A bipartisan Congress fought hard last spring
to require President Obama to sign that law.
Now Congress should insist that the President
abide by the law and release the other side
dealor deals. If the Administration is so proud
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of the agreement it struck with Iran, it should be

willing to disclose its full terms.
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Chapter
135
More Minimum-Wage
Backfires
The campaign for higher minimum wages continues to inflict damage on business employees
and owners. About the only ones not feeling the
pain are the labor unions that back this movement. Meanwhile, in a growing number of U.S.
jurisdictions, unions are succeeding in exempting
themselves from the laws they seek to impose on
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everyone else.
Wal-Mart WMT 2.74 % announced last week
that second quarter operating income was down
10% compared to the same period last year, even
as revenue was slightly higher. Wal-Mart, a
non-union shop under relentless media pressure
to boost compensation, increased its minimum
starting wage to $9 per hour in April, $1.75 above
the federal minimum. This amounted to a raise
for more than 500,000 workers. The company
says it is a worthwhile investment that is creating a better, happier workforce and a better
customer experience.
Butminimum-wage
activists,
take
noteincreased compensation costs cannot simply be passed along to consumers at the whim
of the company. In conference calls with securities analysts and reporters, company officials
made clear that wage hikes are among the factors
exerting a negative impact on Wal-Marts profits.
Asked if the company would look to automation to offset the effect of higher wages, CFO
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Charles Holley reiterated that the company views

the wage hikes as valuable investments and exactly the right thing to do but also noted that
Wal-Mart will always look for more efficiencies
in our stores and in our supply chain and in our
costs. Sounds like Wal-Mart workers should be
as concerned as McDonalds MCD 4.32 % and
Wendys employees about being minimum-waged
out of a job.
But dont expect pity from the leaders of organized labor, who are busy making sure they dont
have to play by the rules theyre demanding for
everyone else. Cities including Chicago, Milwaukee, San Francisco and San Jose have exempted
union contracts from laws mandating higher minimum wages.
Union chiefs say the laws unduly limit their
flexibility to negotiate labor contracts, which are
governed by federal law. And perhaps they dont
care what the wage is so long as they can collect
dues. Or maybe they want the ability to give
higher wages to longtime union members while
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dictating lower pay for new members. Flexibility on wages could also be a useful tool to persuade management to accept a unionized workforce, with a demand for higher pay coming later.
But why shouldnt workers who choose not to join
a union enjoy the same freedom?
Too many of our media brethren continue to
portray mandated wage hikes as a gift to workers,
but its increasingly clear that such laws threaten
the jobs of unskilled workers in order to benefit
a special interest.
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136
A Power Grab in
Turkey
Turkish President Recep Tayyip Erdogan called
snap parliamentary elections on Monday, more
than two months after voters deprived his Justice
and Development Party, or AKP, of an outright
parliamentary majority. That vote was a repudiation of his bid to transform the country into a
presidential system. Now he gets a chance at an
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unprecedented redo.
Junes election was a watershed in Mr. Erdogans long political dominance. He campaigned
heavily for the AKP, defying rules that the president remain nonpartisan. He hoped the party
would win a majority of at least 330 seats, allowing it to amend the Constitution to expand his
legal powers and solidify his increasingly authoritarian rule.
Voters disagreed. The AKP won 258 seats,
short of a simple majority to form the next government, let alone amend the Constitution. The
Democratic Peoples Party (HDP) managed to
enter Parliament for the first time by appealing
beyond its Kurdish base to win over women and
secularists anxious about Mr. Erdogans efforts
to Islamize the country.
Mr. Erdogan has since spent his time trying to
thwart the normal functioning of Turkish politics.
The AKP delayed the formation of a coalition
government, stalling on talks with other parties
until a legal 45-day deadline for forming a new
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government passed.
The main sticking point was his insistence on
forming a short-term caretaker government pending new elections at some point, while opposition parties sought a durable coalition that could
serve a full four-year term. Mr. Erdogan, as
president, also refused to give the leader of the
second-place Republican Peoples Party (CHP)
the opportunity to form a government, as he was
legally obliged to do.
Now Mr. Erdogan seems to hope that an electoral do-over will flip enough marginal seats back
to the AKP to restore the partys simple majority. Politicians in parliamentary democracies often resort to such a tactic, sometimes to good effect. But Mr. Erdogans bad faith since his June
defeat suggests this is another attempted power
grab. The same goes for his efforts to demonize,
falsely, the HDP as the political arm of militant
Kurdish separatists who have been staging terror
attacks inside the country.
All of this is happening as Ankara finally seems
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to have gotten serious about the Islamic State

menace. In the meantime, Turkeys economy is
faltering and peace talks with Kurdish separatists
have collapsed. Turkey could use a leader capable
of taking his electoral lumps and working within
the parliamentary system. Too bad Mr. Erdogan
is mainly interested in boosting his own power.
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Chapter
137
Closing the Planned

Parenthood Loophole
Disturbing videos that show Planned Parenthood
personnel casually discussing the sale of fetal organs from abortions have caused widespread outrage. As each new video is released, the calls
for Congress to cut Planned Parenthoods federal funding grow stronger. No matter where
you stand in that debate, the videos provide
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unarguable proof that current laws governing the

fetal-tissue trade dont work. Congress must
tighten them.
Those laws, passed more than two decades
ago, were meant to ensure clear separation between the act of abortion and the procurement
of tissue for research. The provisions originated from the 1988 Fetal Tissue Transplantation Panel, appointed by President Ronald Reagan and charged with deciding in the first instance whether it was appropriate to use fetal
tissue for clinical research. The question gained
prominence that year after the National Institutes of Health sought to fund a study to test
whether implanted fetal tissue could reverse the
effects of Parkinsons disease. These clinical experiments eventually did go forward, and largely
failed.
But the panels recommendations were codified
into law in the 1993 National Institutes of Health
Revitalization Act, which passed the Senate 93
to 4 and the House 290 to 130. A bipartisan
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majority in Congress agreed that the diversion

of fetal tissue for research shouldnt be used to
encourage women to have an abortion, affect the
conduct of the procedure, or financially reward
those performing it.
Planned Parenthood insists that it didnt violate the statute. But the videos suggest that
some abortion clinics flout the spirit if not the
letter of that law. Dr. Deborah Nucatola, senior
director of medical services at Planned Parenthood Federation of America, is shown explaining that many providers use ultrasound images to
guide the procedure so as to obtain intact tissue.
Weve been very good at getting heart, lung,
liver, because we know that, so Im not gonna
crush that part, she says.
A congressional inquiry reached the same conclusion 15 years ago, as did an investigation that
same year by ABCs 20/20. Yet the law wasnt
revised after these episodes.
Defenders of Planned Parenthood also assert
that medical research using fetal tissue is essen837
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tial and saves many lives. But that argument

distorts the facts. Research directly using fetal
tissue is uncommon. At Massachusetts General
Hospital in Boston, only about 10 of 8,000 active
research protocols involve fetal tissue, according
to an official there. By my count, from 1993 to
2014 the NIH funded only 30 grants involving
fetal tissue transplant, out of hundreds of thousands of total grantsabout 10,000 are awarded
every year.
Instead researchers generally use fetal tissue as
a source of stem cells, which can be coaxed into
many different kinds of tissue and are thus valuable for cell-based therapeutic research. But even
work with fetal stem cells comprises a tiny subset
of research. Most such studies involve either embryonic stem cellsoften derived from embryos
developed for in vitro fertilization that go unused and are then donatedor adult stem cells
that have been derived from normal adult tissue.
A search of PubMed for studies published in the
past five years returns 10,000 articles related to
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embryonic stem cells; 5,500 related to search

strings for adult stem cells; and fewer than 200
articles related to fetal stem cells.
More important, when scientists want to use
fetal cells, they typically can draw on existing
cell lines that were derived from fetal organs
procured many years (and sometimes decades)
earlier. These cells continue to divide and selfpropagate, often indefinitely. There are hundreds
of these cell lines already in existence, requiring
no further use of new fetal tissue.
There are also clinical and practical reasons
why the vast majority of fetal tissue research involves these self-propagating cell lines. Some of
these cell lines show significant promise as therapeutics and are in development for the treatment
of a range of vexing diseases. There are far fewer
clinical uses for newly procured fresh tissue.
Even Planned Parenthood was only brokering
fetal tissue in three states (California, Washington and Oregon). This is because the market for
fetal tissue is limited, marked by small compa839
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nies that act as middlemen precisely because the

demand for the tissue isnt that high.
With a few straightforward changes, the law
can be toughened to achieve its original purpose,
with little consequence to this research. The aim
should be to achieve the objectives set out in
1988banning abortion providers from changing
the conduct of the procedure as a way to harvest fetal tissue or seek reward from its procurement. Congress should also confine the use of fetal tissue to valid science that involves the study
of the human bodys function or treatment of human disease.
Today the law requires the doctor to certify
that no alteration of the timing, method, or
procedures used to terminate the pregnancy was
made solely for the purposes of obtaining the tissue. Congress can nix the word solely from the
statute and make any intentional alteration illegal. In the videos, the absoluteness of the current language seems to give Planned Parenthood
wiggle room to skirt the spirit of the provision.
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Theres also little enforcement, and that must

change, too.
Those who want to safeguard this science
should welcome legal provisions that would inspire more public confidence in the entire enterprise of regenerative medicine. Americans
broadly consent to funding clinical research because they believe in the promise of medical
research. But people support scientific work
only if they trust that it serves societal interests, respects patient dignity and operates with
guardrails. If its shown that the scientific enterprise is giving short shrift to these ideals, that
support will erode. Then much more than a small
subset of fetal tissue experiments will be at risk.
Dr. Gottlieb is resident fellow at the American
Enterprise Institute and was previously deputy
commissioner of the Food and Drug Administration. He is an investor and adviser to life science
companies, some of which work with cell-based
science.
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Chapter
138
Gangsta Raps Grim

Legacy for Comptons
Everywhere
For two weeks the top box-office draw has been
Straight Outta Compton, a meandering biopic
about the rise and disintegration of the Los
Angeles-area rap group N.W.A., or Niggaz With
Attitude. N.W.A. helped popularize gangsta
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rap in the late 1980s, and even this hagiography

cant hide the fact that its legacy has endured to
the detriment of poor black communities.
The most prominent members of the quintet
were Dr. Dre, Ice Cube and Eazy-E, and they distinguished themselves from other rap acts mainly
through relentless, jarring profanity. Materialism
and braggadocio were already rap staples, but
N.W.A. added heavy doses of sadistic sex, misogyny, gun violence and all-round thuggery. Typical are the lyrics to a song on their second album
that invoke gang rape of a 14-year-old preachers
daughter.
Straight Outta Compton not only doesnt
dwell on N.W.A.s glorification of self-destructive
behavior, anyone appalled by it is portrayed as a
racist or a square. The film is more interested
in presenting the rappers as authentic voices of
decent young black men in poor communities
who are regularly victimized by police. Still, the
viewer cant help but notice that our protagonists
regularly engage in criminal behavior, dress like
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gang members in areas infested by ruffians and

defy the police who suspect them of being up to
no good. Their problem is not that the cops harass them but that the cops interfere with their
lawbreaking.
In one of the films early scenes, designed to illustrate the kinds of experiences that shaped the
rappers upbringing, a young Ice Cube is riding
home on a yellow school bus when a group of
gang members pulls alongside in a sedan. Some
of the kids on the bus start shouting out the window and playfully flashing gang signs at the men
in the car. The gang members respond by stopping the school bus, forcing their way inside and
putting a pistol to the head of one of the teenage
taunters. The scene suggests that the biggest
bane of the black community isnt the police officer but the black hoodlum. Yet Ice Cube and
other gangsta rappers would go on to great fame
and fortune penning lyrics that claimed the reverse.
In short, these rappers specialized in pushing a
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vulgar nihilism that has poisoned urban America

for decades and retarded upward mobility. The
enemy was social order and anyone who promoted
it, from parents to teachers to cops. You walk
into a fourth or fifth grade black school, Chuck
D of the rap group Public Enemy told a newspaper in 1991, Im telling you, youre finding
chaos right now, cause rappers came in the game
and threw that confusing element in it. Orlando
Patterson, a Harvard sociologist, also noticed the
change. Before rap, dance-hall lyrics were harmlessly erotic, something I could listen and dance
to with my daughters, he told an interviewer in
1992. Rap lyrics, as you know, are incredibly
brutal . . . There is a horrible sickness here.
Twenty years ago, sharp social critics like
Martha Bayles and Stanley Crouch took others
to task for indulging or playing down this celebration of delinquency instead of denouncing it.
Too many irresponsible intellectualsblack and
whitehave submitted to the youth culture and
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ging liberal arts rhetoric to defend Afro-fascist

rap groups like Public Enemy on the one hand,
while paternalistically defining the gangster rap
of doggerel chanters such as Ice Cube as expressive of the real black community, wrote Mr.
Crouch.
But that type of criticism was in the minority
and ultimately lost the day. Scholars like Harvards Henry Louis Gates Jr. would argue that
gutter rap verse comes out of a black American
tradition that enriches our language and culture.
Cornel West, in his familiar mix of Marxism and
gobbledygook, once described rap as primarily
the musical expression of the paradoxical cry of
desperation and celebration of the black underclass and poor working class. And Michael Eric
Dyson credited rappers with refining the art of
oral communication.
Today, gangsta rap is no longer edgy or even
very controversial. It can only be described as
mainstream. On a 2013 track, Jay Z, one of
the countrys richest and most popular rappers,
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name-checked a convicted drug dealer and hit

man who terrorized the Washington, D.C., area
in the 1980s. Lil Wayne, who specializes in rapping about drug-dealing and gun violence, has
more entries on the Billboard charts than Elvis.
In 2010, President Obama told Rolling Stone
magazine that both rappers were on his iPod.
Mr. Riley, a Manhattan Institute senior fellow
and Journal contributor, is the author of Please
Stop Helping Us: How Liberals Make It Harder
for Blacks to Succeed (Encounter Books, 2014).
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Chapter
139
Let Tim Cook Speak

(About Business)
Those who make their living from rules and more
rules are muttering darkly about Apple CEO Tim
Cooks intervention in Mondays global stockmarket crash.
Mr. Cook, after an email from CNBCs Jim
Cramer asking about sales in China, responded
with an email of his own. Whatever was happen848
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ing to their stock prices, Chinese consumers were

still buying iPhones, he said, with Apple continuing to experience strong growth for our business
in China through July and August.
He added, Obviously I cant predict the future, but our performance so far this quarter is
reassuring.
Mr.
Cramer reported the news and the
descent in Apples stock price moderated a
bitsupposedly its a bad thing when timely and
accurate information is reflected in stock prices.
But Mr. Cooks comments also had a wider significance. His was a reminder that theres a real
economy of goods and services and transactions
out there, especially useful when crashing stock
markets are so heavily influenced by monetary
manipulations.
For his useful and informative act, though,
many of the medias favorite securities lawyers
want Mr. Cook hauled up before the Securities
and Exchange Commission, under its Regulation
FD, which seeks to control the information in
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stock prices from some imaginary ideal of fairness.

He should be applauded. Mr. Cook lent
timely evidence for the view that this weeks
stock disaster was only tenuously connected to
the real economy. Central banks, led by ex-Fed
Chief Ben Bernanke, have held down the yield
on safe assets for years trying to force investors
into stocks. Higher prices resulted but not the
good feelings and economic confidence that policy makers sought, and shares arguably needed
to adjust downward for the recoveries that still
arent happening in the U.S., Europe and Japan.
Unfortunately, corporate statements tend to
vary as wildly as anybody elses, from the crunchy
and informative to the deeply bogus. An example of the latter was the Apples statement to the
New York Times NYT 1.88 % last week, after the
paper had decided belatedly to notice the record
of Dr. Dre, the rap entrepreneur on whom Apple
dumped a windfall when it bought, for $3 billion, his company Beats Electronics, a purveyor
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of headphones and a music streaming service, 14

months ago.
The Times last week allowed that it had been
collecting accounts from women that Dr. Dre had
beaten up early in his career, including the wellknown case of Dee Barnes, a then-Fox TV hostess
on whose show rival rappers had made wisecracks
at Dr. Dres expense.
As the Times was preparing its report, Dr. Dre
issued a statement not owning up to any particular assault but regretting past actions and claiming Im doing everything I can so I never resemble that man again.
Apple issued its own statement saying, Dre
has apologized for the mistakes hes made in the
past and hes said that hes not the same person
that he was 25 years ago. We believe his sincerity and after working with him for a year and a
half, we have every reason to believe that he has
changed.
Though there is nothing funny about beating
up women, this statement is hilarious because
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Apple certainly did not condition its purchase of

Beats on Dr. Dre over the next year and a half
demonstrating the sincerity of his regret for his
assaults on Ms. Barnes and at least two other
women.
Back in the real world, Apple wanted Beats
and Dr. Dre for their cultural cachet and was not
about to bring up his history or make demands
on him regarding it, as long as nobody else did.
And nobody else did, except this column in passing when it compared Dr. Dre to Don Sterling,
the L.A. Clippers owner who was simultaneously
receiving his own windfall for selling the basketball team he had just disgraced with his foolish
private remarks.
Nor are the reasons hard to imagine. Dr. Dre
is cool. Don Sterling, who complained about his
girlfriend attending games with black celebrities,
isnt. Mr. Sterling is white and rich and old,
and Dr. Dre has only become rich in the eyes of
the media since the Beats deal (he pronounced
himself the worlds first hip-hop billionaire).
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Probably playing a role too was some holdover

of the attitude expressed by his Beats partner, the legendary producer Jimmy Iovine, who
claimed back in the day that criticism of violent
and misogynist gangsta rap lyrics was racism,
pure and simple.
An awful lot comes out of CEO mouths in
the course of a year, especially from highly visible and fashionable companies like Apple. Some
of it is bound to be claptrap, not to mention
the occasional pathetic attempt to evade criticism and navigate the conformities of the day.
Which brings us back to the SECs Regulation
FD: When we limit Mr. Cooks ability to say
insightful and timely things about his business,
it only increases the ratio of claptrap to useful
information.
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Chapter
140
In the Race for Arctic

Energy, the U.S. and
Russia Are Polar
Opposites
In his message to the American people about his
visit to Alaska next week, President Obama said
The alarm bells are ringing, and as long as Im
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president, America will lead the world to meet

this threat before its too late. He was talking
about climate change. But his words could just
as well apply to the strategic moves that are being made in the vast Arctic region to secure its
resources and potential.
Russia is taking the lead in Arctic offshore oil
production. Russia began producing offshore oil
at the Prirazlomnaya field in the Pechora Sea
in 2014, and last year it delivered roughly 2.2
million barrels. Gazprom Neft GZPFY 0.71 %
expects to more than double oil production this
year from the countrys only offshore Arctic oil
project.
China isnt far behind.
Between 2009
and 2013, Chinese companiesmainly the
big three, China National Petroleum Corp.,
Sinopec and China National Offshore Oil Corp.
(Cnooc)were the largest buyers of international oil assets. Several of these acquisitions
were made with the Arctic in mind, such as
Canadas Nexen and Russias Yamal LNG. Early
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last year, Cnooc obtained an exploration license

for Icelands Dreki region in the Norwegian Sea.
The company is also expected to be involved in
Norways 2016 licensing round in the Barents
Sea.
Russian and Chinese activity goes beyond a
scramble for resources. Russia has added a 6,000soldier permanent military force, including radar
and sensing networks, in the Arctics northwest
Murmansk region. Russia recently submitted
a large extended continental-shelf claim for the
Arctic, which, if accepted, will give Russia rights
to seabed resources beyond its 200 nautical-mile
exclusive economic zone. Chinas maritime activity in the region has increased, and it is making
significant investments in Arctic research, infrastructure and natural-resource development. Although not an Arctic nation, China sees the value
in building modern icebreakers to support its activity in the polar regionsnorth and south.
The dominant posture Russia and China are
assuming with regard to Arctic oil and gas stands
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in contrast to the U.S. After holding a recordbreaking lease sale in the Chukchi Sea in 2007,
(and collecting billions of dollars for federal coffers), the federal government has failed consistently to demonstrate it has the political will
and agency know-how to allow Arctic offshore oilexploration to move forward.
It may be convenient to take a why bother
approach. After all, the cost of energy is down
and we see a bright future in the shale boom.
However, the U.S. continues to import 40% of
its crude-oil needsnearly half of which comes
from OPEC membersat a cost of $23.5 billion
a month.
Alaskan energy production from the outer continental shelf can come online in 10 to 15 years,
when experts predict shale-oil production in the
lower 48 states will plateau and crude-oil production in the Gulf of Mexico will begin to decline.
But the dithering must end soon. According to
a recent report by the National Petroleum Council (NPC) and a diverse group of government reg857
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ulators, nongovernmental organizations, environmentalists, industry leaders and Alaska Native

representatives, the federal government needs to
facilitate exploration in the offshore Alaskan Arctic now. Failure to act immediately risks a renewed reliance on imported oil and jeopardizes
Americas global competitiveness, leadership and
influence in the Arctic.
President Obama did the right thing in August
by finally allowing energy exploration to proceed
in the Chukchi Sea. But the approved drilling
permit for Royal Dutch Shell RDS.A -0.30 % remains the only exploration activity in U.S. waters
in the Arctic. Now is the time to ensure that responsible energy exploration and production in
the region proceeds at a pace that matches Russias and Chinas aggressive efforts.
The U.S. recently assumed a two-year term
as chairman of the Arctic Council, the worlds
primary intergovernmental forum on the region.
The council focuses on a broad range of issues
but not on defense and security. The U.S. can
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use its chairmanship to take a leadership position on shipping, resources and fisheries standards and practices. It can also set the stage
for constructive regional engagement and cooperative investment to enhance overall maritime
domain awareness in the Arctic, including joint
search-and-rescue and environmental responses.
The U.S. should also use its leadership role to
ensure responsible energy exploration and production in the region, bringing to bear Americas
higher standards of operations, more-stringent
safety standards, and a more finely tuned riskmanagement culture than is practiced on the
other side of the Arctic Ocean.
As the NPC report revealed, the U.S. needs
Arctic energy exploration. Yet by repeatedly
putting the brakes on the development of natural
resources in the Arctic, Washington has injected
uncertainty into its Arctic policy and threatened
the future energy security of U.S. citizens. If we
subject energy companies to death by a thousand
paper cuts that put stifling bureaucracy over na859
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tional strategic needs, we will cede this critical

strategic region to others with grave economic,
security and environmental implications for generations to come.
Mr. Roughead, a retired U.S. Navy admiral
and former chief of naval operations (2007-11), is
a visiting fellow at Stanford Universitys Hoover
Institution.
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Chapter
141
Sixty Years? Must Be

Some Kind of World
Record
The pinnacle of achievement for wannabe celebrities and bona fide freaks, the Guinness World
Records book celebrates its 60th year of publication this monthcomforting news for those who
crave attention.
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Say you lack the talent to create the next big

thing, or flubbed a reality-show tryout, or are sick
and tired of karaoke. You can still command the
stage, if only fleetingly, by establishing a world
record. And with 40,000 certified records in its
database, many of them breakable, the world of
Guinness is certainly a narcissists oyster (incidentally, the largest oyster on record measured
nearly 14 inches in length).
Bend 13 iron bars across your head in one
minute and youll top the current record of 12
held by a Russian strongman. If you can withstand the pressure, try surpassing the number of
mouse traps released on the tongue in 60 seconds
(a painful 53). Are you a foodie? Then you can
bite into the record for the most jelly eaten with
chopsticks in one minute (664 grams or just under a pound-and-a-half). The world will beat a
path to your door, or at the very least youll be
featured on BuzzFeed, OMG Facts and Reddit.
Originally published in 1955, the annual Guinness World Records book has sold more than 130
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million copies according to the companys website, and has been translated into more than 25
languages. The books mission, says Guinness, is
to inspire ordinary people to do extra-ordinary
things.
Extraordinary is in the eye of the beholder.
Guinnesss meat and potatoes (largest meat pie
measured 32 feet long by seven feet, seven inches
wide) are what might kindly be called curious
achievements. One Ohio woman nabbed a place
in the 2015 book for building the worlds largest
yo-yo, some 12 feet in diameter and weighing
more than 4,600 pounds. An archer in California achieved glory by virtue of shooting an arrow
20 feet . . . with her foot. And an enterprising Danish man secured a place in posterity by
creating the worlds longest usable golf club. It
measures more than 14 feet and could be what
Tiger Woods needs to regain his stroke.
In a 2008 interview, GWRs editor in chief,
Craig Glenday, said the publication gets 40,000
to 50,000 record claims each year, 95% of which
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never make it into the book. So many, in fact,

that Mr. Glenday and his staff made the application process much more time consuming and
detailed. This deters frivolous claims and helps
his staff process the claims more efficiently.
That many record seekers cant all be bored
kids. So one has to wonder why anyone sets aside
time for these pursuits. Certainly the mother of
Dietmar Loeffler, a German who holds the record
for the most times hit by a car in two minutes
(that would be eight), was horrified by his accomplishment.
The allure must be notoriety, and the Guinness World Records book seems the perfect
venue for egotists with small egos (big egos run
for president). Speaking of which, President
Obama this past May shattered the record for
the fastest time (under five hours) to reach one
million followers on Twitter. But as often happens with Guinness records, Mr. Obamas @POTUS was eclipsed weeks later by Caitlyn Jenner,
formerly Bruce Jenner, whose @Caitlyn_Jenner
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attracted a million followers in four hours and

three minutes.
Its perfect symmetry that the Guinness
World Records book might owe its very existence to a display of ego. Sir Hugh Beaver, chairman of the Guinness Brewery, was hunting game
birds in 1951 when he misses a shot at a golden
plover, according to company lore. Rather than
question his own reflexes or aim, as many would
do, Sir Hugh blamed the target and wondered if
the plover was the fastest game bird in Europe.
He couldnt find a reference book to answer his
question and the rest, as they say, is history.
Whether you find the Guinness World
Records book fascinating or dispiriting, the
company deserves kudos for its business acumen
and marketing prowess. By tapping into our
thirst for attention, the folks at Guinness have
transformed what essentially is bathroom reading into a perennial powerhouse. As a publisher
myself I salute their robust profits. Still, when
Robert Browning said, A mans reach should
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exceed his grasp or whats a heaven for, I doubt

he was talking about the grasp of Melvin Boothe,
whose fingernails had a combined length of 32
feet, 3.8 inches, a record set in Troy, Mich., on
May 30, 2009.
Mr. Cianciolo is chief editor of Emerson &
Church, Publishers in Medfield, Mass.
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Chapter
142
Obama Must Engage

the Iran Deals Critics
President Obama is winning the battle for support of enough Democrats to sustain his veto of
a probable congressional resolution disapproving
the Iran nuclear agreement. But he is losing the
war for public support of the deal, which may
well determine its long-term fate.
Since the conclusion of the negotiations, most
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national surveys have shown pluralities or majorities of Americans opposing congressional approval of the draft agreement. A Quinnipiac survey released Monday reveals overwhelming opposition in three key swing statesby 61% to 25%
in Florida, 61% to 26% in Pennsylvania, and 58%
to 24% in Ohio.
Unless sentiment shifts, the Democratic presidential nomineewho is certain to support the
agreementwill be thrown on the defensive next
year. A new Republican president would almost
certainly back away from the deal, although not
necessarily on day one.
The survey does offer a glimmer of hope for
the administration: Polls that describe the agreement before asking for the respondents opinion indicate more widespread support than those
that dont. The administration has much to
gainand nothing to loseby undertaking a sustained campaign of public education. But to
work, such a campaign must be honest about the
agreements vulnerabilities; it must not send the
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message that all criticisms of the deal reflect cynical partisanship or that its opponents are the
crazies, as Mr. Obama recently suggested.
There is a benchmark for such an effort. My
Brookings colleague Robert Einhorn, who followed the nuclear negotiations as closely as anyone, has produced a detailed balance sheet of the
deals strengths and weaknesses. Here are some
of the highlights:
For the first 15 years of the deal, Irans breakout time for producing enough weapons-grade
uranium to build a nuclear weapon would be significantly longer than it is today. Between years
15 and 20, however, Iran will be allowed to increase its enrichment capacity enough to lower
the breakout time to a few weeks. It would
have been preferable, Mr. Einhorn says in his
analysis, to have permanent or longer restrictions. Still, it is possible to prevent the Iranians
from going nuclear, he writes, provided that the
United States and key partners maintain a strong
and credible deterrent.
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Regarding the possible military dimensions of

Irans past nuclear program, the results are less
encouraging. Irans responses to the International Atomic Energy Agency are unlikely to be
forthcoming or honest enough to allow a full understanding of these activities, so the IAEA director generals report, due in December, is likely
to be inconclusive. But a full disclosure of these
activities was never in the cards, Mr. Einhorn
says.
The key question is whether the absence of a
full Iranian disclosure is a serious obstacle to the
agreements principal objective: assuring that
Iran will not pursue or obtain nuclear weapons in
the future. Mr. Einhorns judgment is that in the
context of our full range of tools, outside as well
as within the agreement, the failure to achieve a
full accounting of the past does not represent a
critical deficiency, but he recognizes that this
will be vigorously debated.
Timely access to sensitive sites in Iran has
emerged as a flash point. Critics charge that the
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agreement, which would allow up to 24 days before the IAEA gains access to suspect facilities,
would give the Iranians plenty of time to move
or eliminate incriminating evidence. Supporters
counter that 24 days would not suffice to conceal evidence of secret production facilities and
that existing technologies could detect traces of
uranium or other nuclear materials.
The critics are right, says Mr. Einhorn, that
the Iranians could complete the cleanup and removal of illicit activities within 24 days, especially if no nuclear materials are involved.
Only no-notice surprise inspections could prevent
that, but they were never a possibility. Fortunately, he argues, our ability to conduct continuous surveillance of the entire nuclear supply chain
and to monitor movement of equipment and materials between sites greatly increases the chances
of detecting cheating.
Critics of the agreement have seized on sanctions relief to argue that Iranians will be freed
to intensify their support for sectarian terror871
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ism in the Middle East and beyond. Many provisions of the agreementincluding the possible
reimposition of sanctionsshould mitigate these
fears, and U.S. sanctions in response to nonnuclear Iranian activities are outside the agreements and will remain in force. Still, Mr. Einhorn acknowledges, legitimate questions remain
about whether foreign businesses and governments would go along with renewed sanctions in
the event of Iranian violations. Much will depend
on the strength of the evidence and the forcefulness of U.S. diplomacy.
If Congress overrides Mr.
Obamas veto
and torpedoes the agreement, existing sanctions
would erode, and the Iranian leadership would
authorize the resumption of activities forbidden
by the current interim agreement. Negotiations
would break off for some time, and even if they
resumed, the prospect for success would be remote. A better dealnow or in the futureis an
illusion, Mr. Einhorn concludes. The burden
is on the agreements critics to show why he is
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wrong.
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Chapter
143
The Seven Deadly

Sins, Spread Across
Seven Museums
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deadly-sins-spread-across-seven-museums1440626447
For two consecutive days this summer, I indulged in The Seven Deadly Sins. Not the sins,
per se, but a seven-venue collaboration (think:
exhibition as pub crawl) spread throughout Connecticut and New York, involving seven members
of the Fairfield/Westchester Museum Alliance.
The FWMAs inaugural group effort, The
Seven Deadly Sins had each arts institution
tackle one unique sin, and it ran the gamut
in terms of approach, originality, quality and
success. Representing about 90 artists, mostly
household names, Sins comprised roughly 200
works from the 15th to the 21st century, in nearly
every medium. We encountered Albrecht D
urer,
Thomas Cole, Honore Daumier and James Ensor,
as well as Sherrie Levine, Cindy Sherman, Rudolf
Stingel and George Condo. Modern masters were
conspicuously scarce in this cabinet of curiosities,
which favored contemporary art. Each museum
acted independently, with little or no regard for
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coherence or scheduling.
The Seven Deadly Sins
Multiple museums
Alongside greed, lust was ranked supreme
among the Seven Deadly Sins by the medieval
church. But Lust, organized by Livia Straus
at the Hudson Valley Center for Contemporary
Art in Peekskill, N.Y., and since closed, was
among the least satisfying. Rated NC-17, it
promised overt imagery, raw eroticism, the
rawness of the Kama Sutra, religious ecstasy,
raw sex and lust for lusts sake. But instead
it was largely a soft-core sideshow relieved only
by works such as Larry Clarks Tulsa Series
(1968), documentary photographs of youth, sex,
drugs and violence, which brought some bite to
the exhibition.
In the Aldrich Contemporary Art Museums
Sloth (through Sept. 19), curated by artist
Mats Bigert and Cabinet magazine Editor in
Chief Sina Najafi, laziness is part of the plan.
Visitors to the Ridgefield, Conn., museum watch
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films documenting the other Seven Deadly Sins

shows from the comfort of Bob-O-Pedic reclinerscourtesy of Bobs Discount Furniture, one of
the shows sponsors.
Curated by the Bass Museum of Arts Jose
Carlos Diaz, and exported to Purchase, N.Y.,
from that Miami museum, the Neuberger Museum of Arts greed-focused Gold (through Oct.
11) is more roll call than exhibition. Each of
its artworks is by one of 22 overexposed contemporary artists and incorporates some form
of gold physically or conceptually, while essentially repackaging otherwise mundane forms and
objects: Chris Burdens Gold Bullets (2003),
which alludes to Shoot (1971), a performance
in which he had himself shot in the arm, Sylvie
Fleurys Yes to All (2004), which is just a goldplated trash can, and so on. This repetitive,
garish show merely recasts, rather than explores,
greed.
But Gold may be closer to its subject than
Wave Hills WrathForce of Nature (through
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Sept. 7), an uneven contemporary show, of

mostly paintings, in which the human sin wrath
has been handed off to Mother Nature. Ignoring their given theme, the curators of this
Bronx, N.Y., showJennifer McGregor, Gabriel
De Guzman and David Xu Borgonjon, all of Wave
Hillelected instead to raise consciousness about
environmental issues. Wrath includes Julie Heffernans fantastical landscapes inspired by Sandy
and Katrina, and David Opdykes sculpture of
a downed utility pole. Its works collectively
expresswith less-than-veiled finger-pointinga
perceived mistreatment and subsequent rebellion
of the earth. Wrath may be vaguely biblical,
but it has nothing much to do with the Seven
Deadly Sins.
Also off-course is the Katonah Museum of Arts
one-person show purportedly exploring gluttony,
Emilie ClarkThe Delicacy of Decomposition
(through Sept. 6), organized by Margaret Moulton, the former KMA director of public programs.
Its centerpiece is Sweet Corruptions (2012-13),
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a long table overflowing with all the uneaten food,

now rotting and desiccated, that Ms. Clarks
family accumulated over four months in 2013. An
ecological research station occupies a corner of
the Katonah, N.Y., show, and the artists mildly
pleasing watercolor still lifes line the walls. The
idea is to raise awareness about consumerism and
conservation, and the show reveals an inquisitive
intellect. But Ms. Clarks paintings might be
better served by not having to compete for attention with her compost pile.
The Hudson River Museum, in Yonkers, N.Y.,
is also devoting its exhibition to a single artist.
Envy: One Sin, Seven StoriesAdrien Broom
(through Sept. 27), consisting of Ms. Brooms
large staged photographs interspersed with the
sets and props used in creating them, was inspired by seven different fairy tales, such as
Cinderella and Snow White. Curated by the
HRMs Bartholomew Bland, who conceived of
Sins, Envy is among its most intriguing shows.
Here are elaborate gowns, mirrors, flying man879
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nequins, a crystal casket, bloody hearts and

bloody slippers, an enormous glowing crescent
moon and quotes by Heraclitus, Dante and
Shakespeare.
Ms. Broomstrikingly beautiful and technically proficientstars in her photographs. I
sense that she is chasing the dreamy, visual richness and mystery of Vermeer. But she overplays
gothic romanticism and theatricality. Her images
verge on melodrama and vanity, illuminating not
the stories but the self-seduction of her process.
This brings us to Greenwich, Conn., and the
finest exhibition in Sins: the Bruce Museums
The Seven Deadly Sins: Pride (through Oct.
18), co-curated by the Bruces Susan Ball and
Amanda Skehan. Pride, or superbia, is considered the capital sinthe root of all others.
And the Bruce puts its sin in historical context, exploring prides humanist origins in classical mythology (Icarus, Phaeton) and the Bible
(Adam and Eve, the Tower of Babel, the Pharisee
and the Publican).
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Thorough to a fault, Pride includes a stuffed

peacock (prides symbol), purple walls (prides
color) and a section devoted to humility (prides
antidote). But it immerses us in its theme. And
with works by Jacques Callot, Hendrick Goltzius,
Cole, Daumier, Thomas Nast and Aubrey Beardsley, it offers the most breadth and quality.
In D
urers woodcut The Whore of Babylon
(1498), Babylon burns, the Second Horseman
of the Apocalypse strides forth with his sword,
and the Whore, flames licking at her back, rides
a seven-headed beast (representing the Seven
Deadly Sins). Here, D
urer collapses space and
time. There is no real sense of recession. All of
the prints forms are imminent, pressing forward,
ready to swamp us like a giant wave.
Here, in this and other masterpieces, art does
the heavy lifting, nudging us toward grappling
with the complications and ramifications of sin.
The Bruce should be proud.
Mr. Esplund writes about art for the Journal.
Feds Dudley: Case for September Rate In881
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crease Now Less Compelling

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Chapter
144
A French Film
Mavericks California
Sojourns
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mavericks-california-sojourns-1440626001
The Belgian-born, French filmmaker Agnès
Varda has been called the mother (sometimes
grandmother) of the Nouvelle Vague. Though
none of her films achieved the widespread cultural currency of, say, Alain Resnaiss Hiroshima
Mon Amour (1959) or Jean-Luc Godards Contempt (1963), her uncompromising persistence
and originality in both narrative and documentary forms guaranteed her not just a ringside seat
at the revolution, but also a berth as one of cinemas true mavericks. Yet with just a handful of
exceptionsparticularly the features Cleo From
5 to 7 (1962) and Vagabond (1985) and the
documentary The Gleaners and I (2000)her
films have enjoyed neither much impact initially
nor delayed resonance with most cineastes.
A new release on Criterions Eclipse line, however, should broaden our appreciation of the 87year-old Ms. Varda, who started making films in
the mid-1950s and has remained active into this
decade. Titled Agnès Varda in California, the
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set of three DVDs collects five recently restored

films made during her visits to the Golden State
between the mid-1960s and early 1980s. None
of the pictures, which in her fashion often blur
the line between feature and documentary, runs
longer than 112 minutesthe bulk are considerably shorterbut such brevity in no way stints
viewers partial to Ms. Vardas signature tropes.
The movies are eccentrically paced, enamored of
poetic narration and tonally unpredictable. Detractors will likely fault their occasional pretentiousness, unintentional condescension and casually leftist worldview. But none of this diminishes
their present-day allure as time capsules and examples of refreshingly uncommercial cinema.
The first of these, Uncle Yanco (1967), which
runs a mere 19 minutes, finds Ms. Varda at her
most playful, seeking and finding Jean Varda, a
long-lost Greek relation living in the picturesque
seaside town of Sausalito near San Francisco.
The freethinking uncle (actually a first cousin
once removed) makes his living as a painter,
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and the brightly colored objects Ms. Varda focuses onpink sweaters, indigo sails, goldenrod
mastscomplement his canvases. The directors
continuing obsession with reality-versus-illusion
makes itself felt in the staging and restaging
of the initial meeting between Agnès and Jean
on his houseboatdifferent angles, different dialogue, different languages. Ms. Varda even
frames one version of this moment with colored
cellophane hearts, underscoring her lifelong infatuation with the faux-naf.
Her 28-minute film Black Panthers (1968),
later retitled Huey, represents a different sort
of naivete. A fairly straightforward documentarypredominantly shot at a Black Panthers
rally in Oaklandthe film relies heavily on
increasingly biased narration delivered by an
unidentified young woman whose detachment
moves from disconcerting to unnerving. Many
images that must have seemed disturbing at the
timelike black-clad Panther soldiers drilling in
their requisite berets and sunglassesnow appear
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risible, as though were watching a parody of 60s

radicalism. But the interstitial segments featuring Huey P. Newtonthe then-imprisoned Panthers co-founder who met a violent end on the
streets of Oakland in 1989reveal a charismatic
and eloquent radical.
Lions Love (. . . and Lies) (1969), the longest
of these pictures, stands as Ms. Vardas cockeyed valentine to Hollywood. A bizarre fusion of
60s counterculture and metatheater, the movie
focuses on the lazy shenanigans of a transplanted
New York menage à trois: James Rado and
Gerome Ragni, who co-wrote and starred in the
musical Hair, and Viva, a denizen of Andy
Warhols Factoryall playing grotesque versions
of themselves. They soon welcome a guest, the
independent filmmaker Shirley Clarke, clearly
Ms. Vardas onscreen substitute, in town to
close a deal. But plot is irrelevant where atmosphere and tone dominate. Fourth walls break
with alarming regularity, and Ms. Varda herself
appears fleetingly in mirrors. Modern audiences
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will be taken aback by the scene in which Viva

and her male lovers gives sedatives to a gaggle of
children theyve adopted for the day, but seeing
the kids puffing on cigarettes later is even more
shocking. (Relax, man, it was the 60s.)
This collections two final films move us over a
decade forward. The first, the 82-minute Mur
Murs (1980), surveys the rich array of largescale murals that dot Los Angeles, many located
in poor Hispanic neighborhoods. Ms. Varda
sympathetically documents this urban tapestry
and interviews a number of its better-known creators and their associates. Yet the most memorable sequence, straight out of News of the
Weird, examines a series of murals adorning a
Farmer John meatpacking plant near downtown
L.A. Originally titled Hog Heaven (later Pig
Paradise), this sprawling tableau depicts swine
frolicking in bucolic settings, even as just inside
those very walls industrial food processing is proceeding, well, whole hog.
But the bracingly lean Documenteur (1981),
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clocking in at 65 minutes, is this sets indispensable title. Despite its structural idiosyncrasies,
the film is at heart a keenly observed study of
a single mother, a transplanted Frenchwoman
named Emilie (Sabine Mamou, a nonactor and
the editor of this movie and Mur Murs), and
her young son, Martin (Mathieu Demy, the son
of Ms. Varda and her husband, the director
Jacques Demy, and today a successful French actor). Briefly touching the lives of others, they
scrape by, finding a place to live and diversions
to fill their empty hours on L.A.s fringes. Ms.
Varda directs this fiction film as though it were
a documentary; indeed, parts of it tellingly prefigure The Gleaners and I. The movies roughly
10-minute coda is exquisite, composed of quotidian images as profound and simple as any Ms.
Varda has ever assembled, culminating in a scene
in which mother and child share an utterly ordinary yet unforgettable moment. The ending itself
is startlingly abrupt, like so much in life, but here
Ms. Vardas instincts are true, sure and timeless.
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Mr. Mermelstein writes for the Journal on film

and classical music.
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Chapter
145
The Lucerne Festival

Is on the Threshold of
Change
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festival-is-on-the-threshold-of-change1440624987
Lucerne, Switzerland
It is a critical time for the revered Lucerne classical music festival in Switzerland.
In January 2014, Claudio Abbado, the founder
of the Lucerne Festival Orchestra, passed away
after a long illness. Since then, guest conductors
like Bernard Haitink and Andris Nelsons have
filled in. If finding a successor for the beloved
conductor were all that the festivals intendant,
Michael Haefliger, had to deal with, his task
would have been difficult enough. Mr. Abbado
was considered a near god in Lucerne. But Mr.
Haefliger also has had to find a replacement for
Pierre Boulez, who owing to age and infirmity
will retire as artistic director of the Lucerne Festival Academy, a contemporary music institute,
later this summer.
Some of the uncertainty has been removed with
the appointment earlier this month of Riccardo
Chailly as Mr. Abbados successor at the helm of
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the LFO. But change is coming, and what kind

of change is whats on peoples minds.
Since being founded in 2003 the LFO has
made its reputation with standard-setting performances of the music of Gustav Mahler (18601911) and Anton Bruckner (1824-1896). Mr. Abbado was unequaled in the core Germanic repertory of the late 19th and early 20th centuries.
Mr. Chailly has different interests, strengths and
weaknesses. Though he brings convincing interpretations to a wide range of repertoire, Mr.
Chailly particularly excels in the music of 20thcentury composers and is much more interested
in new music and new audiences than Mr. Abbado was in his last years.
This raises the serious question of whether a
top conductor like Mr. Chailly whose relative
strength lies in 20th-century and modern music
can succeed with an orchestra whose forte is in
Mahler and Bruckner.
That Mr. Abbado left the world a great Mahler
orchestra was evident at the performance I at895
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tended last Thursday evening when the superb

Andris Nelsons led the LFO in a magnificent
performance of Mahlers Fifth Symphony. The
Fifth was a wise choice with which to close the
Abbado era. It has the Trauermarsch (Funeral
March), which underscores the orchestras deep
sadness that Mr. Abbado is gone. And the LFO
has the worlds greatest solo trumpet in Reinhold
Friedrich to do the music and occasion justice.
Mr. Friedrichs powerful and profound playing inspired his illustrious colleagues in a triumphal performance. Over his tenure, Mr. Abbado crafted a true orchestra of friendsto be
included in the LFO one had to be personally
invited by the conductorand this is likely the
final time this specific group will play together in
Lucerne. Some musicians surely will not return
in the future and Mr. Chailly will choose their
replacements.
Given the change of leadership, the LFOs
repertoire might shift to include more modern
music and less of the core Germanic repertoire.
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To keep the balance of repertoire for the festival

as a whole, perhaps the many international orchestras that perform in Lucerne as guestssuch
as the Boston Symphony and San Francisco Symphony, which are visiting the festival later this
summercould play less modern music and more
Mahler and Bruckner than they have here in
the past. But Mr. Chaillys choice of Mahlers
Eighth Symphony to start his tenure next summer is possibly his way of saying that no big
changes in repertoire are in the works. Stay
tuned.
Mr. Chaillys interest in new music raises other
issues for Lucerne. One reason the AbbadoBoulez relationship worked so well is that each
kept out of the others way. Mr. Boulezs successor at the contemporary music institute is due to
be announced at the conclusion of this years festival. The common interests of the new leaders of
the orchestra and the institute might yield valuable synergies. But given that Mr. Chailly has
strong views and much knowledge of new music,
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I can also see conflict and jealousies arising between him and whoever takes over Mr. Boulezs
post.
The marquee event of this summers festival
was the celebration of Mr. Boulezs 90th birthday and his enormous contributions to contemporary music, which culminated on Sunday with
a marathon series of seven concerts in a single
day. In the final orchestral concert, no less than
four new works were presentedby the composers
Wolfgang Rihm, Samy Moussa, Gyorgy Kurtag
and Piotr Peszat. There was a relaxed and receptive mood, with cushions replacing seats in
the concert hall. Unfortunately, Mr. Boulez was
too fragile to attend.
The theme of this summers festival is humor,
but theres nothing funny about bidding adieu
to the glories of Messrs. Abbado and Boulez.
If 2016 promises to be a summer of hope and
anticipation, 2015 has been one of farewells and
uncertainties. A great era has come to a close.
Mr. Krauss writes about classical music.
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www.djreprints.com.
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Chapter
146
Navigating the West:

George Caleb Bingham
and the River Review
New York
Navigating the West: George Caleb Bingham
and the River
Metropolitan Museum of Art
Through Sept. 20
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A dour, bearded man in a conical cap paddles

a long, shallow boat. A black-haired boy leans
across a bundle in the center. Chained to the
bow is a small, dark animal with alert ears. The
three protagonists are as rhythmically disposed
and as confrontational as a classical frieze, with
the compositions essential geometry reinforced
by the contrast of the slender horizontal line of
the boat with a misty block of riverbank vegetation. The boat and its passengers float against an
expanse of warm gray and rose: drifting clouds,
a distant shore, the glassy surface of slowly moving water. The boys blue shirt punctuates the
painting, but the true focus is the sharp-eared
silhouette of the little animal and its elongated
reflection, set against a wash of luminous pink.
Dawn? Sunset? Its a moment of preternatural
stillness.
The painting is George Caleb Binghams Fur
Traders Descending the Missouri (1845), one
of the treasures of the Metropolitan Museum of
Arts American collections and a high point of
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the fascinating exhibition Navigating the West:

George Caleb Bingham and the River, on view
at the Met through Sept. 20. Organized by
the Amon Carter Museum of American Art, Fort
Worth, Texas, and the Saint Louis Art Museum,
St. Louis, Mo., the show concentrates on Binghams images inspired by the waterborne traffic
on the Mississippi and Missouri riversin his lifetime, the great highways of the American frontierand the men who worked on the rivers flatboats and rafts.
Bingham (1811-1879), who lived in Missouri
from the age of 8, was self-taught. The exhibitions earliest works, a stern self-portrait (183435) and a stiff mother and child (1837), reveal
that he was good at handling paint early on, but
his drawing and modeling were fairly amateurish. Two 1845 landscapesone with immense
trees and a rural family in the foreground; the
other a dramatic, high view, with a crouching
Indian warriorsuggest that the ambitious young
painter was looking both at prints of European
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art and at his own surroundings. (The catalog

suggests that Bingham often looked to European
art for poses and compositional devices.) Neither
of these unremarkable pictures provides any hint
that the same year he would paint the magical
Fur Traders Descending the Missouri.
Bingham became Bingham when he began
to address what the catalog calls riparian life.
The workaday activity of the rivers offered him
wholly American subject matter, emblematic of
the energy and industry of the Western frontier,
and revelatory of the distinctive light and atmosphere of a particular region.
Many of the strongest works in Navigating
the West are variations on the centralized waterborne motif of Fur Traders Descending the
Missouri. Sometimes we are on the boat, watching the boatmen from a distance; sometimes the
flatboat is separated from us by a strip of water;
occasionally the boat is docked. Whatever our
viewpoint, we are presented with an all-male cast
of robust characters grouped as if on stage: men
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and boys in shirtsleeves, wearing thick boots or

barefoot, with headgear ranging from round utilitarian affairs to repurposed top hats. They play
cards, smoke, play musical instruments, dance,
lean on poles. Mostly they sit, propped on an
elbow, turned toward us or away, legs angled or
extended. We sense the boredom induced by the
slow passage of the boat downstream. The rocksolid modeling of form and underlying geometry
of the compositions add metaphorical weight and
gravitas to the figures, even in exuberant works
such as Jolly Flatboatmen in Port (1857).
If we look attentively, we see differences of
mood and light quality in even closely related
scenes. But we also discover repeated types and
poses among the rough-hewn actors. The exhibitions large number of Binghams drawings reveal
his method. These vigorous images of sturdy men
read as closely observed records of actuality, but
they apparently were posed re-creations of his observations, often filtered through other works of
art. The drawings served as a kit of parts for
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many of the works on view, with individual figures thriftily reused in several pictures.
Binghams popularity in his lifetime is attested
to by the exhibitions lithographs of his bestknown paintings, supporting the catalogs claims
that his disciplined vision of notoriously rowdy
river life fulfilled a national desire for a sense of
utopian order. Despite his success, he remained
ambitious enough to spend an extended period in
Europe, mainly in D
usseldorf, in what was then
Prussia, between 1856 and 1859. A large version
of The Jolly Boatmen, painted in D
usseldorf
under the guidance of Emanuel Leutze, best
known for Washington Crossing the Delaware,
suggests that Bingham aspired to a kind of vernacular history painting, but his best works were
the most unassuming. Hes an American equivalent of the Le Nain brothers, the 17th-century
French painters of wonderfully constructed images of solidly rendered peasants.
In some ways, Bingham never surpassed his
early Fur Traders Descending the Missouria
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later version is disappointingbut two night

scenes of boatmen, painted in 1857, are among
the shows standouts, with their figures subtly
blurred by firelight and their moonlit skies. We
discover a romantic Bingham and wish to see
more pictures of this type.
Navigating the West is not to be missedit
is an informative overview of a splendid painter.
One caveat: The catalog includes exhaustive information about Binghams technique, but it is
hard to navigate and lacks a chronology. On the
other hand, it proves that the ambiguous little
animal in Fur Traders Descending the Missouri
is a bear cub.
Ms. Wilkin is a critic and independent curator.
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Chapter
147
1945Defeat.
Liberation. New
Beginning. and Till
We Meet Again
Reviews
Berlin and Independence, Mo.
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There are two important new exhibits to mark

the 70th anniversary of the end of World War II,
the more ambitious being 1945Defeat. Liberation. New Beginning. at Berlins Deutsches Historisches Museum. It looks at 12 European countries, each with its own mini-gallery, at the end of
the war. While the histories of four of the major
combatantsBritain, France, Germany and the
Soviet Unionare profiled in the museum, they
are fairly well known. So the real reason to come
here is to learn more about the wars immediate impact on smaller countries such as Belgium,
Luxembourg and Norway.
If there is a common theme, it is the huge appetite for revenge, and were told through biographies, newspaper clippings, cartoons and courtroom drawings that postwar Norway was divided
between the Ice Front, which wanted to mete
out the worst punishments to those who collaborated with the Germans, and the Silk Front,
which wanted to be more forgiving. To illustrate
this, there is a biographic panel on Vidkun Quis909
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ling, the Norway defense minister who founded

the Fascist Nasjonal Samling in 1933 and was a
Nazi collaborator throughout the war. He was
tried and executed on Oct. 24, 1945.
On the Silk Front was Jens Christian Hauge,
who was gracious in accepting the German surrender in May 1945 at the Akershus Fortress on
behalf of the Milorg, the Norway Resistance that
was founded in 1941, began working closely with
Britains Special Operations Executive in 1942
and trained some 40,000 fighters. After the war,
Hauge argued for Norway to take a more active
role in Western alliances. On display is a decorative ashtray of the first Norwegian jet fighter he
helped commission, a British De Havilland Vampire.
In Belgium, postwar tribunals handled more
than 400,000 collaboration cases from 1944
through 1949, with a surprising 83% of them dismissed. Of the nearly 1,700 people sentenced to
death, one panel explains, Belgium executed less
than 250. The Luxembourg gallery features dis910
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plays that focus on the peoples resourcefulness

in dealing with shortages of food, clothing and
building materials after the war. Shown here is
a large wooden cabinet that was made from discarded German mine casings. In the Netherlands
gallery, there is a homemade grain mill that the
Dutch used to grind anything they could forage
during the great Hunger Winter of 1944-45.
In addition to displays of artwork, artifacts and
other objects, there are pertinent facts printed
in large type in both German and English in
each gallery. Things like, No other country lost
a higher percentage of its Jewish population
than the Netherlands. The curators, Maja Peers
and Babette Quinkert, have also correctly labeled
Poland The primary state of the Holocaust.
In the Polish gallery, we learn about Rachel
Auerbach, a journalist and author who secured
a number of documents early in the postwar period documenting the Holocaust. Also on display is the striped concentration-camp jacket of
Feliks Wojciechowski, who was interned at Stut911
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thof. While the jacket brings to mind many images from the genocide and those who survived
it, the curators remind us that, owning no other
clothing in the world, many survivors wore this
garment home after being liberated and, sometimes, for months until they were given or bought
new clothes.
Perhaps the most moving item here is a ticket
to the March 1947 Warsaw trial of Obersturmbannf
uhrer Rudolf Hoss, the longest-serving
commandant (1940-43) at Auschwitz-Birkenau.
Again, the context gives it more meaning: It belonged to Jakub Bajurski, who was interned in
Auschwitz and wrote on the back of the ticket, I
was there, while Hoss was on the stand claiming
he did nothing wrong.
Another little-told story here is that of
Czechoslovakian Jew Jana Sindelarova, who was
forced to move to Bohemia in the late-1930s,
where she met and married Hans Schindler. In
1942, they were deported to the Theresienstadt
Ghetto, a fortress city that the Nazis turned into
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a concentration camp that held some 144,000

prisoners, mostly Jews. After being liberated,
she heard that her husband was among the survivors being held in a Red Cross refugee center.
The museum has on display the Red Cross arm
band she wore to sneak into the camp and reunite
with her husband.
Seven time zones away, at the Harry S. Truman
Library & Museum outside Kansas City, is Till
We Meet Again, another 1945 exhibit well worth
seeing. This one is focused on the end of the war
in the Pacific and the decision to drop two atomic
bombs on Japan to force its surrender and save
the lives of an estimated one million American
soldiers who would have died in an invasion of
the Japanese main island.
The first two galleries recap the war, both at
home in the U.S. and in Europe. Among the
posters declaring that Loose Lips Sink Ships
and pitching Victory Bonds is the letter that
World War I veteran and then-Sen. Truman sent
to the draft board, offering his services and noting
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that I still consider myself a pretty good Field

Artilleryman. Gen. George C. Marshall rejected
his overture.
Theres also an oversize copy of Mein Kampf
that was given by Hitler to Robert Ley, head of
the German Labor Front, in 1938; it was confiscated in 1945 and given to Gen. Walter B. Smith,
who then gave it to Truman. Also on display is
one of the pens used by German Gen. Alfred Jodl
to sign the surrender at Reims, France, on May 7,
1945. It was given to President Truman by Gen.
Dwight Eisenhower.
But perhaps the most fascinating artifact here
is in the Victory in the East gallery. It features the safety plug for Fat Man, the atomic
bomb dropped on Nagasaki by the American B29 Bockscar. Also on display here through Sept.
11 is the Japanese rescript issued by Emperor
Hirohito, on loan from the National Archives, essentially telling the Japanese to stand down, the
war is over. A panel here notes that not only
were rescript leaflets dropped all over Japan, but
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the emperor himself read the statement on the

radio, the first time ordinary Japanese subjects
had ever heard the emperors voice.
Also here are the maps from President Franklin
D. Roosevelts White House Map Room, showing
the various plans for the Allies island-hopping
campaign in the Pacific. One map reads Invade
Jap Homeland, Fall of 1945.
According to curator Clay Bauske, the maps
were salvaged by Navy Cmdr. George Elsey, a
White House duty officer who walked by the Map
Room after the war had ended and saw workmen
tearing them off the walls. He called Mr. Bauske
several years ago and said, I have these maps . .
.
After verifying who he was, and what they
were, Mr. Bauske sent the maps to the Pentagon
to be declassified. They are now on display for
the first time.
Mr. Yost is a writer in Chicago.
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Chapter
148
Discovering the
Impressionists: Paul
Durand-Ruel and the
New Painting Review
Philadelphia
Claude Monet recalled, We would have died
of hunger without Durand-Ruel, all we impres916
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sionists. We owe him everything. The crucial

relationship of artist and dealer is obvious to anyone who pays attention to the contemporary art
world, but until quite recently it has been a taboo
subject for scholars and museums for fear that the
mingling of commerce and aesthetics might taint
the value of art.
Discovering the Impressionists: Paul DurandRuel and the New Painting addresses this topic
head on by presenting the career of the dealer
who is most associated with the artists of that
movement. It explores the moment of the markets creation, as monolithic state patronage gave
way to the diverse entrepreneurship that still defines the art world today. The exhibition is a
collaboration among three great institutions, the
Musee dOrsay in Paris, the National Gallery in
London, and the Philadelphia Museum of Art.
In Philadelphia, the curators of the exhibition,
Joseph J. Rishel and Jennifer A. Thompson, address the career of Paul Durand-Ruel (1831-1922)
and his sons through a series of galleries devoted
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to cardinal events, including his first encounter

with the Impressionists in 1870-71, his innovative
monographic exhibitions of the 1880s, and his celebratory survey of Impressionism at the Grafton
Gallery in London in 1905.
Paul first met Monet and Pissarro in London, where they had all retreated to escape the
Franco-Prussian War. This was several years
before antagonistic critics dismissed the artists
work as mere impressions and thus gave the
movement its name. The group of work in this
gallery announces both Durand-Ruels early commitment to the artists and their responses to the
British capital. In Green Park, London (1870
or 1871) Monet captures the subtle evanescence
of fog wrapping a landscape that floats between
dark silhouettes of strollers in the foreground and
diaphanous outlines of the citys architecture in
the distance. Monets attention to atmosphere
places him in the tradition of Constable and
Turner even as it evinces his promotion of the
sketch as a finished work of art.
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The exhibition progresses through DurandRuels daring purchase of 25 paintings from

Manet in 1872, his rental of his gallery for the second Impressionist exhibition in 1876, the monographic exhibitions of the 80s he devoted to
Monet, Renoir and their friends, and, finally, the
1905 Grafton survey. In each gallery a selection
of paintings represents an event. As the object
labels record, deep research in the archives of
Durand-Ruel has enabled the curators to identify when works were exhibited and often when
they were bought or sold.
Despite this documentation, in many cases the
pictures on the walls tell us very little about
Durand-Ruels contributions. One problem is
sheer numbers. Only five of Durand-Ruels
Manets are shown; of the 252 works in the second Impressionist exhibition, eight are on display; of the 315 paintings in the Grafton exhibition, 13 are shown. The gallery devoted to
Monets Poplars is one of the few that comes
close to re-creating the experience of the exhi919
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bition in 1892. With six of the original 15 paintings, it allows viewers to study the relationship
of compositions as the series developed and registers the depth of Durand-Ruels commitment
to the artist. Certainly, the volume of DurandRuels purchases is a challenge for the exhibition,
which includes 96 works. He is said to have purchased nearly 12,000 paintings by Monet, Renoir,
Pissarro, Degas, Manet and others.
We are left to puzzle over why the curators of
the exhibition selected many of the works. Besides having been included in a particular exhibition, did the selection criteria reflect a desire
to present the balance among artists, subjects
and styles in a particular historic exhibition?
Were the choices based on judgments of quality?
Or were they determined by convenience? Ultimately, the tiny samplings simply cannot tell this
crucial story of modern art. Many of the galleries
become little more than displays of pleasing pictures.
The bigger question is exactly what Durand920
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Ruels relation to the artists was. As the exhibition has traveled from Paris to London to
Philadelphia, its title has undergone significant
transformation. In Paris, it was The Gamble,
as if his support was primarily a financial wager.
In London, it was Inventing Impressionism, suggesting that savvy marketing by the dealer created the movement. In Philadelphia, the focus
is on discovery, returning credit to the artists
and placing Durand-Ruel in the role of promoter.
Historically, Philadelphia has it right, since the
styles we call Impressionist were invented in the
late 1860sa few years before Durand-Ruel encountered the work. And there is no doubt that
his voluminous purchases through good times
and bad (he nearly went bankrupt several times)
provided essential financial support. Particularly, his method of buying in depth and offering
stipends freed artists from short-term pressures.
One of the most revealing objects in the exhibition is a reproduction of one of Durand-Ruels
stockbooks. Visitors can flip through the ledger
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to identify the amount he paid for a specific painting and the retail price he set. Often his markup
was four or more times the sum he paid. One of
his major purchases from Manet that hangs in the
exhibition, The Battle of the U.S.S. Kearsarge
and the C.S.S. Alabama (1864), cost 3,000
francs and was priced at 20,000. The recorded
sales show that Durand-Ruel generally stood his
ground and sometimes even collected a premium
on his asking price, but the many blank spaces
also document that paintings rarely sold quickly.
The greatest mystery of the exhibition is Paul
Durand-Ruel himself. We learn almost nothing
about why he was so deeply committed to these
artists. Was it just a financial gamble? Surely
not. Yet very little evidence is provided to explain what this art meant to him, or why he chose
a particular painting.
One important aspect of the exhibition will
surprise many viewers. The quintessentially
French movement of Impressionism might have
failed without support from America. Durand922
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Ruel frankly acknowledged his debt: Without

America, I would have been lost, ruined, after
having bought so many Monets and Renoirs. In
1886, he presented his first exhibition in New
York to great critical and commercial success.
The following year he opened a gallery in the
city. His sons, Joseph, Charles and Georges, oversaw the American operation, which endured until
1950.
In opening the U.S. market, Paul had a crucial partner. The expatriate Mary Cassatt was
not only an accomplished member of the Impressionist group but also socially prominent in her
home country. She used her influence to convince
wealthy Americans to buy Impressionist art. One
of the paintings Paul included in his first exhibition in New York had arrived in Philadelphia five
years earlier as Marys gift to her brother, Degass
The Ballet Class (c. 1880). It is one of Degass
most radical compositions. The room is split
along a diagonal, with a mass of stationary figures in the right foreground offsetting a group of
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gesturing ballerinas in the deep left background

to create extreme contrasts of pose and spatial
discontinuity. It is a highlight of the museums
gallery devoted to the 1886 exhibition and forcefully demonstrates both how challenging Impressionism was and how advanced receptive Americans were near the end of the 19th century.
Discovering the Impressionists offers many
visual pleasures but rarely does justice to its
topic.
Mr. FitzGerald teaches the history of modern
and contemporary art at Trinity College, Hartford, Conn.
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Chapter
149
Painting on Paper:
American Watercolors
at Princeton Review
Princeton, N.J.
In an age that favors large-scale installations
and immersive art, when painting itself has been
declared dead many times and, when practiced, is
often judged to be hackneyed, the humble water925
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color rarely figures at all in conversations about

art.
Painting on Paper: American Watercolors at
Princeton
Princeton University Art Museum
Through Aug. 30
It was in the late 19th century, especially between 1870 and 1885when artists actively promoted the medium and the American Watercolor
Movement thrivedthat watercolors hit a zenith.
Yet well into the 20th century, museums regularly
staged watercolor shows; the Brooklyn Museum
actually held biennial International Watercolor
Exhibitions, showcasing new ideas and trends,
from 1923 through 1963. There are still shows of
watercolors by geniuses like John Singer Sargent
and the occasional broad survey. But somewhere
along the way watercolors picked up an association with amateurs and lost their appeal for many
professionals.
How regrettable.
Using watercolor paint,
with its transparent quality and unruly fluidity,
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is treacherous and unforgivingthe opposite of

easy. Unlike oil paint, it does not allow coverups of mistakes or midstream changes in design.
Yet in the hands of masters, watercolorsas the
summer exhibition at the Princeton University
Art Museum demonstratescan deliver brilliant
works that hold their own against art made in
other mediums.
Painting on Paper: American Watercolors
at Princeton, a refreshing but uneven survey
of 200 years of watercolors in the U.S., starts
strong with a masterly work by Charles Burchfield, Summer Benediction (1948). Burchfield
painted almost exclusively in watercolor, producing inventive views of his subjectsin this case,
a dreamy landscape with white, yellow and pink
wildflowers beneath a light blue sky and cumulus clouds, framed by the dark green leaves of an
unseen tree that give the picture depth.
Summer Benediction conjures up a warm,
lazy afternoon, hinting at the blessings of the
earth, but is much lighter in tone than some
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Burchfield paintings, which are spiritual meditations with overt mystical or religious references.
It is watercolor at its bestlayers of color in assured brushstrokes and patches of unpainted paper that create highlights. This luminous image,
then, neatly leads to the exhibitions introduction, a short primer on the technical aspects of
the medium.
A text explains how artists use finely ground
pigment in a gum arabic solution that yields that
transparency, and how they pile up washes to
turn light colors into dark, all the while avoiding
the bleeding of one color into another. Along with
pure watercolors, artists may use gouaches, made
with the same pigment but incorporating white
chalk or paint; but with gouaches, artists apply dark colors before adding successively lighter
ones to produce opaque, matte works. Two pictures here illustrate the difference: John James
Audubons delicate watercolor, Yellow-Throated
Vireo (1827), and Morris Gravess gouache, Antelope (1930-39).
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With that lesson out of the way, the exhibition of about 90 works proceeds chronologically
and thematically. It takes visitors from early
1800s American landscapes, usually of specific locations, through early figurative works, folk art
images, later landscapes and figure paintings that
are more detailed. Then come complex, modernist confections, urban realism and post-World
War II works, including some abstractions. It introduces some unknowns, and lesser-knowns, into
the company of such exemplars of the medium
as Maurice Prendergast, Edward Hopper, John
Marin and Andrew Wyeth.
Mary B. Tucker, who is thought to have worked
near Concord and Sudbury, Mass., likely painted
an early gem, for example, the unsigned Girl
in Calico (c. 1840-1850). In a half-length portrait, a serious young girl exhibits pellucid skin,
wears her long hair in perfect sausage curls, holds
a book, and stares at the viewer with almondshaped eyes. Her dress, with stripes made of
brown and blue daubs, flows from the artists
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brush a bit less fastidiously, a common practice

in portraiture of the times.
Contrast that with the charming baby picture
Mehitable Eddy (Hetty) Taber (1830) by the
less accomplished Deborah Smith Taylor (17961879). In her folksier style, the child is dressed
in a meticulous bare-shouldered, full blue dress,
but her head and hair are sketchier and the artist
lets the woven paper stand in for flesh.
Before too long, watercolors had evolved to allow more ambitious works, such as the marvelous
little Three Eggs (1868) by Thomas Charles
Farrer. A British-born follower of John Ruskins
diktatto be true to natureFarrer renders
perfectly modeled eggs, of slightly different sizes
and shapes, on a plain beige counter against a
plain tan background, both formed by tiny visible brush strokes. Bare simplicity is rarely so
beguiling.
Aside from Burchfieldwhose bleaker work
December Fields (1932) is here as wellthe
brightest star in Painting on Paper is no sur930
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prise. Its Homer, who also has two works on

view. In 1875, two years after he took up watercolors, he painted the undistinguished (for him)
The Trysting Place, a pretty girl holding a
Japanese fan. Eastern Point Light (1880), on
the other hand, is dazzling. This evocative symphony in blue and black and white shows two
ships at sea, one backlit by moonlight and the
other at the right in comparative darkness. On
the distant shore is a barely discernible red beacon.
Here, Homer employs several techniques to go
beyond the ordinary. To make his haloed white
moon, he probably scraped the paper clean with
a knife (or thumbnail). To create the reflection of
moonlight on the water (and texture), he gouged
out damp blue pigment with the end of his brush.
At times, he probably used a fairly dry brush to
spread pigment quickly and unevenly, allowing
bits of white to showin the stars, for example.
This exhibit is flawed, though. Because the
works on view are mostly drawn from the uni931
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versitys own collections, some masters of the

medium are present with weak pictures. I longed
to see one of Charles Demuths flower or architecture watercolors, for example, instead of his
sketchy Trees, No. 2 (1916), and for better
works by Prendergast, Arthur Dove, John LaFarge and a few others. Nonetheless, Painting
on Paper is gratifying, its shortcomings offset
by the very fact that it exists.
Ms.
Dobrzynski writes about culture for many publications and blogs at
www.artsjournal.com/realcleararts.
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Chapter
150
Three Powerful Sets by

Three Indie Threats
New York
In October 2013, Courtney Barnett, Speedy
Ortiz and Torres were among the 1,300 or so
acts that played the CMJ Music Marathon, an
annual showcase here for emerging talent. In
the 21 months since, theyve prospered behind
well-received EPs and albumseach released a
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full-length disc this springand last Wednesday

they reconvened at Terminal Five, which holds
3,000 customers, for a sold-out triple bill. If sets
by Torres and Sadie Dupuiss Speedy Ortiz were
confirmation of the robust state of rockopening
acts on a midweek night are this good?Ms. Barnetts performance as the headliner was a revelation.
As if inspired by competition, each band hit
hard, getting down to business immediately, the
singers threatening to burst with rage. Torres,
the working name of 24-year-old Mackenzie Scott,
began the evening with a brief, intense five-song
set that drew from her latest album, Sprinter
(Partisan). While Ms. Scott began her career in
Nashville, Tenn., country isnt part of her repertoire but jagged-edged folk is. New Skin and A
Proper Polish Welcome eased in with her fingerpicking chords on electric guitar; in the latter
tune, she sang in a not-quite-sweet falsetto with
a snarl as her trio issued ever-expanding sheets
of droning sound. The title track from Sprinter
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flipped the formula as the band hammered, much

harder than on disc, then withdrew at the bridge.
As a performer, Ms. Scott presents a dilemma:
When she quiets down, she creates a feeling of
intimacy thats perfect for a club setting; but
when the band explodes and she lets out a terrifying yowl, as she did in Strange Hellos, its
as if shes demanding a more spacious venue and
larger crowds. This is the biggest room Ive ever
played, she told the audience. Then she left to
do a set at a tiny basement club in the East Village.
Speedy Ortiz kicked off its half-hour show with
Taylor Swift, the groups debut single issued
in 2012 while Ms. Dupuis was still pursuing
an M.F.A. in poetry at the University of Massachusetts Amherst. The 27-year-old Ms. Dupuis
is no Emily Dickinson-like recluse. Her guitar
shrieked and wailed as she played off lines issued by guitarist Devin McKnight. Grunge and
indie rock informed the music, though a touch
of funk found its way into the live reading of
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Puffer, from the bands new album, Foil Deer,

with propulsion provided by bassist Darl Ferm
and drummer Mike Falcone, whose snare drum
sounded like cannon fire.
As satisfying as the opening sets were, they
were reduced to preamble by Miss Barnetts excellence. On her latest album, Sometimes I Sit
and Think, and Sometimes I Just Sit (Mom
+ Pop), the 27-year-old from Melbourne, Australia, uses a deeply embedded knowledge of rock
and pop music to craft ever-so-appealing songs
with tight structures that support her torrents of
words. Here, Ms. Barnett played with supreme
confidence and musicality, her approach ranging dynamically from her solo opening number,
Anonymous Club, to the pounding Elevator
Operator in which she locked in with bassist
Bones Sloane, and the two-chord ballad Small
Poppies that featured her tasty, twangy guitar
interludes and a blizzard-of-notes punk solo.
Ms. Barnett also has a great gift for picturesque lyrics that turn on a homespun phrase
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or a keen observation that touch the listener, even

in a cavernous concert hall. In a gorgeous reading
of Depreston, she conveyed the sense of trepidation in the search for a new home with a loved
one. The gentle Anonymous Club celebrated
the intimacy of friendship: Thank you for cooking for me. / I had a really nice evening, she
sang. Are You Looking After Yourself was a
conversation between worried parents and their
adult child: Are you eating? / You sound so
thin, the parents say, adding, Always thinking
of you and we just want you to be so happy /
Keep on going. In the audience, fans the same
ages as the child and the parents sang along
sweetly. It was yet another remarkable moment
in a show that reintroduced Ms. Barnett not as
an artist on the rise, but as someone fully formed
and already magnificent.
Mr. Fusilli is the Journals rock and pop music
critic. Email him at jfusilli@wsj.com and follow
him on Twitter @wsjrock.
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Chapter
151
At Tanglewood,
Premieres Aplenty
Lenox, Mass.
In the summer of 1940, Serge Koussevitzky,
then the music director of the Boston Symphony
Orchestra, started a training program for young
musicians at Tanglewood, his orchestras summer
home in the Berkshires. Then called the Berkshire Music Center (now the Tanglewood Mu938
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sic Center), it focused not only on polishing the

technical and interpretive skills of young players
and singers, but also on cultivating budding composers. Koussevitzky put Aaron Copland, Randall Thompson and Paul Hindemith in charge
of the composition department that first year;
Leonard Bernstein and Lukas Foss were among
the inaugural class.
Since then, just about everybody who is anybody, among composers, has spent time at the
center, either as a student (or fellow, as they are
called here) or on the faculty, and in many cases,
both. In 1964, the center sharpened its focus on
the new by starting an annual Festival of Contemporary Music. And just as Tanglewood itself
was a draw for listeners who wanted to hear the
Boston Symphony and star soloists play the classics, the new-music festival became an important
draw for listeners intent on keeping tabs on the
music worlds many flavors of modernism.
To celebrate its 75th anniversary, the center
commissioned more than 30 works from com939
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posers who have had a connection to Tanglewood. The premieres are taking place throughout
the summer, but the biggest concentration15 of
themwere presented during the Festival of Contemporary Music (July 20 to 27), in performances
by the student players, faculty and guest soloists.
The composers John Harbison, Michael Gandolfi
and Oliver Knussen, all mainstays at the festival
over the past couple of decades, curated the programs, in which the new pieces were set beside
older scores by the likes of Elliott Carter, George
Perle, Bruno Maderna and Luigi Dallapiccola,
many of them favorites of the curators from festivals past.
There were a couple of hitches. Mr. Knussen,
who was to have conducted several works, was
unable to obtain a visa. Stefan Asbury, another
of the festivals regular conductors, was called
away when his wife went into labor. But all
this proved good news for the young British conductor Jonathan Berman, who picked up all the
works Mr. Knussen and Mr. Asbury were to
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have led, and did so with the kind of clarity and

assurance that might have made headlines had
he been thrust suddenly onto the Boston Symphonys podium in a program of repertory staples.
One premiere that landed on Mr. Bermans
plate was Gunther Schullers Magical Trumpets
(2015), completed shortly before the composers
death last month. Mr. Schuller directed the festival for many years, and some critics ascribe its
long avoidance of Minimalism to his dislike of the
style (although Mr. Schuller countered that he
actually introduced Minimalism to Tanglewood
by way of Steve Reichs brief Clapping Music).
Magical Trumpets, scored for 12 trumpets of
various sizes, shapes and ranges, draws on two
of Mr. Schullers passionsserial techniques and
jazz. He brought them together with a masters hand, treating the jazz influences as fleeting, fond memories intruding on a sober meditation: Abstract passages, densely harmonized
and evocatively muted, give way to patches of
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Gershwinesque bluesiness that quickly dissolve

into gauzy chromaticism.
The same program, on Thursday evening, included the premiere of Charles Wuorinens Megalith (2015), a densely packed 22-minute chamber concerto for piano and 15 players, including
brass groups placed in the halls balconies. Mr.
Wuorinens music is complex and often thorny,
but Peter Serkin found, and projected, considerable beauty in the piano line, which alternately
rang out with an otherworldly sparkle and wove
through the rich-hued brass and string writing as
a sort of connective tissue.
A Friday afternoon program included three
premieres, all chamber works, including Mr.
Harbisons Seven Poems of Lorine Niedecker
(2014), a meditative set that unfolds as a continuous work rather than as seven distinct settingsa
sensible approach given Niedeckers fragmentary,
impressionistic texts. The soprano Sarah Tuttle projected the gently angular vocal line with
a fine balance of energy and introspection, but
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the scores real charm is in the vividly descriptive piano writing, in which Ursula Oppens found
a playfulness that offered an alternate view of
Niedeckers poems.
Ms. Oppens was also part of the ensemblealong with Raymond Santos, clarinetist,
Wendy Putnam, violinist and Mickey Katz, cellistthat gave the premiere of Shulamit Rans
mercurial Birkat Haderekh (Blessing for the
Road). The piece uses the same scoring as Messiaens Quartet for the End of Time, but though
its title refers to a Jewish prayer for travelers,
Ms. Rans piece sounds less freighted with religious mysticism than the Messiaen. Rather, it
has a celebratory quality, captured in both the
vivid solo writing for each instrument and the
stream of brief dialogues between them.
Helen Grime, a member of this years faculty,
contributed Embrace (2015), a piece rooted in
her experiences as a student at the center in 2008.
That year, the composition fellows were asked to
write an instrumental duet every day, so for her
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anniversary commission, Ms. Grime provided a

spirited duo for a clarinetist ( Somin Lee) and a
trumpeter ( Austin Williams). It is a short, light
piece, built of counterpoint and tandem chordal
writing rather than the dialogue a listener might
expect.
Saturdays afternoon and evening premieres
could hardly have been more varied. Bright
Sheng conducted his own Deep Red (2014),
a marimba concerto of sorts ( George Nickson
was the virtuosic soloist). Mr. Shengs fluid
style touches on pentatonic figures that suggest Chinese folksong, but one hears hints of
jazz figuration now and then, both in the extroverted marimba line and in the constantly shifting ensemble balances. Pitched percussion was
also an ear-catching scoring element in Augusta
Read Thomass SeleneMoon Chariot Rituals
(2015), a brisk, colorfully scored piece with a narrative flair.
Mr. Gandolfis Carroll in Numberland (2015)
set some of Lewis Carrolls mathematical puzzles
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in an amusing score in which the soprano Dawn

Upshaw projected the whimsical underpinnings
of Carrolls texts, with the support of three backing singers and a brass, percussion, piano and
bass ensemble.
Yehudi Wyner took a similar approachsolo
soprano ( Lucy Shelton) with backing singersin
his more emotionally (and musically) rugged
Elizabeth Bishop setting, Sonnet: In the Arms
of Sleep (2014). And if Steven Mackey took
the more traditional route of scoring Madrigal
(2014) for a single singer (the mezzo-soprano
Kristin Gornstein), he pushed the boundaries, as
he often does, by painting blue notes into a graceful, straightforward vocal line, and by writing his
own text, the better to control the interplay between language and music.
On Sunday morning the last of the festivals
premieres, Oscar Bettisons 25-minute String
Quartet (2015), began with a stretch of rhythmically intense but nearly toneless figures that
gave the impression that the piece would be more
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about gesture than substance. But that quickly

changed, as the individual string lines took on
shape, color and character, all plentifully, and as
Mr. Bettison began testing the ensembles range
of expressive effects, moving from unison themes,
to sighing glissandi, to toying with room resonance, to dense layering before circling back to
the brusque chords of the opening, now hidden
within a richer texture. It was one of the festivals most striking works, and it made sense to
save it for the end.
Mr. Kozinn writes about music.
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Chapter
152
Corinthian Colleges
Wins Approval for
Liquidation Plan
http://www.wsj.com/articles/corinthian947
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colleges-wins-approval-for-liquidation-plan1440625643
A bankruptcy judge has approved Corinthian
Colleges Inc. COCOQ 0.00 % s plan to liquidate its assets, largely concluding the defunct for-profit education companys chapter 11
bankruptcy case.
The liquidating plan sets aside more than $4
million to benefit former students in their efforts
to pursue discharges of student loans incurred
at Corinthian schools, which included Everest,
WyoTech and Heald colleges.
Corinthian Colleges wound down under a chapter 11 process, giving the parties the flexibility to
negotiate a fund for students that wouldnt have
been available in a chapter 7 liquidation. Under the latter circumstance, lenders in the case
owed $107 million would have wound up with all
of Corinthians remaining assets. Instead, the
lenders agreed to the cash pool for students in
exchange for liability releases.
Scott Gautier, who represented the committee
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of former students, said the result achieved under this plan is far removed from what could
be achieved in a chapter 7. He added that the
student trust fund gives former students the resources to find out to what extent theyve been
harmed and pursue discharges of billions of dollars of student loans.
Judge Kevin Carey of the U.S. Bankruptcy
Court in Wilmington, Del., declined to include
language requested by the California state attorney general in the plan. However, the majority of
the objections to the plan were resolved consensually, noting that the bankruptcy estate, rather
than the Corinthian entity, is released from liability in the plan.
The confirmation from Judge Carey is a major
milestone in the final wind-down of Corinthian
Colleges, a process that began last summer when
a cash crunch threatened to bring the company
down overnight.
The U.S. Department of Education and
Corinthian negotiated a plan to prop the com949
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pany up with federal funds as it pursued a

sale process and attempted an orderly winddown. Many of the campuses were sold to a
company called Zenith Education Group before
Corinthians bankruptcy filing. But a sale of the
rest of the campuses couldnt be executed, and
the company ultimately shut down and filed for
bankruptcy in May.
Corinthians wind-down came amid allegations
from a number of federal and state government agencies that the company misled students. Corinthian has denied those allegations,
and those lawsuits are likely to continue once
Corinthians liquidation plan takes effect.
As a result of these allegations, pressure
mounted on the Education Department to take
action to forgive Corinthian student debt as the
company filed for bankruptcy. Senators, consumer advocates and the students who refused to
pay their loans demanded that the federal agency
wipe the slate clean. The department since has
hired a monitor to help it navigate the uncharted
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territory and said that received thousands of requests for loan discharge.
In all, nearly 350,000 students took out some
$3.5 billion in federal student loans to attend one
of Corinthians campuses since 2010, according to
the Education Department. The saga prompted
the Education Department to develop new rules
to govern student loan discharge requests.
Write
to
Stephanie
Gleason
at
stephanie.gleason@wsj.com
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Chapter
153
TIAA-CREF Teams
Up With Swedish
Pension Funds to
Invest in European
Property
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U.S. investor TIAA-CREF and Swedish National

Pension Funds AP1 and AP2 have teamed up on
European office investments.
Their joint venture will combine 2.2 billion
($2.5 billion) worth of 15 properties already
owned by the firms, and over the next three years
will aim to buy another 2 billion of office space.
By merging the property portfolios, were going to be able to diversity our European office
portfolio without any more capital requirements,
said Phil McAndrews, chief investment officer of
TIAA-CREF Global Real Estate.
The groups plan to make further office acquisitions in Europe, focusing on London, Paris and
cities across Germany.
We believe there is a case for core assets in
Europe, Mr. McAndrews said.
The tie-up comes amid a surge of demand for
commercial property in Europe, where the pace
of deal-making in the first half of this year was the
strongest since 2007, according to Real Capital
Analytics. Investors bought $49.4 billion of office
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properties in Europe in the first half of 2015, up

17% from the year before, data show.
Returns in real estate look attractive to investors facing low interest rates. In the London neighborhood of Mayfair, home to many of
Europes biggest hedge funds, the capitalization
ratea measure of yieldwas at a historic low
of 3.5% in June, according to real-estate broker Cushman & Wakefield. This is still above
the yield on 10-year U.K. government bonds,
which Tuesday was around 1.87%, according to
Tradeweb.
The new investment vehicle, called Cityhold
Office Partnership, will be managed by TH Real
Estate, an overseas investment manager owned
by TIAA-CREF, which has $86 billion of realestate assets under management.
The funds will target core assets in major cities
because in the short term, our preference is liquidity, said Jasper Gilbey, director at TH Real
Estate.
Investments can also branch out into areas that
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typically offer greater returns. The funds can

be invested into leasing, renovation and development projects in London, Paris and Germany,
as well as target core assets in cities like Madrid,
Milan and Amsterdam.
AP1 and AP2 are two of five such funds in the
Swedish pension system. Both funds have about
300 billion Swedish kronor ($36 billion) of assets
under management.
Write to Art Patnaude at art.patnaude@wsj.com
956
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Chapter
154
McDonalds Lands in a
Real-Estate Dilemma
For McDonalds Corp. MCD 4.32 % , the suggestion that it should spin off its vast property
holdings poses an existential question: What are
the Golden Arches without real estate?
As McDonalds approaches the third anniversary of declining sales, some analysts have asked
whether shareholders could get better returns if
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the company placed its U.S. properties in a publicly traded real-estate investment trust.
McDonalds has always maintained the importance of owning its own property. But executives
responding to recent queries havent ruled out
the possibility of spinning off its real estate, with
Chief Financial Officer Kevin Ozan saying last
month that it will consider all financial options
to boost shareholder value, and update investors
in November.
Hedge fund chief Larry Robbins, of Glenview
Capital Management, said in a March letter to
investors that McDonalds could unlock at least
$20 billion in value if it were to spin off its U.S.
real estate.
Many investors like REITs because they tend
to trade at higher multiples than retail companies and pay little or no tax on their earnings
as long as they distribute most of their profits
through dividends. Macys Inc. M 3.43 % is under similar pressure from activist investor Starboard Value LP. Darden Restaurants Inc. DRI
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2.01 % in June became the first major restaurant chain to announce plans to transfer properties into a REIT. Doing so enables companies to
collect an upfront sum that can be used to buy
back shares or pay down debt.
That could make such a move attractive to McDonalds top management, especially since the
fast-food chains sharesat $92.87 as of Mondays closeare down more than 10% from their
all-time closing high in April 2013. McDonalds
shares rose 1.6% the day Mr. Robbins issued his
letter.
A number of analysts have since questioned
McDonalds about its intent to do something
with its real estate.
We continue to evaluate opportunities to
further enhance value for all shareholders
and addressing our operational issues is our
first and most critical priority, a McDonalds
spokeswoman said.
Publicly traded Arcos Dorados Holdings
Inc., ARCO -2.73 % McDonalds largest fran959
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chisee, which owns more than 2,100 McDonalds

throughout Latin America and the Caribbean,
last month said it was planning to outright sell
or sell and then lease back some of its noncore
real-estate assets, such as office buildings and distribution centers as part of a broad cost-cutting
plan.
But some analysts say the arguments against
a McDonalds REIT far outweigh those for it.
For starters, the burger giant derives huge revenue from its real estate. Rental income from
franchisees accounted for more than a fifth of
McDonalds $27.4 billion in total revenue last
yearwhen overall revenue fell 2.4% and profit
dropped 15%and represents a growing part of
its business. Rent payments from franchisees
have risen 26% over the past five years to $6.1
billion last year.
Sara Senatore, an analyst at Sanford Bernstein
who has studied McDonalds real estate, estimates its world-wide property, including the U.S.,
is worth more than $42 billion. In the U.S. alone,
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home to more than 14,000 McDonalds restaurants, she estimates that the companys real estate is worth between $25 billion and $35 billion.
McDonalds current market value is around $87.5
billion after the recent broad market downturn.
She and others note that selling off the property would introduce new costs for McDonalds,
which could have to start paying rent on the
roughly 1,500 U.S. restaurants it operates on its
own. Adding lease costs at a time when theres
been a deterioration in McDonalds fundamentals
doesnt make a lot of sense, Ms. Senatore said.
Creating a REIT also could distract from the
agenda of new Chief Executive Steve Easterbrook, who since taking over on March 1 has emphasized his desire to rejuvenate operations.
McDonalds is facing a lot of headwinds, like
minimum wage increases and more competitors,
said Bob Schulz, managing director at Standard
& Poors Ratings Services. This would be an
additional complication for managements time.
Standard & Poors in May lowered McDonalds
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credit rating to A- from A after the company

accelerated a share buyback.
Real estate has been a backbone of McDonalds
business almost since its founding. McDonalds
first chief executive, Harry Sonneborn, reportedly
once told investors, The only reason we sell 15
cent hamburgers is because they are the greatest
provider of revenue from which our tenants can
pay us rent.
All that property has attracted outside interest
before. Nearly a decade ago, activist investor Bill
Ackman pushed McDonalds to spin off some of
its real estate, but other shareholders didnt get
behind his plan and he ultimately dropped it.
Splitting off the real estate would involve other
complications. In some cases McDonalds owns
the land and building for its restaurants outright.
In others, it rents the building from another landlord and subleases it to franchisees. In the latter case, McDonalds pays its landlords a market
rent of about 5% of the restaurants sales and
then charges its franchisees 10%, according to
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Ms. Senatore.
McDonalds franchise-disclosure documents,
given to prospective operators, spell out that
structure, saying that the company applies a finance fee on top of the monthly base rent to
produce an appropriate return for McDonalds.
Whats reported as rent is really rent plus McDonalds premium, Ms. Senatore said. A REIT
wouldnt be able to charge that premium.
Franchisees, whose relations with McDonalds
already are strained, also likely would balk, said
John Gordon, founder of restaurant consulting
firm Pacific Management Consulting Group.
They fear a REIT might have more incentive to jack up rent over time than McDonalds,
which wants to maximize rent but also wants
franchisees to be financially healthy so its business can thrive. McDonalds sometimes gives rent
breaks to franchisees who remodel or add new
equipment, something a REIT wouldnt do, Mr.
Gordon said.
My prediction is theyll slow roll this forever,
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he said of McDonalds management.

Write to Julie Jargon at julie.jargon@wsj.com
Corrections & Amplifications: A real-estate investment trust wouldnt be able to charge a rental
premium the way McDonalds currently charges
its franchisees, but that wouldnt affect the valuation of the property. An earlier version of this
article, misquoting an analyst, incorrectly said
McDonalds property would be worth less in a
REIT because a REIT wouldnt be able to charge
such a rental premium.
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Chapter
155
Henry Silverman
Creates New Property
Investment Firm
Private-equity veteran Henry Silverman, who
turned real estate and travel company Cendant
Corp. CAR 2.54 % into a multibillion-dollar business, has started a new property investment firm
that will focus on hotels and hospitality.
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The New York company, 54 Madison Partners

LLC, has financial backing from diversified holding company Leucadia National Corp. LUK 1.52
% and the investment bank Jefferies Group, one
of Leucadias operating companies, according to
54 Madison.
Mr. Silverman, 75 years old, is chief executive
of 54 Madison. He was previously chief executive
at Cain Hoy Enterprises, the Greenwich, Conn.,
investment firm that counted Guggenheim Capital among its stakeholders.
Previously, Mr. Silverman worked at Blackstone Group BX 5.96 % LP and Apollo Global
Management. APO 1.75 % At Cendant, he
built a portfolio of hotel brands including Howard
Johnson, Ramada and Days Inn.
The new firm has one investment fund with
several hundred million dollars, according to
Thomas Christopoul, an executive vice president
at 54 Madison. He also worked with Mr. Silverman at Cain Hoy, where he was head of real
estate, and at Cendant.
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He said the fund has acquired land and is developing timeshare properties in the Caribbean
and the west coast of Florida. He declined to
provide further details.
Mr. Christopoul said he and Mr. Silverman
founded 54 Madison because they wanted to have
equity in a firm, something that was mostly unavailable to them at Cain Hoy.
It was an opportunity for us to have a meaningful ownership stake in the general partner of
a fund, he said.
Write to Craig Karmin at craig.karmin@wsj.com
967
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Chapter
156
Rent-to-Own Homes
Make a Comeback
Wall Street firms have found a new way to profit
from consumers with blemished credit who cant
qualify for a mortgage: let them rent a home first
with the option to buy it later.
Rent-to-own programs, once run mainly by
small operators, were popular with cash-strapped
consumers during the 1990s. They faded a decade
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later when easy lending made it possible for almost anyone to buy a home with no money down,
but with lenders setting a higher bar, they are
making a comeback.
For investors, it is a chance to profit off the
recovering housing market. Consumers get a
chance to lock in a home before they have the
money together for a down payment. But the
price may be higher rent in the interim and a
higher purchase price the longer they wait to
move from renting to owning.
One of the fastest-growing rent-to-own companies is Home Partners of America, which was
co-founded three years ago by former Goldman
Sachs GS 3.47 % executive William Young. Mortgage securities veteran Lewis Ranieri was an early
investor in the company, and real-estate mogul
Sam Zell has acted as an adviser to Mr. Young.
Late last year, Home Partners received a $500
million equity investment from a group led by
money manager BlackRock Inc. BLK 2.86 % s
alternative investments arm.
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Mr. Young, who formerly co-headed Goldman

Sachss European mortgage department, said he
saw an untapped market helping people who are
being shut out of the housing market.
What really frustrates me personally is that
a lot of people I grew up with, extended family
members, would have trouble getting access to
mortgage credit today, said Mr. Young. He says
his company spent $100 million to buy about 320
homes in June, up from $15 million, or 66 homes,
in June of last year.
Brian Stern, a managing director at BlackRock, said he sees Home Partners as a long-term,
sustainable business. Mr. Ranieri said the program is both viable and needed given tightness of
mortgage credit and the lack of readily available
solutions. Mr. Zell declined to comment.
Heres how Home Partners program works. A
consumer teams up with a real-estate agent to
select a home in one of Home Partners approved
communities, which tend to be suburban locations with strong school systems and with homes
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priced between $100,000 and about $725,000.

Home Partners buys the home and leases it to
the consumer, who has the right to purchase the
home from Home Partners within five years in
most places. During the renting years, the consumer is expected to repair his or her credit and
save for a down payment, but the longer they rent
the more they will pay to acquire the house.
For example, a house shown on Home Partners
website has a list price of $449,975 in Chula Vista,
Calif. The family that agrees to rent that house
from Home Partners has the right to purchase
the home for $472,035 after one year and would
have to pay $573,762 if it waited five years before
purchasing, a markup of 28% from the initial list
price.
The monthly rent on the property would start
at $2,810 a month and escalate to $3,256 in the
fifth year.
For consumers, that likely means that they
are paying a premium over renting or buying
a typical home. Monthly payments on a 30971
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year conventional mortgage on the same house

would be around $1,800. The average rent for
a single-family home in San Diego is $2,270 a
month, according to Moodys MCO 3.62 % Analyticsalthough typical single-family rentals are
likely smaller and in less desirable areas.
Home Partners officials say that the increases
are in line with the rapid rise in home prices in
markets such as California and rents are typically
within 5% to 10% of comparable properties in
the market. The S&P/Case-Shiller Home Price
Index, covering the entire nation, rose 4.4% in the
12 months ended in May, slightly greater than
a 4.3% increase in April. Home prices in San
Diego climbed 4.8% year-over-year in May 2015,
according to the index.
Home Partners also notes that the consumer
can decide not to purchase if the home is more
expensive than comparable properties in the area.
If price growth slows and the consumer thinks
buying a home is a bad deal, they can walk away
with no penalty and Home Partners would re-rent
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the home. The company says that they expect

about half of their renters to ultimately purchase.
Tiffany Morgan, who works in marketing in
Sugarland, Texas, turned to Home Partners 2013
after a divorce destroyed her credit. When she
first heard about the program, she thought it was
a scam. I thought no way...its some scheme that
Im going to fall into, said Ms. Morgan, who is
in her mid-30s with a 7-year-old son.
Home Partners purchased the home for around
$205,000 and she rented it for about a year for
$1,730 a month. That same year she improved
her credit and bought the house for $215,000. She
thought, Whats the worst case? Ill lease it for
a while and then if I fall in love with it Ill do
what I need to do to make it happen.
For consumers, the advantage is that the
homes tend to be in nicer neighborhoods with
better school districts than most single-family
rental properties. It also guarantees that if house
prices escalate faster than that, the price is guaranteed when they go to purchase the home.
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Sarah Edelman, a senior policy analyst at the

Center for American Progress, a Washingtonbased nonpartisan policy institute, said that it
is early to tell if Home Partners rent and home
price bumps will prove to be in line with the market.
All things equal this could be a really great
opportunity for consumers, she said, referring
to the cost of Home Partners program versus the
rest of the market. But all things need to be
equal.
So far, Home Partners operates only in 30
metropolitan areas in 15 states, including California, Florida and Texas. It currently doesnt
operate in the Northeast. But Home Partners is
teaming up with Berkshire Hathaway Home Services and Realogy Holdings Corp. RLGY 3.52 % ,
which operates several real-estate brokerage franchises including Century 21 and Coldwell Banker,
which will give it national reach.
A motivating factor for home buyers to use a
rent-to-own program is the combination of gov974
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ernment policies and banks increased cautiousness have made mortgages much more difficult
to get, even for middle-class Americans. Buyers typically must have higher credit scores than
were needed even in the early 2000s, before the
subprime boom. The homeownership rate for
middle-income Americans has fallen to 63% from
69% in 2000, according to Zillow.
Home Partners isnt alone in seeing a profitable
niche in the rent-to-own space. New York Citybased HomeLPC, started by a former Lehman
Brothers banker, launched about a year ago and
has expanded to three states, where it has bought
two dozen homes. It plans to expand into five
more states by the first quarter of 2016. Premium Point Investments, a New York-based asset
manager, is in the midst of testing a rent-to-own
business focused on the South and Southeast.
Whether rent-to-own will prove to be profitable
remains to be seen. A number of companies
that rent out single-family homes have found that
few renters have become buyers, either because
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they havent been able to restore their credit or

havent been able to save enough for a down payment. But Home Partners said its credit screening targets middle-class and affluent clients who
have steady jobs and an overall financial history
that makes it likely they will be able to repair
their credit and save money for a down payment
within a few years.
Write to Laura Kusisto at laura.kusisto@wsj.com
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Chapter
157
In India, a GIFT
Waiting to Be Opened
AHMEDABAD, IndiaTwo 29-story steel-andglass office buildings rise above a dusty wasteland in the Indian state of Gujarat, the most conspicuous sign of progress on an ambitious project
conceived by the man who is now Indias prime
minister, Narendra Modi.
More than seven years ago, Mr. Modi, at
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the time the states top elected official, decided

to push the construction of an entirely new
citydubbed the Gujarat International Finance
Tec-City, or GIFTabout a 40-minute drive from
Ahmedabad, the historic commercial hub here.
The if-you-build-it-they-will-come idea was to
create a magnet for banks, securities firms and
information-technology companies akin to Canary Wharf in London or La Defense outside
Paris. But construction work has moved slowly
and few private enterprises have signed up. Of
the two office towers, the first is about 50% occupied and the second one is empty.
Critics say the undertakings halting progress
is a cautionary tale as Mr. Modis federal administration moves ahead with plans for 100 smart
cities, which, among other things, would use
technology to improve public services such as
waste disposal and save energy.
These people say the government should focus
more on delivering basicslike 24-hour electricity and waterto Indias rapidly growing and of978
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ten poorly run existing cities. About 340 million

people lived in Indian cities in 2008, a number expected to rise to 590 million by 2030, according
to a study by McKinsey & Co.
Developments like GIFT are not really serving the benefit of Indian citizens that need better cities, says Greg Clark, an urban-policy expert and chairman of Business of Cities Ltd., a
London-based consulting company.
Mr. Modis government has said its smartcities initiative would involve building new cities,
including satellites to existing metropolises and
modernize existing midsize cities. It still hasnt
settled on a final list of locations.
Jaijit Bhattacharya, a partner at KPMG Indias infrastructure division, estimates that it will
cost $20 billion to create a smart city, so 100 cities
would cost around $2 trillionabout the size of
the Indian economy. India has so far budgeted
$7.5 billion.
If by some magic you get that money, India
still doesnt have the capacity to execute this
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plan, said Mr. Bhattacharya.

GIFTs backers say the city provides an answer
to Indias infrastructure problem, at a time when
the countrys economic growth is picking up.
Do you have space to expand your business in
the existing infrastructure? No, says Ramakant
Jha, managing director of the company building
the citya joint venture of the states urban development body and Infrastructure Leasing & Financial Services Ltd.
Mr. Jha sees GIFT becoming a new central
business district for the now quiet state capital,
Gandhinagar, a 20-minute drive away. He said
that eventually, there will be bus and metro service connecting GIFT to Ahmedabad and Gandhinagar.
Mr. Jha says that offices and retail stores and
other businesses at GIFT will help create one million direct and indirect jobs. The city will also
have homes, allowing employees to walk to work,
and social infrastructure like a school, hospital
and malls.
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With central air-conditioning in all buildings,

filtered tap water and municipal waste collection
(a rarity in urban India), GIFT, as planners envision it, would be far more advanced than existing
Indian cities.
But all this comes at a cost. If 100,000 people
live in a city, the cost of building the citys infrastructure comes to around $23,500 per person.
In comparison, Indias gross national income per
capita is around $1,600, according to the World
Bank.
Goal posts for the citys development have
changed over the years. Its creation was announced when India was booming back in 2007,
and the first phasecovering around 25 million
square feetwas supposed to have been completed by 2010.
On a recent visit, two buildings with 1.6million-square feet of office space had been completed. Part of one building was occupied.
A data center for telecommunications was also
ready, as was a fire station and a school. The
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rest of the area was mainly empty. Construction

was under way for a hospital and other facilities.
Mr. Jha says the city will ultimately have 62
million square feet of office and residential space,
to be built over three phases. He says GIFT has
already sold nearly 14 million square feet to developers or companies in buildings not yet built.
He says it will be another four to five years
before the first phase of the citynow covering
only a fifth of the originally planned areawill
get going.
For now, the citys infrastructure layout is being funded mainly by loans taken from a clutch of
state-run banks, and to some extent by government grants and fees charged to developers who
plan to set up buildings in the city, says Mr. Jha.
State-run banks such as Bank of Baroda
EQBANKBARODA -2.10 % and State Bank of
India Ltd. SBKJY 0.00 % , Indias largest bank,
have committed to setting up shop, says Mr. Jha.
A stockbrokers association has also said it would
build a tower in the city to accommodate back of982
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fices.
Mr. Jha, who is due to leave his position at
GIFT at the end of July, sees GIFT city emerging as a hub for back offices of financial and
information-technology firms. The city has been
declared a special economic zone, so companies
setting up shop there will get some tax breaks.
Indian regulators in April issued guidelines
that would help declare a section of the city as
deemed foreign territory.
Firms that set up shop in this part of the city
would have to conduct transactions in foreign
currencies but would be exempt from some rules
of Indias central bank and capital-markets regulator.
Mr. Jha said that if the government were
to also give tax breaks for doing business here,
it would attract multinational firms. They are
waiting for this, he says.
Write
to
Shefali
Anand
at
shefali.anand@wsj.com
983
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Chapter
158
Smaller Chinese Cities

Miss Housing Recovery
CHANGCHUN, ChinaThe name of this city in

northeastern China means eternal spring, a misnomer for a place where winter temperatures can
reach as low as -30 degrees Celsius (-22 Fahrenheit).
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But while the housing markets in some big Chinese cities are starting to heat up, Changchuns
shows few signs of thawing.
After a yearlong slump, Chinese home prices
started rising in May, with more gains reported in
June. Sales volumes were up 18% in June from a
year earlier, with Shenzhen and Shanghai leading
the gains.
But most of the gains came in the big cities.
The smaller cities in Chinas interior that make
up the bulk of its housing market are still struggling with a buildup of vacant homes and little
prospect for improvement as growth weakens and
its young people flee.
In recent months, China has loosened rules
on second-home purchases and lowered interest rates, but the changes have disproportionately benefited bigger cities because their local
economies and the prospect of price appreciation
in these cities are stronger, stoking demand from
investors.
The gated Vanke Whistler compound west of
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Changchun has respectable occupancy rates, but

around it are so many unsold apartments that
residents occupying the villas and midrise apartments say vagrants have started to come in. The
property-management firm built a barbed-wire
fence around a pond last winter to prevent intruders from walking across it as it froze over. It
makes the area look like a prison, one resident
said.
Home prices in Changchun, the capital of Jilin
province, fell 4.1% in June from a year earlier,
and housing inventories reached the equivalent of
21.5 months of sales in June, compared with an
average of 13.2 months across 28 Chinese cities,
according to data from China Real Estate Information Corp.
Part of Chinas rust belt known for its auto factories, Changchun has attracted migrants from
smaller northeastern cities nearby and saw rapid
construction activity in the past few years.
But the pace of growth hasnt kept up. The result: empty and half-finished apartment towers.
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Back in 2010, this area was bare, said Wang

Yang, a Changchun-based real-estate consultant.
Now there are more than 30 developers there.
Construction is still ongoing, but there are some
spots that are overbuilt.
Builders with projects outside the countrys
major coastal cities are now halting alreadystarted projects to reduce inventory levels. Investment in real-estate development has slowed
to 4.6% in the first half this year from the doubledigit figures for the past 15 years.
In the northeast, real-estate investors are
also shunning Shenyang, the capital of Liaoning province, which is plagued with overbuilding.
So-called third- and fourth-tier cities in China
account for more than 70% of Chinas property
market in terms of floor space under construction
or completed.
Another factor in the dimming prospects is
Chinas aging population, which means that the
size of the segment of property buyerstypically
ages 25 to 49has peaked. That shrinks the pool
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of potential home buyers in the future.

The underlying demand for first-time home
purchases might have already peaked, said
David Wong, an economist at Shanghai-based
property developer Shui On Land.
Cities such as Shenzhen and Shanghai, with a
big influx of migrants, attractive jobs and good
schools, illustrate the widening split in the recovery in Chinas property market. The rebound has
been fastest in Shenzhen, where housing prices
rose 13.7% in June from a year earlier.
On a recent Thursday morning in a property
showroom in Shanghais suburbs, potential customers were trying to decide whether to put
down a 1,000 yuan ($161) deposit to secure better chances for apartments in the Paradise Walk
project a month before they were coming on the
market.
We have around 500 sign-ups so far, and next
week were targeting 2,000, said Wang Meng, a
sales consultant at the showroom.
Few activities make such direct contribution to
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economic growth as new home construction, but

the excesses in the sector have now become an
albatross on growth across the worlds secondlargest economy.
Facing weakened demand from builders, cement and steel producers in China are suffering
from bloated inventories and have been cutting
prices to get rid of stock. Prices of steel rebar
were down 38% at the end of June from a year
earlier.
Industries abroad also are getting hit. South
Korean and U.S. exports of machinery and transport equipment to China moderated last year.
To offset weakness in the real-estate investment sector, China is resorting to building airports, railways and other infrastructure to stabilize growth, including a plan to develop the
Beijing-Tianjin-Hebei cluster in the Northeast.
At Changchuns Eurasia Shopping Mall, possibly one of the worlds largest, there were more
salespeople than shoppers on a floor dedicated
to furniture and bathroom and kitchen fixtures.
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Salespeople said they hadnt seen any spillover

from a small improvement in sales in recent
weeks.
Nothing has changed. Its still tough, said a
saleswoman at a shop selling kitchen cabinets.
Write to Esther Fung at esther.fung@wsj.com
In the northeast, real-estate investors are
also shunning Shenyang, the capital of Liaoning province, which is plagued with overbuilding.
An earlier version of this article incorrectly said
Shenyang is the capital of Heilongjiang province.
(July 30, 2015)
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Chapter
159
Marijuana Producers
Gobble Up Warehouse
Space in Denver Area
Steve Badgley has been hunting for a larger warehouse in the Denver area for more than a year.
But his construction-supply business keeps getting squeezed out by a new entrant into the realestate market: the marijuana industry.
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Since voters in Colorado and Washington legalized recreational use of the drug in 2012, growers and distributors have gobbled up most of the
available warehouse space in the Denver area, a
major logistics hub for companies moving goods
between the Midwest and the West Coast.
The marijuana industry is poised to expand
quickly. Legal sales in Colorado of medical and
recreational cannabis totaled about $700 million
in 2014, the first full year for which statistics
are available, according to a Wall Street Journal analysis of Colorado tax data. The number
of active licenses to grow the plant for retail consumption shot up to 397 from 204, according to
Colorados Marijuana Enforcement Division.
The problem for Denver business owners: marijuana producers require lots of space to grow,
package and store their products. In all, growers
and distributors took up a third of all the warehouse space leased in Colorado over the past 18
months, according to Cresa Partners, a brokerage.
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The warehouse crunch means many small businesses are struggling to find the space they need.
Mr. Badgley, chief executive of Colorado Specialties Corp., a building-supply business, said his
7,500-square-foot warehouse and showroom is so
crammed with bathroom fixtures and other materials that it is difficult to navigate. He would
like to move to a building with triple the space,
but cant find anything affordable.
Its all just getting snatched up by these marijuana people, he said.
It seems like every warehouse from 8,000 to
20,000 square feet is being turned into an indoor
marijuana farm.
Denver is the key logistics hub between Kansas
City and southern California, especially for large
industrial supply chains. A crunch in warehouse
space means higher costs for logistics and transportation providers. Rents in the Colorado warehouse market rose 10% last year, to $5 a square
foot, according to CBRE Inc., a real-estate services firm. The cost to buy warehouse space has
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doubled to $80 a square foot since the beginning

of last year.
It seems like every warehouse from 8,000 to
20,000 square feet is being turned into an indoor marijuana farm, said Tom Glaspern, managing director in Denver for SEKO Logistics, a
logistics-services provider. We had opportunities [with customers] last year that we just had
to turn down because we didnt have the space.
Twenty-two states and the District of
Columbia have enacted laws to legalize medical marijuana, including Colorado in 2000, but
investment in the industry in Colorado picked up
only after recreational use was legalized there.
Denvers warehouse squeeze could play out in
other cities as the business grows. Alaska and
Oregon have also legalized recreational marijuana.
Mr. Glaspern says the squeeze is especially
tight in Denver because Colorado has relatively
little industrial space outside the area. Whats
more, because Colorado doesnt border a state
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that has legalized recreational marijuana use,

there isnt much transport in or outit is grown,
processed and consumed right there.
The effects of the marijuana referendum in
November 2012 began to hit the states commercial real-estate market roughly a year later,
after federal law-enforcement officials said they
would leave most regulation to the state. Investors quickly began pouring money into production facilities and other cannabusiness assets in Colorado.
Most growers use warehouse space as a combination indoor farm, packaging facility, storage
space and distribution center. Employees clip
buds from plants, cure them and ready them for
shipment.
Its a factory that grows plants, says Tim
Cullen, owner of Colorado Harvest Co., a retailer
that produced 3,600 pounds of pot last year and
expects to produce 10,000 pounds this year. It
does not look like your friends basement in college.
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Colorado Harvest owns 55,000 square feet of

warehouse space to supply its five retail locations
and is looking to lease 12,000 square feet more.
Last year, after seeing warehouse rental prices
increase, Mr. Cullen decided to build his own
35,000-square-foot facility in West Denver.
Growers are most interested in warehouses
smaller than 80,000 square feet. Such spaces typically are used by modest manufacturing businesses. Converting them into cannabis-growing
facilities often requires hundreds of thousands of
dollars in upgrades to lighting, electrical and ventilation systems.
Some brokers and logistics professionals worry
that once converted into production facilities,
warehouses will be difficult to relet because they
have become so specialized.
Mark Bowen, vice president in the Denver office of DCT Industrial Trust Inc., DCT 2.87 %
a real-estate investment trust that owns warehouses, said demand from marijuana growers has
driven up the cost of warehouse space for users
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from the natural gas and tech industries by 60%

or more, and increased lease renewal rates by 25%
for DCTs clients worried that if they dont resign they will lose their space to the pot industry.
Were happy about it, Mr. Bowen said.
Marijuana growers are taking some of the
space. . . that startups would maybe go to, and
some of those businesses are having to come to
buildings like ours.
Write
to
Robbie
Whelan
at
robbie.whelan@wsj.com and Paul Page at
paul.page@wsj.com
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Chapter
160
Small-Business
Owners Confidence in
Economy Wanes
http://www.wsj.com/articles/small998
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business-owners-confidence-in-economy-wanes1440621823
Small-business owners confidence in the overall economy is fading despite strength in their
own operations, a sign the recoverys gains may
be slowing.
For August, the portion of small businesses
reporting that the U.S. economy was improving
fell to its lowest level since the government shutdown of 2013, according to a monthly survey
of small firms by The Wall Street Journal and
Vistage International Inc. The survey was completed in mid-August, before concerns about an
economic slowdown in China triggered a selloff
across global markets.
Tim Touchette, president of Attache Corporate
Housing, which rents furnished accommodations
to corporate and government clients, says his concerns began growing after more of his corporate
clients began booking shorter stays. Unsure what
is driving the change, Mr. Touchette worries that
it could become a drag on revenue growth at his
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10-person company, based in Washington, D.C.

Our average length of stay is usually around
four months or more, said Mr. Touchette, owner
of the 14-year-old business. Now were seeing
people who want to go two months at a time to
start.
Confidence in the U.S. economy among smallbusiness owners has been declining for much of
this year. In the most recent WSJ/Vistage survey, only 42% of the 682 small companies surveyed said economic conditions were better than
a year ago, down from 47% in July and a January
peak of 67%.
But small-business owners waning optimism
about the larger economy belies their outlook
for their own operations. Fifty-seven percent of
small firms surveyed expect their total number of
employees to increase over the next 12 months,
while 46% forecast growth in investment spending. Nearly three-quarters expect higher revenue
over the next 12 months and 57% forecast profitability to rise.
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Small businesses still are fairly optimistic

about their own prospects, but when they look
out to the general economy they are getting concerned, said Richard Curtin, an economist at the
University of Michigan who analyzed the data.
Their views are more consistent with slowly
growing gross domestic product rather than with
a downturn.
Alyssa Connell, founder of marketing firm Connell Aviation Group Inc., fits the bill. Basing
her view of the economy in part on the business
plans of her clients that include small-town airports, avionics companies and others in aviation
and aerospace industries, Ms. Connell said she
expects the next year to be one of slow growth.
Even so, she plans to double her employees to
30 as her 10-month-old Cedar Falls, Iowa, business expands its operations. We have found a
niche in being a specialist and in being affordable, she said.
Luis Alvarez, president of Alvarez Technology
Group Inc., a Salinas, Calif., information technol1001
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ogy services firm with 38 employees that serves

small and midsize companies, said he recently
added two new employees and forecasts revenue
to be up 15% this year, based on the firms performance in the first half of 2015.
His clients spending plans for the next 18 to 24
months have fueled his optimism. They havent
told us that economic conditions are making
them pause, he added. Many of them are taking advantage of the cheap financing available to
accelerate their growth, which means our growth
is accelerating with them, he said.
Small businesses are riding renewed strength
in the U.S. economy after being battered during
the recession when consumer spending fell, home
prices declined and banks pulled back on lending.
More jobs, improving consumer confidence and
rebounding housing prices have helped support
a revival of small businesses, said Mark Zandi,
chief economist of Moodys Analytics. The fact
they are more oriented to U.S. consumers is a big
plus for them.
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Some business owners say their businesses are

strong but troubles rippling through the global
economy could yet hit their operations. Peter
Argondizzo, founder of Argo Translation Inc., a
Glenview, Ill., firm with eight employees, says
that about one-quarter of his business is from
translating materials for U.S. companies Chinese
operations. We havent seen any slowdown in
that, but maybe its too early, he said.
Mr. Argondizzo this year hired an additional
salesperson and project manager and has one
more position he is seeking to fill. Our business
is strong and demand seems strong right now, he
said. For us, at our size, hiring three employees
in one year is pretty big, he said.
I dont necessarily want to be the guy that
rains on the parade.
But the economic rebound is still shaky. The
decline in oil prices has taken the steam out of
a pocket of growth in the overall economy, with
firms that benefited from the energy boom laying
off workers and cutting back on spending. And
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while unemployment is improving, wage growth

is tepid, something that economists say has constrained consumer spending growth.
Robert Gross, the owner of a 25-year-old distributor of automation and controls in the Milwaukee area, said government restrictions and
lower energy prices have meant lower demand
from the energy and mining industries, while the
strong dollar has hurt foreign sales.
With revenue down, he is reducing head count
and temporarily cutting hours at his 30-person
company, Gross Automation. I dont necessarily
want to be the guy that rains on the parade, he
said. But its tough out there.
Write to Ruth Simon at ruth.simon@wsj.com
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Me

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Chapter
161
How Independent
Baseball Teams Make
Money. Or Dont.
In 1994, Bill Lee was interviewing to become
commissioner of an independent baseball league
when he faced a pointed question: Why would
you want this job when the leagues going to be
out of business in a year?
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I said, Well, if I take it, I hope its not. It

better not be, recalls Mr. Lee, an unpretentious former minor-league and independentleague player.
Twenty-one years later, he is still the commissioner, and the Frontier League is now the oldest
active independent baseball league in the country. But the question still sits in the back of Mr.
Lees mindand hovers over independent teams
everywhere.
Independent baseball is an umbrella term for
any league not affiliated with Major League Baseballthe 30 MLB teams and their minor-league
farm clubs. The quality of play in independent
leagues is comparable to that in the affiliated minors, but thats where the similarities end.
Affiliated teamssometimes owned by a bigleague club but more often by outsidersare
pipelines for prospects training to play in the
majors and rehab spots for injured players who
have already made it. Independent-league teams
dont have the luxury of working with a big, deep1007
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pocketed club. They have to find and pay their

own players and coaches, in addition to covering
major costs such as travel, lodging, equipment
and workers compensation.
That means teams often live on the razors edge
and must find creative ways to surviveholding
promotions, signing former major-league stars
and slashing expenses. Even then, many leagues
fold and even successful teams spend seasons in
the red; margins are so slim that rainouts or
scorching days that keep fans away from home
games can wreck a season.
In most cases, the teams are kept alive by owners who are either independently wealthy or have
a basket of other businesses, and are prepared
to swallow some losses for the thrill of owning a
team. In any league, Id be surprised if over half
the teams make money, says Miles Wolff, commissioner of the American Association and Canadian American Association independent leagues.
For many teams, the first step toward making
it into the black is recognizing that baseball is
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only a fraction of why fans attend games. The

big part of the equation is atmosphere and often
silly stunts. Were in dinner theater, Mr. Lee
says. Were there to feed people and entertain
them for three hours. It just so happens that
your show is a baseball game.
The stunts range from the ludicrous to the brilliant. The St. Paul Saints, now a member of the
American Association, once auctioned off an atbat in a game. (The 35-year-old auction winner
popped out to the catcher.) The Saints, famous
even among independent teams for their wacky
antics, also have a trained pig deliver balls to the
umpire. The Frontier Leagues Gateway Grizzlies gained national attention for selling a bacon cheeseburger sandwiched between doughnut
buns.
Other independent-league experiments show
the flexibility that comes from having no MLB
affiliation. Pete Rose, MLBs all-time leader in
hits, who was banned for gambling on games, has
attracted crowds by signing autographs at Fron1009
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tier League games. And with discussion in recent

years about the pace of games, big independent
leagues have taken steps to speed up play, such
as automatic intentional walks and limiting how
often a coach can visit the mound.
The leagues have also signed former stars who
are past their heyday but can still fill seats. The
now-defunct Newark Bears once had lineups that
included Rickey Henderson or Jose Canseco. The
Long Island Ducks have brought in a number
of notable names, from former National League
Rookie of the Year Dontrelle Willis to onetime
New York Mets star Edgardo Alfonzo.
You have more tasks, you have some additional expenses, but you have a little bit more
control over your destiny, says Frank Boulton,
owner of the Ducks and founder of the Northeasts Atlantic League.
Teams also focus on keeping costs down. The
Frontier League caps a teams salary at $75,000
a season, with individual player salaries capped
at $1,600 a month. Players can make as little as
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a few hundred dollars a month. Like the owners,

they do it for the love of baseball.
For most teams, though, there is no formula
that works consistently. There are some years
where we make money. There are some years
we break even, and there are some where we lose
money, says Alex Wilson, assistant general manager of the Gateway Grizzlies, which he says are
in the top portion of the Frontier League in terms
of revenue. These owners are doing it because
they love baseball and love the community.
One big exception to the rule is the Ducks,
which Mr. Boulton says have always been profitable. That has a lot to do with how Mr. Boulton leveraged a lack of affiliation with MLB.
He had previously owned three MLB-affiliated
minor-league teams but couldnt move one to his
native Long Island because the Mets own the territorial rights there. In 1998, he founded the independent Atlantic League and then brought a
team to Central Islip, N.Y. Now the Ducks are
perhaps most successful independent franchise.
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Thanks largely to a prime location, their average attendance, nearly 6,000 fans a game in recent years, is just below the roughly 6,700 that
the highest level of affiliated minor-league teams
have averaged this season.
The surrounding region, too, has been fertile ground for independent teams. The Atlantic League boasts the highest average attendance among the biggest independent leagues,
with 4,119 fans a game this year. Teams in the
largely Midwestern Frontier League have averaged 2,247, while the American Association and
Canadian American Association have averaged
3,119 and 2,007, respectively.
For many leagues, the financials never work
out. Dozens of leagues have begun and folded
in recent years. Just this year, the Mount
Rainier Professional Baseball League, located in
the Northwest, went under in its inaugural season
after a handful of games. Mike Greene launched
the operation after working in the independent
Pecos League. He tracked down six locations and
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stadiums for teams, assembled their staffs and

worked out a balance sheet where he would need
an average of just 300 fans at every game to break
even.
But he was also counting on buyers to acquire franchisesyet potential buyers kept walking away at the last second. He found himself
having to cover big expenses such as travel costs
and hotels himself. A few games into the season,
Mr. Greene found that he was $75,000 in the
hole. By the end, he was willing to give ownership of the teams away free to find someone who
could share the financial burden. There were no
takers. I think I had a really good business plan
and a great idea, it was just poorly funded, he
says.
In a move to strengthen themselves, the four
longest-running independent leagues have established a loose connection called the Independent
Professional Baseball Federation to discuss marketing and baseball-operations efforts. I think
these four independent leagues in existence are
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the only ones that will survive into the next

decade, because there arent any other places
with enough good markets for six or eight new
teams, Mr. Wolff says.
Mr. Beaton is a writer in New York. He can
be reached at reports@wsj.com.
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Chapter
162
Personal Touch Makes

Big Difference in
Small-Business Loans
Want to ensure a small-business loan gets paid
off? The personal touch makes a big difference.
Over the past decade, my colleagues Peter Nigro, Dennis Glennon, Scott Frame, Ken Spong
and I have been looking into what makes loans
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backed by the Small Business Administrations

flagship 7(a) program succeed or fail. Weve
found two critical factors that both have to do
with how close the lender is to the borrower.
First, when a lender does not have a personal
relationship with the borrower, and instead relies
strictly on credit data, the loan is more likely to
end in default. Second, SBA-guaranteed loans
between rural banks and rural firms in the same
town are less likely to default than SBA loans
between urban banks and urban firms in the same
city.
Traditionally, small businesses rely on hometown lenders for credit, and for good reason: A
local banker already knows many of the applicants colleagues, customers and associates and
can more easily gather soft information about
the applicantdetails about character that dont
show up in a financial statementand can have
confidence in this information.
Its easiest to build these types of relationships
in places where people are tightly knit to begin
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with. And that means mostly small, rural towns.

Using the concept of social capital made popular by Robert Putnam in his book Bowling
Alone, we found that indexes of social capitalmeasures of participation in local life, such
as civic and religious groupsare significantly
higher in country towns than in urban areas.
Our theory: Those tight connections make it
easier for banks to gather information about borrowers, and the borrowers themselves tend to be
better risks. The numbers seem to back up the
idea. SBA loans between banks and borrowers
in high-social-capital towns are 20% to 25% less
likely to default than SBA loans made where social capital is low.
Yet the trend in the past couple of decades has
been in the opposite directiongreater distance,
both physical and social, between borrowers and
lenders. During the 1990s, lenders adopted smallbusiness credit-scoring techniques, relying solely
on the hard information found in entrepreneurs
personal credit scores, rather than on personal re1017
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lationships. It was an appealing setup for lenders

and borrowers alike. The banks got to target
potential customers much farther away than before, and small businesses no longer had to rely
on hometown lenders.
The downside was that default rates
soaredbecause using only hard information
provides an inferior picture of small-business
creditworthiness. By our estimates, SBA loandefault rates for credit-scoring banks were 23%
higher (22% vs. 18%) than SBA loan-default
rates for banks that used more-traditional methods. (For comparison, less than 2% of non-SBA
business loans default.)
Of course, lenders that use credit scoring can
rake in profits even if default rates soar because it
costs much less to gather information. The government also covers part of the loss if the borrower cant pay.
But ensuring that bank lenders earn profits
is not the goal of small-business policy. Whenever an SBA-backed loan ends in default, it costs
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taxpayers money, and we are already pouring a

tremendous amount into the 7(a) program$19.2
billion in 2014. The SBA can best execute its
mission by working with banks that lend to struggling small businesses without generating high
loan-default losses.
Dr. DeYoung is Capitol Federal Distinguished
Professor and director of the Center for Banking
Excellence at the University of Kansas School of
Business. He can be reached at reports@wsj.com.
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Chapter
163
A North Carolina
Couple Quit Their
Jobsand Built a
Dream Business in
Costa Rica
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Bobby and Shelley Workman did something lots

of people secretly dream of: They chucked everything to move to a tropical paradise.
Back in 2004, tired of the pressures and distractions of life in North Carolina, they decided
to move to Costa Rica and live simpler lives closer
to nature. Eventually, they hit on a plan to build
four villas on a palm-tree-covered sliver of land
150 yards off the beach in Manuel Antonio, a
popular tourist destination on the Pacific coast.
When construction was finished, they would serve
as managers and rent the villas to tourists.
The plan didnt survive contact with the real
world. They had to spend a year going from bureaucrat to bureaucrat untangling red tape. They
saw costs soar as contractors changed estimates,
and ended up doing a big chunk of work themselves. And they discovered their new guests
needed a lot of hand-holding (and did a lot of
grumbling).
But while the road to paradise was rockier than
they imagined, the Workmans have, in many
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ways, ended up exactly where they wanted. They

are making a pretty good income with their Espadilla Ocean Club, and theyre doing it in a
tropical paradise. Ask them, and theyll tell you:
Were still living the dream.
Living on a small budget and stressing about
if we can actually finish this project has been
tough, Mr. Workman says. But you will rarely
hear me complain about living on the beach in
Costa Rica with my wife and three daughters.
It began when Mr. Workman, a custom home
builder, and Ms. Workman, a therapist and
health educator, began struggling to pay their
bills in Charlotte. It was hard not getting
sucked into keeping up with the Joneses, says
Mr. Workman, now 43.
Both had traveled and spent time in Costa
Rica, and they realized their time in Central
America represented the lifestyle they wanted. So
they quit their jobs, and moved to Matapalo, a
small village on the Pacific coast, amid a landscape of lush jungle and sandy beaches. We
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wanted a simpler life, says Mr. Workman, an

avid surfer. We wanted to see each other more.
We wanted to enjoy ourselves more.
Both did the same work in Costa Rica they
had done in the states. But when the real-estate
market ground to a halt, Mr. Workmans business stalled. They did various jobs to keep money
flowing, but now that they had two children, one
born in 2007 and one in 2009, and another on
the way, they knew they needed a steady source
of income to stay in Costa Rica. They turned to
the idea of building the villas for rental.
Villas are the most popular short-term rental
option in the area, which attracts families and
groups looking for eco-adventures in the surrounding hillsides and the Manuel Antonio National Park. And there are only a handful of
accommodation choices along the carefully protected waterfront.
Mr. Workman knew the land was available,
but they didnt have enough cash of their own.
The couple formed a partnership with 14 friends
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from back home, who each invested $45,000. In

addition to buying a stake, the investors would
be able to use a villa for four weeks of the year.
The Workmans bought the land in July 2011,
paying $200,000 for the third of an acre. Their
goal was to start construction within six months.
And then the trouble began.
One of the things the Workmans discovered
about paradise was that it had a labyrinthine
government. Six different agencies needed to approve plans before they could seek permits for
the project. Each agency required its own review,
and it was often difficult to determine the requirements. It was a constant challenge to source accurate property information and legal complexitiesor even the right person to answer questions.
Doing due diligence down here is just something impossible, Mr. Workman says. Nobody
really knows.
At one point, they found they needed an approval from a health-department official. After
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spending a week trying to get an appointment,

they waited for hours in the office, only to find
that the authorization was now handled in a different office.
We learned to be OK with waiting, says Ms.
Workman. You cant start screaming. You do
that one time, and youre done.
They enlisted people in the community to help
with their cause. Instead of presenting an application themselves, they found a friend of a
friend of someone who worked in the office and let
the friend track down the right signature. You
might need to invite the friend of the guy who
cleans sewers who went to high school with the
mayor and invite them to lunch and then see if
you get the stamp on the paper you need, says
Ms. Workman, now 48.
While they waited, the Workmans moved into
a yurt they built on the land, a wide, round structure made of wood plank, canvas walls, screen
windows and a metal roof.
We just lived on the land and waited, Mr.
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Workman says. That was tough on the U.S.

partners, too. We had to explain how it works
down here.
After a year of red-tape delayswhich included
dealing with tax issues that ended up costing
$16,000the project was ready to get under way
in earnest in late 2012. And then money troubles
reared up. Contractors constantly changed estimates, and by prior agreement the Workmans
couldnt ask the investors for more money. To
cut costs, they tried to do as much work as possible themselves. Instead of hiring a developer
to oversee the project, Mr. Workman managed
the process and Ms. Workman designed the villa
layouts, which saved thousands of dollars. They
bought building materials directly from suppliers. Instead of spending money on furniture,
they designed their own. And they made it hard
to break, saving on maintenance costs down the
road.
Once, they were able to save by buying 400
square meters of construction tile directly from a
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warehouse in the capital, San Jose. But then they

had to figure out how to get the tile to Manuel
Antonio without paying an exorbitant shipping
fee.
A friend of a friend had a truck, but they
miscalculated the weight of the tiles. After a
snails-pace drive through the mountains, the
truck couldnt make it up a hill a few miles from
Manuel Antonio. The Workmans had to find another truck to help offload some of the weight.
Then it started raining.
The Workmans and their contractor spent
hours unloading boxes in the rain, but they had
their tile.
The first villa was finished in April 2013,
and the last one was completed this summer.
Each of the fournamed Fire, Water, Earth and
Airis about 800 square feet and each has a distinct interior design to match its name. They
have some amenitiesair conditioning and small
splash poolsbut no TV sets, to emphasize the
back-to-nature vibe. Mr. Workman also leaves a
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guitar in each of the villas.

The couple didnt wait for all four to be finished before renting. The project ran about 35%
over its $630,000 budget, and to help make up for
that, the couple started making the units available for rent as soon as they were done.
Switching from the development phase to operational mode proved to be another challenge.
The day-to-day operations are more work than
we thought, says Mr. Workman, who handles
booking and marketing.
Visitors arrive exhausted and unfamiliar with
the landscape and need constant help. Ms.
Workman, the concierge and chief designer, often
spends time helping them book tours, find restaurants and work the appliances. They get here
and they have the deer-in-the-headlights look,
Mr. Workman says. Shelley is like their mom.
Then there are unexpected surprises, such as
the first Christmas Eve open for business, when
an electrical transformer exploded and cut their
power. In the middle of the night, the Workmans
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had to hook up a generator and convince tenants

the villas werent about to catch fire.
Some guests end up disgruntled. One complained about the lack of a TV. Another posted
a negative review on TripAdvisor, complaining
about the noise and dust from construction on
the site. Id say we definitely lost some clients
over that one review, Mr. Workman says. TripAdvisor is a monster. I admit it, Im scared of
TripAdvisor.
The couple has also had to make some changes
for their own sanity, like replacing rubber pieces
on the front doors of the villas that made a scraping noise that would resonate in the yurt.
We could hear them opening and closing the
door, being that close, Ms. Workman says.
Most [guests] dont know were 20 feet away
behind a tall fence.
The hard work is paying off, even if theyre
considering hiring a manager to help with the
grind. The completed villas, which rent for $400
to $600 a night, have been occupied about 75%
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of the time, Mr. Workman says. That is consistent with other, more established projects in the
area, local agents say. (In practice, Mr. Workman adds, the projects investors use fewer than
30 weeks a year for freebie stays, which means
plenty of time for paying customers.)
The income from the villas that opened early
funded the construction of the final one and covered the budget overrun. To funnel more money
into paying down the overrun, the family lived
on a small stipend until the first villas were finished and delayed taking a salary on rentals until
the project was done. At that point, they began
collecting a salary from the partners, Mr. Workman says. (The partners, including the Workmans, will get their first dividend at the end of
this year, and the project is on track to make
the partners a 20% return a year on their initial
investment, Mr. Workman says.)
It was tight living without a regular salary, Mr.
Workman says. But we have very few expenses
right now, no mortgage, utilities, car payment;
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our main expenses are food and the kids school.

We dont need much to get by. You can spend as
much as you want here, but if you live more like
a local, it can still be pretty cheap here.
Even with all the business, Ms. Workman is
able to take the children to school and Mr. Workman takes midday breaks to surf, depending on
the waves. At night, the beach is quiet, except
for howler monkeys in the trees.
Weve definitely achieved the lifestyle, Mr.
Workman says. Its not just about making
money, its something were proud of.
Mr. Brass is a writer in San Diego. He can be
reached at reports@wsj.com.
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Chapter
164
Chemist Concocts a
Cure for Unwanted
Pills
How does a dip in a pool lead to a business
that destroys medicine? Just ask British chemist
David Best.
During his regular swim one Saturday morning, he noticed the pools were being cleaned
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and sterilized with calcium hypochloriteand his

mind leaped to the problem of drugs. Every year,
billions of pills go unused, and safely disposing
of them can be a headache for consumers and
health-care facilities. Why not use a product like
the pool cleaner to render the drugs harmless and
easy to get rid of?
Chlorine is a very good and stable product for
sterilizing used in a variety of industries, Mr.
Best says. Using my technical background in
chemistry, I knew that high-pH solutions dissolve
solids well.
So the Controlled Drug Destruction Kit was
borna product that resembles a large vitamin
jar but actually contains chemicals. When unwanted pills and water are mixed in, the chemicals turn into a gel, trapping the pills and destroying their active ingredients. The container
can then be safely thrown in the trash.
Mr. Best began selling the product in the U.K.,
focusing on hospitals and pharmacies. (Unlike
many U.S. drugstores, British pharmacies take
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back unused medication from patients.) He then

decided to approach the U.S. market, also aiming
for sales to pharmacies and hospitals.
Then, at a trade show, he met Mosche Doman,
who wanted to distribute the product in the U.S.
but urged Mr. Best to pursue the consumer market instead.
Mr. Doman told Mr. Best about the frustration he had felt when trying to return a large bag
of unused medications. Like most people, I reasoned that the pharmacist is more knowledgeable
than I am in the methods of safe and proper disposal. He is the expert, says Mr. Doman. But
much to my surprise and chagrin, the pharmacist
there quickly told me that I was one of a dozen
per month would-be disposers and that he was
unable to help.
Mr. Best agreed to pursue the consumer market, and the partnership got under way. The
product, now dubbed the Pill Terminator, hit the
shelves in the U.S. in late 2014.
Write to report@wsj.com
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Chapter
165
How Fast-Food Chains

Cook Up New Menu
Items
When it comes to introducing new menu items,
fast-food chains say its important to keep one
basic truth in mind: For every Egg McMuffin,
there are plenty of Pastrami Burgers.
That is, for every idea that works, there are
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hundreds that fail to hit the mark. The Egg McMuffin, an item created by a McDonalds MCD
4.32 % franchisee, is the quintessential success
story: After its launch in 1972, it not only became a big seller, it also helped establish McDonalds as a go-to place for breakfast. (And it
eventually spawned a whole breakfast-sandwich
industry: Can you say Waffle Taco?)
By contrast, the Pastrami Burger, an item
introduced last fall by the Back Yard Burgers
chain, had a lifespan of just eight weeks. I enjoyed the product a lot, but it did not resonate
well with our consumers, says company CEO
David McDougall.
Indeed, chains say its very rare for a product to make it past the testing stage. Yet, the
chains testor, at the very least, considerscores
of items in any given year. The reason theyre
willing to take such chances is because of whats
at stake: Americans spent $274 billion eating at
the top 500 chain restaurants in 2014, according to market researcher Technomic. And the in1036
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dustry has become highly competitive, with fastcasual chains like Chipotle, CMG 1.76 % Five
Guys and Panera Bread PNRA 1.02 % increasingly vying for consumers attention. Consider
that industry giant McDonalds saw its sales decline by 1.1% last year while such upstarts as
BurgerFi and Habit Burger Grill saw increases of
111% and 46%, respectively, according to Technomic.
Chains have no choice but to invest heavily in
research and development, so they can stay relevant to the modern consumer, says Greg Wank,
a partner at Anchin, Block & Anchin, a firm that
provides accounting and advisory services to the
food and beverage industry.
Bringing a new menu item to market isnt
as easy as adding a new spice or two to your
burger recipe and then gathering a few reactions,
though. Most chains have a highly detailed R&D
protocol that typically involves a staff of culinary professionals, prominent franchisees and, of
course, consumers.
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Chains say their culinary teams typically take

inspiration from what they see emerging in the
broader food marketplacefood trucks are an especially good source for ideasbe it a dietary
trend (say, vegan fare) or an ingredient or type
of food thats suddenly becoming popular (say,
pretzel rolls). But the corporate chefs have to
adapt their finds so they make sense within the
chains menu.
A prominent example: When Subway, the
sandwich chain, wanted to hop on the sriracha
bandwagon a couple of years ago, it didnt just
start buying bottles of the popular Asian hot
sauce by the boatload. Rather, it created its own
creamy version of the sauce that it thought would
particularly appeal to its customers taste buds.
The sauce remains a popular condiment option
at about 1,000 Subway franchises nationwide.
But as the example of the Egg McMuffin attests, ideas dont always have to come from the
top down. Franchisees often do their own tinkering and make the case that one of their experi1038
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ments should find its way on the regular menu.

And managements are often more than happy
to listen. In fact, Arbys turns the process
into a contest, rewarding cash prizes to franchisees, corporate employees and suppliers with
the best menu suggestions. (One winning example: house-made potato chips sprinkled with
Arbys signature seasoning, an idea that went on
to become a limited-time menu offering.)
Customers can also play a role: Wing Zone, a
chain that specializes in Buffalo wings, goes the
contest route, too, with an annual Flavor FaceOff, where fans can submit their flavor ideas. A
recent suggestion that made it to the permanent
menu: Mango Fire.
Regardless of where the idea emerges, the item
must go through testing. Generally, a chain will
begin the process by gathering internal opinions,
though it will often expand the circle by bringing
in consumers for focus groups. Sonic, the popular
drive-in chain, has a 40-seat dining room at its
headquarters in Oklahoma City, Okla., for such
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internal and external sampling.

From there, the chain may test the item in a
few select locations or an entire market or two.
Chains often look to locales that have a good
cross-section of consumers (Orlando, Fla., is an
oft-cited example by virtue of its mix of locals
and tourists) or that are especially in sync with
the tastes of mainstream America (any number
of Midwestern cities often fit that bill).
What are the chains actually measuring in
these tests? Certainly, sales count for something,
but not necessarily for everything. If an item
proves popular but ends up cannibalizing other
items, it may not add much to a chains bottom
line (and may not be worth adding to the menu
permanently). Operations are a factor as well.
An item could be a hit with customers, but if it
poses problems for the kitchen crew, its popularity may be irrelevant. When Subway introduced
a crispy chicken sandwich that required heating
the meat in a different way than usual, it got a
thumbs-down from franchisees, even though con1040
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sumers were eating it up.

The testing phase can also become the tweaking phase. Often, a chain will find that a slight
adjustment in the recipe or product formulation
will make all the difference. Planet Smoothie introduced a Lemon Cayenne Kick smoothie earlier
this year only to discover that, in the words of senior national marketing manager Julie Hoefling,
it was a tad too spicy, so the amount of cayenne
was reduced. Conversely, Wing Zone found that
the aforementioned Mango Fire flavor didnt have
enough fire for its heat-crazed diners, so it was
given a proper blast of heat.
Ultimately, some new menu items are beyond
tweaking. Captain Ds, a seafood chain, has
tried several breaded vegetable itemsthink fried
mushroomsthat were a hit in initial testing
phases, but never quite worked at the retail level.
Jason Henderson, the chains vice president of
product innovation, can only guess that its because other appetizers on the menuthink clam
stripsproved more compelling.
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And when McDonalds rolled out Mighty

Wings (its version of Buffalo wings) starting in
2013, it found some markets responded favorably,
but other just didnt bite. The lesson learned? As
a McDonalds spokesperson says, in the restaurant business one size doesnt fit all.
Mr.
Passy is a reporter for MarketWatch in New York. He can be reached at
charles.passy@dowjones.com.
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Chapter
166
Startups in the
Forefront of Battle
Against Hackers
Concerned that someone might be hacking into
your voice mail or text messages? Small businesses would be more than happy to help.
A wave of startups are rushing to market with
software and gadgets designed to keep email, calls
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and texts safe from hackers, government snoops,

identity thieves and anyone else who might be
trying to access users private information. Many
of these tools have been used in corporate or government settings in the past, but small companies
are in the lead in bringing the technology to the
public.
Theyre offering Web browsers that dont save
data about your searches, and services that keep
email and text messages from being read by
snoopers before they reach their destination.
For the most part, theyre flying under the
radar in the tech world, compiling relatively
modest user numbers compared with giants like
Google or Facebook.
FB 5.05 % But entrepreneurs and experts say the fact that these
firms are small may give them more freedom to
act on consumer demand. This is often the case
with innovation, says Heidi Shey, a senior analyst in security and risk with Forrester Research
in Cambridge, Mass. We see the small companies and startups take chances and innovate, be1044
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cause they are trying to carve out a niche and/or

have a new idea.
Many of the latest offerings rely on encryption,
which allows a message or other information to be
encoded in a way that only those with an electronic key or password can access it. Companies like ProtonMail and Lockbin offer encrypted
email, which makes it virtually impossible for
anyone to read it except the sender and the recipient. Wickr and other companies offer encrypted
text messages. Private.me offers a search engine
that doesnt store user data.
Some offer more-complex services. Confide, a
New York-based startup, not only encrypts messages but also permanently deletes them from the
companys servers and the recipients phone once
theyre read. Photos and documents can also be
sent this way. The free service will even notify
users if someone tries to take a screenshot of their
text.
What you saythe spoken worddisappears
after you speak it, says Confide co-founder and
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President Jon Brod. But what you communicate online remains forever, archived in the Internets permanent, digital record.. . . We think this
is crazy.
Burner, a San Francisco-based startup, gives
users alternative phone numbers they can give
out to people instead of their real number. When
somebody calls the Burner number, the call is
redirected to the users real number without revealing it. When users are done with the Burner
numbers, they can take them out of service.
Why are small companies leading the charge?
Although some big companies offer privacy tools,
some entrepreneurs argue it isnt profitable now
for big players to make a major push into the
field. If Facebook releases an app and it gets
100,000 users, that is a major failure, says
Robert Neivert, COO of Private.me. If a startup
does, it is a great success. Privacy products are
mostly too small a market for big players, at least
right now. So the bigger players are waiting to
see if the market grows big enough in terms of
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revenue for them to target.

For Daniela Perdomo, co-founder and CEO of
New York-based goTenna, startups have an edge
because theyre not beholden to vested interests
as many large corporations are. Although a
startup like ours doesnt have the ubiquity of the
Goliaths, as Davids not only can we act according to our ideals, were also more likely to earn
consumers trust on this issue and hopefully edge
corporate tech in the right direction, says Ms.
Perdomo, whose company sells a device that lets
users trade encrypted text messages with other
goTenna users.
Yet small companies can easily lose customer
confidence.
New companies that are trying to break into
the market sometimes employ aggressive marketing tactics that overpromise what the companys
technology can do in terms of security, says Andrea Matwyshyn, a security and privacy expert
and law professor at Princeton University. She
adds that this can happen at larger companies,
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too, when departments dont effectively coordinate.

Ms. Shey agrees that small businesses often make mistakes with presenting offerings to
the public. She has seen small companies make
vague, extravagant claims or, on the other hand,
load marketing with technical details and not explain why the product is useful. In both cases,
it doesnt present the company or its solution in
the best light, she says. Big companies can fall
into those traps as well, but I see it happen less
often.
Ms. Garone is a writer in Alameda, Calif. She
can be reached at reports@wsj.com.
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Chapter
167
Sinclair Broadcast
Pulls TV Signals From
Dish Network
Signals for one of the nations biggest local broadcasters went dark on satellite TV distributor Dish
Network Corp. DISH 1.28 % on Tuesday, the result of a dispute over a new distribution contract.
Dish and Sinclair Broadcast Group Inc. SBGI
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1.71 % have been negotiating a contract that covers more than 150 local television stations owned
or managed by Sinclair that reach more than five
million customers in 79 markets. The signals
were pulled from Dish after efforts to sign a new
agreement or extend the existing one failed.
Besides owning 121 TV stations, Sinclair also
manages 32 through partnerships. Of the 153 stations, 87 are affiliates of the four major broadcast
networks CBS, CBS.A 1.12 % NBC, ABC and
Foxmeaning customers lost access to local and
national news programming as well as sports carried by those stations.
Dish said 129 stations in 36 states and the
District of Columbia had been pulled from its
service. An additional 23 stations that Sinclair
negotiates distribution agreements for remain on
Dish.
In a statement, Dish said it had come to terms
with Sinclair on fees to carry its TV stations but
the broadcaster was holding out to try to leverage distribution for a cable channel it does not
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yet own. Dish declined to provide details, but

Sinclair has expressed interest in starting its own
cable network focused on high school and college
sports
Sinclair rejected our extension offer and has
chosen to use innocent consumers as pawns to
gain leverage for the economic benefit of Sinclair,
while causing substantial harm and disruption to
the lives of consumers, said Warren Schlichting,
Dishs senior vice president of programming.
Sinclair General Counsel Barry Faber confirmed the broadcasters signals were out of Dish
homes but declined further comment.
Negotiations between Dish and Sinclair got
ugly two weeks ago when the satellite broadcaster
filed a complaint at the Federal Communications
Commission that accused Sinclair of failing to negotiate in good faith on the retransmission contract. Furthermore, Dish said Sinclair was violating FCC rules by forcing Dish to negotiate with
them for stations they dont technically own. The
two companies agreed to a short-term contract
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extension at the time.

Last March, the FCC passed new rules prohibiting a broadcaster from negotiating on behalf of a station it doesnt own but rather operates through a so-called joint sales agreement.
Many broadcasters operate more than one station in a particular market through such pacts.
Broadcasters say it allows for cost-savings and
the ability to produce more local content. But
program suppliers and pay-TV distributors have
often argued that joint sales agreements give a
local broadcaster too much leverage in contract
negotiations.
Dish explicitly requested Sinclair stop coordinating negotiations or negotiating on a joint
basis for the stations in Sinclairs proposal that
Sinclair does not have de jure control over, Dish
said in its complaint two weeks ago.
Sinclair countered that it disagrees with your
legal conclusion that we have offered to negotiate
on behalf of any stations with respect to which
we do not have de jure control, according to
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an email from Sinclair that Dish attached to the

complaint. Sinclair said the stations in question
are grandfathered from the new regulations.
The blackout comes at a tough time for Dish,
which has been losing subscribers from consumers
cutting the cord in favor of lower-cost Internet
alternatives. In its second-quarter report earlier
this month, Dish said it lost 81,000 pay-TV customers, compared with a loss of 44,000 a year
earlier.
Before the current dispute, Dish had been involved in 32 of the 74 retransmission consent disputes that have resulted in TV blackouts since
January 2012, according to the National Association of Broadcasters.
Sinclair, in an earnings call earlier this month,
noted that the retransmission rights for 75% of its
subscriber base were up for renewal over the next
12 months, giving the company an opportunity to
reset the fees it receives under those deals.
Write to Joe Flint at joe.flint@wsj.com
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Chapter
168
Oshkosh Wins $6.75

Billion Military
Contract to Replace
Humvee
Oshkosh Corp. OSK 6.72 % on Tuesday won a
$6.75 billion contract to build almost 17,000 new
light trucks to replace aging Humvees for the U.S.
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Army and Marine Corps, cementing the future of

its defense business.
The Wisconsin-based company was chosen over
competitors Lockheed Martin Corp. LMT 1.58 %
and AM General LLC to build as many as 55,000
Joint Light Tactical Vehicles, or JLTVs, over the
next 25 years to replace part of the Humvee fleet
and some larger military trucks.
The JLTV is one of the Armys highest priorities and follows a series of budget cuts and shifting requirements that prompted the Pentagon to
cancel helicopter, artillery and communications
programs, after investing billions of dollars.
Oshkosh has a long history of producing military vehicles and offered a brand-new design to
meet the Armys requirements for a four-wheeled
truck to carry two or four personnel that is resistant to mines and roadside bombs, but also is
light enough to be carried by air.
Its a historic win for us, Oshkosh Chief Executive Charles Szews said in an interview, adding
that the defense business supports the whole in1055
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frastructure for the company.

Oshkosh shares soared 12% to $43 apiece in
after-hours trade, erasing more than half of their
20% decline this year.
The deal gives Oshkosh a stable, long-running
contract for assembly work to offset other,
volatile business lines, including specialty vehicles such as firetrucks and cement mixers.
The companys defense unit has struggled in
recent years in the face of shrinking Pentagon
spending on military trucks. The company laid
off hundreds of assembly workers to lower expenses even as the company moved ahead with
development work on its JLTV proposal.
Its the difference between having a viable defense business for the next five or 10 years and
having a big question mark, said Jefferies analyst Stephen Volkmann.
The new trucks will replace many of the
120,000 Humvee trucks built by AM General
that have been worn out by use in Iraq and
Afghanistan, and promise greater protection
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against mines and roadside bombs, as well as

more range and durability to move troops and
gear. They are also lighter than the MineResistant Ambush-Protected vehicles introduced
in Iraq.
The JLTV program was launched in 2007 and
the Army, bruised by a series of cost overruns and
canceled programs, stuck to its $250,000 price
cap for each JLTV. Army officials said all three
bids came in below the cap, with the average
price of vehicles equipped with communications
and other equipment expected to come in under
$399,000, taking the total program cost to $30
billion.
The price cap pushed the three companies to
use as many commercial, off-the-shelf parts as
possible to lower production and maintenance
costs. Oshkosh uses engines from General Motors Co. GM 3.01 % , with Allison Transmission
Holdings Inc. ALSN 2.55 % supplying the gearboxes.
The Army plans to acquire 49,909 of the ve1057
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hicles alongside 5,500 for the Marines, and has

the option to choose another contractor for future production runs.
The final bidders emerged from a pack that included Navistar International Corp. NAV 2.81 %
, General Dynamics Corp. GD 3.75 % and Ford
Motor Co. F 2.40 % The trio made their final
submissions in January after building a series of
prototypes that the Army tested. The companies
touted their offerings in a series of radio and print
ads in Washington, D.C., and in Michigan, home
to the Armys contracting command.
Lockheed said it would await a debriefing from
the Army before deciding whether to protest the
award to Oshkosh. The potential loss is more of
a blow for AM General, which has subsisted on
a diet of Humvee exports and a recent deal to
assemble vehicles for Mercedes-Benz at its plant
in Mishawaka, Ind. The company had no immediate comment Tuesday.
Bob Tita contributed to this article.
Write to Doug Cameron at doug.cameron@wsj.com
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Chapter
169
USA Discounters Seeks

Bankruptcy Protection
USA Discounters Ltd., a retailer accused of

misleading U.S. service members, filed for
bankruptcy protection and plans to wind down
its business.
Until recently, USA Discounters sold furniture,
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appliances, electronics, jewelry and other products from stores located near military bases, often
financing such purchases through its own credit
program. The company cited the tough retail climate, a defaulted loan and various governmental
actions regarding its operations as factors for the
chapter 11 filing.
Last year, the retailer agreed to pay a $50,000
civil penalty to the Consumer Financial Protection Bureau and to stop charging military customers a fee to obtain certain financial protections, following an investigation by the agency.
USA Discounters didnt admit or deny any
wrongdoing.
The company currently faces a multistate investigation from several attorneys general into its
business practices. In the bankruptcy papers filed
on Monday, USA Discounters says it is cooperating with the probe.
USA Discounters said in the filing that it hasnt
been able to find a buyer for the company and
expects to use its time in chapter 11 to wind
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down its operations. It closed its 24 USA Living stores before filing for bankruptcy protection
and is still considering its options for its seven
Fletchers Jewelers stores.
Founded in 1991 in Norfolk, Va., USA Discounters financed customers purchases of such
items as televisions, washers, dryers and jewelryproducts it said might otherwise be out of
reach for its customers, many of whom were military members and their families and had limited
resources or tarnished credit profiles.
A typical USA Discounters purchase plan required a fixed monthly payment for 30 months
and carried interest and fees, including late fees,
the company said. The retailer received a security interest in the merchandise sold, which
allowed it to repossess the item if payments
stopped.
The company said in court papers it discontinued credit sales as of Monday, the date of its
bankruptcy filing and is selling jewelry for cash
only. USA Discounters said it is owed an esti1061
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mated $114 million on existing payment plans,

its most significant asset.
The companys business practices with regard
to its military customers have come under fire in
the past few years, amid government investigations and an investigation by ProPublica and the
Washington Post.
In its investigation last year, the CFPB said it
found that USA Discounters misled customers by
charging them a $5 fee to determine whether they
were eligible for protections under the Servicemembers Civil Relief Act, which aims to protect
active-duty military from debt collectors. The
CFPB said the services USA Discounters advertised were its legal obligation to perform and the
company didnt make good on its pledge to help
struggling borrowers.
Besides the civil penalty, the retail company
also agreed to stop charging the $5 fee and pay
more than $350,000 in restitution to service members.
In September 2014, after a spate of media
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attention and the CFPB settlement, USA Discounters began operating under the USA Living
brand.
The company said in the bankruptcy-court papers that this was a completely voluntary move
that wasnt the result of any investigation or bad
press, but was meant to reflect the fact that the
company isnt a discount retailer.
In its petition in the U.S. Bankruptcy Court
in Wilmington, Del., USA Discounters reported
debts of as much as $100 million. It has unsecured debts of approximately $2.5 million.
USA Discounters will make its first appearance
in bankruptcy court on Wednesday.
Write to Jacqueline Palank at jacqueline.palank@wsj.com
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Chapter
170
Boeing Raises Its

Estimate of Chinese
Aircraft Demand
Boeing Co. BA 3.07 % said it expects that
Chinas cooling economy wont dent its demand
for jetliners despite concerns from some analysts
about the medium-term outlook there for the
aerospace giant and rival Airbus Group SE.
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The recent plunge in Chinas stock market is

adding to fears about slowing economic growth in
the worlds No. 2 economy, and could damp air
travel by crimping wallets of the countrys fliers.
Meanwhile, Chinas weaker currency strains its
airlines, which carry U.S. dollar-denominated
debt to finance jet purchases.
On Tuesday Boeing largely dismissed the recent tumult in its annual long-term forecast for
the aircraft market, predicting China will need
around 6,330 new planes over the next two
decades worth nearly a trillion dollars at list
prices. That is about 300 more planes than in
its prior-year forecast and 16.6% of the global
demand expected through 2034.
Despite the current volatility in Chinas financial market, we see strong growth in the countrys
aviation sector over the long term, said Randy
Tinseth, vice president of marketing for Boeing
Commercial Airplanes.
Airbus is similarly optimistic about long-term
prospects and argues its production system is
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nimble enough to adjust to any near-term bumps

in Chinese purchases.
The near-term turmoil has not weakened Airbuss belief in the high growth rates for Chinese
air travel, a spokesman for the Toulouse, France,
plane maker said. Airbus has a backlog of 6,400
planes ordered and, he said, is overbooked on
many of its plane models, giving it flexibility even
if demand in some markets weakens.
But some analysts say Chinas economic uncertainty is adding to clouds on the horizon for Boeing and Airbus at a time when both have ramped
up jet production to record levels.
There is risk in China and there is risk in a
lot of other countries in Asia as well, said Rob
Morris, head of advisory at aviation consultancy
Ascend Worldwide. Other risky markets in the
region include Thailand and Malaysia. And if
there is a genuine slowdown in that region then
there could be a surplus of capacity starting to
build."
Meanwhile, Bank of America BAC 5.24
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% analysts recently wrote that continued

low oil prices and higher financing costs will
weaken. . . significantly the case for new airplanes and is a recipe for deferrals for aircraft
earmarked in 2017 and beyond.
Record jet buying has pushed Boeing and Airbus to accelerate production. By the end of 2018,
more than one hundred single-aisle 737 and A320
jets are slated to be built by the pair each month,
not including new offerings from Canada, Brazil,
Russia and Chinas own homegrown competitor.
No other single nation comes close.
Chinese airlines have taken 17% of all Airbus deliveries from 2003 through 2014 and are
poised to take at least 13% through 2017, said
Sash Tusa, an aerospace analyst at Agency Partners LLP. No other single nation comes close,
he said. For Boeing that figure is around 12%
during the same period. Through July this year,
roughly one in five jets that have departed Boeing
factories were sent to China.
Boeing and Airbus in the past have proven
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adept at sustaining output even in difficult economic conditions.

The manufacturers could
switch jets being produced for customers under
strain to those wanting them sooner. However,
the pair avoided deep production cuts through
the global financial crisis that began in 2008, in
part by holding down output amid record buying,
whereas rates are climbing today.
Plane makers see huge potential for further
growth in China. With three times the population of the U.S., Chinas commercial aircraft
fleet is roughly one-third the size and boasts a
middle class population roughly as large as the
entire U.S. population.
While most of the jets going to U.S. and European carriers are replacement buys, 70% of those
heading to China will go toward expanding the
nations fleet. That will make it the largest air
travel market on Earth before 2034, Boeing estimates.
Theres a huge pent up demand in China,
said a senior industry official. Theyre not yet at
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a mature level to be stable to apply the standard

methodology that air traffic growth follows GDP
growth very tightly.
"I think youre going to have a disconnect between GDP moves and air traffic growth until
they reach that scale that is commensurate with
the size of the population and the size of the purchasing power of China, he said.
Jet deals still carry significant political weight,
and analysts expect Chinese President Xi Jinpings visit to the U.S. next month to include deals between Boeing and Chinese airlines.
The huge numbers for its fast growing carriers
will grab headlines, though Boeing has already
booked the orders and classified them to undisclosed carriers.
The Chinese government in October is slated to
release its next five-year plan for economic performance and investments, which could have a bigger impact on long-term demand from the plane
makers than near-term economic volatility.
Write to Jon Ostrower at jon.ostrower@wsj.com
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and Robert Wall at robert.wall@wsj.com
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Chapter
171
Bankruptcy Judge
Authorizes Sale of
Relativity Media
Relativity Media LLC won a bankruptcy judges
permission on Tuesday to proceed with a fasttracked plan to auction off its film and TV business by the end of October.
Following a hearing at the U.S. Bankruptcy
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Court in Manhattan, Judge Michael Wiles signed

off on the proposed sale process after the company resolved a long list of objections from its
creditors.
Relativity enters the auction process with a
lead bid from a group of its lenders. Before filing for bankruptcy in July, Relativity struck a
deal with the lenders on an offer to forgive $250
million in debt in exchange for the companys assets, subject to higher bids at an auction. The investor group includes Anchorage Capital, Luxor
Capital Group and Falcon Investment Advisors,
court papers show. Several of those firms also
have agreed to provide as much as $49.5 million
in financing to fund Relativitys operations while
in bankruptcy. Judge Wiles on Tuesday gave the
company permission to continue to draw down
that financing.
At the outset of the hearing, Relativity announced that 12 of 16 objections to its proposed
sale process had been resolved, though many
creditors reserved the right to raise their objec1072
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tions at a later date.

An objection from the official committee representing unsecured creditors was among those resolved before Tuesdays hearing began, after the
group agreed to the shortened sale timeline.
Our concerns about the shorter sales process
were very real, said Albert Togut, a lawyer for
the committee. In a perfect world, we would
have wanted the sales process to be longer.
During a lunch break, lawyers for Relativity
and several affiliates of Paul Singers Elliott Management, key creditors in the case, hammered out
a deal to resolve yet another objection.
This is how the chapter 11 process is supposed
to work, said Judge Wiles, who had implored
Relativity to find ways to resolve the extensive
opposition from creditors.
The deal had come under heavy fire from creditors that said the companys race to the auction block could stifle competitive bidding. Judge
Wiles had showed skepticism about the speed of
the sale, prompting the company to delay the
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process by two weeks. I will not tie my hands

with deadlines, he said at an initial hearing. It
is my obligation . . . to ensure that the sale process
here is in the interest of all bidders.
Relativity has said its bidding procedures are
fair and that the accelerated sale timeline is necessary to ensuring its continued operations.
Burdensome debt and a string of box-office
flops led Relativity and nearly 150 affiliates to
file for chapter 11 protection on July 30. Founded
by Mr. Kavanaugh in 2004, Relativity is behind
such films and television shows as the Bradley
Cooper thriller Limitless and MTV reality show
Catfish, although its misses have outnumbered
its hits. Recent releases include the flops 3 Days
to Kill and Black or White.
Write to Tom Corrigan at tom.corrigan@wsj.com
1074
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Chapter
172
Glut of Chinese Steel

Looms Large
The worlds biggest producers of iron ore have a
problem, and it lies in the steel that has already
gone into Chinas cars, bridges and skyscrapers.
Over the past decade, China has accumulated
more steel than any other economy in the world.
And because steel can be endlessly recycled, the
countrys steelmakers are likely to turn increas1075
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ingly to scrap instead of the iron ore mined by

the likes of BHP Billiton Ltd. BHP 3.52 % ,
Rio Tinto RIO 1.20 % PLC and Anglo American
AAUKY 0.58 % PLC.
On Tuesday, BHP Billiton, the worlds biggest
miner, lowered its long-run forecast for peak
China steel demand to between 935 million and
985 million metric tons from one billion to 1.1 billion tons. Chinas annual production is currently
at about 800 million tons.
This historic glut of Chinese steel, and concerns over the countrys economic prospects, have
hurt prices for iron ore, the biggest ingredient
in steelmaking. The commodity has fallen to
roughly $50 a ton from $190 a metric ton in
2011, squeezing the profitsand share pricesof
the worlds biggest mining companies. The S&P
mining index has declined to 18.33 from above 70
over that stretch.
China accumulated so much steel so rapidly
that the total amount of steel in the economy and
available for recycling now stands far beyond the
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level that would be typical for an economy its

size, at around five tons per capita, according to
analysis by Morningstar Inc.
In adjusted gross domestic product per capita,
China now matches Japans level of development
in 1968. At that time, the Japanese economy had
2.9 tons of steel per capita. A comparison with
the U.S., which was at Chinas current level in
the 1940s, isnt relevant because American cities
are more horizontal and have more wood-based
homes.
Chinas appetite for iron ore led global mining
companies to invest billions in new mines during
the last decade, which are now contributing to
the oversupply as demand slows. From Rio Tinto
and BHP Billitons massive open-pit facilities in
the Australian desert to Anglo Americans 330mile slurry pipeline in the Brazilian jungle, companies bet big on massive mines, railroads and
ports.
Global capital spending by miners surged from
around $35 billion in 2000 to over $200 billion in
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2012, before slipping back to around $150 billion,

according to SNL Metals.
On Tuesday, after BHP reported an 86% dive
in profit for the year ended in June, CEO Andrew Mackenzie said the mining company expects
Chinas broader economy to pick up in the second
half, meeting its 7% overall growth for 2015.
Interest-rate cuts, along with moves to support
the property market and infrastructure spending,
should buttress growth for the rest of the year,
he said. Despite the reduced outlook for peak
steel demand, Mr. Mackenzie said Chinas leaders had a clearly articulated strategy, and that
his company had adapted accordingly.
But as construction cools in China, the country
is starting to export more of the steel it makes:
its exports increased 27% during the first seven
months of the year, to 62.1 million tons, and are
expected to top 100 million tons this year, up
from 53 million tons in 2013, according to Global
Trade Information Services.
At some point next year, Chinese steel exports
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will surpass the total production of the worlds

second-biggest steelmaker, Japan.
And in the next decade, as the countrys consumers and businesses start recycling their first
generation of containers, cars and appliances, the
steel glut will be compounded.
Chinas scrap production currently amounts to
around 10% of its total steel output, compared
with two-thirds for the U.S. Analysts expect its
scrap production to start taking off toward the
start of next decade.
Surging Chinese exports have contributed to
global oversupply, diluting steel prices around the
world. In the U.S., steelmakers have filed three
requests for protective import tariffs on steel from
China and other countries. U.S. Steel Corp. X
1.88 % and ArcelorMittal, MT 0.92 % two of
the biggest steelmakers in the U.S., have closed
plants and laid off thousands of workers.
China is moving from commodity importer to
exporter, Ugur Dalbeler, CEO of Turkish steelmaker Colakoglu Metalurji, said in an interview.
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And its a problem every steelmaker outside of

China now has to cope with.
Alex MacDonald contributed to this article.
Write
to
John
W.
Miller
at
john.miller@wsj.com and Rhiannon Hoyle at
rhiannon.hoyle@wsj.com
1080
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Chapter
173
Medtronic to Buy
California Startup
Twelve Inc.
Medtronic MDT 3.38 % PLCs $458 million acquisition of California startup Twelve Inc. is the
latest example of how the company is taking advantage of the tax benefits it gained after reincorporating overseas earlier this year.
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Medtronic moved its headquarters to Dublin

from Minneapolis after acquiring Dublin-based
Covidien PLC for $43 billion. That move allowed the medical-device maker to spend more
of its overseas cash in the U.S. without having to
pay U.S. tax on ita perk Chief Executive Omar
Ishrak has said Medtronic would use to help it
acquire U.S. technology.
The U.S. Treasury has criticized companies for
trying to avoid U.S. taxes through such socalled tax inversions, and tried to discourage
them by closing legal loopholes.
Twelve Inc., a privately held firm based in Redwood City, Calif., is developing a device aimed at
repairing faulty mitral valves in the heart, which
can contribute to congestive heart failure. The
device hasnt yet reached the market. Medtronic
agreed to pay $408 million upfront and another
$50 million upon the devices regulatory clearance in Europe. Twelves investors include the
venture-capital firms Domain Associates, Versant
Ventures and Morgenthaler Ventures.
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Medtronic rivals Edwards Lifesciences Corp.

EW 3.24 % and Abbott Laboratories ABT 2.52
% have also recently acquired startups developing
heart-valve technology similar to Twelves, Wells
Fargo WFC 4.56 % said in a research note.
In June, Medtronic acquired Aptus Endosystems Inc. of Sunnyvale, Calif., for roughly $110
million. It also bought Cleveland-based CardioInsight Technologies Inc. in a deal valued at
$93 million. Last month, the company agreed to
acquire RF Surgical Systems Inc. of Carlsbad,
Calif., for about $235 million.
Twelve is the second firm Medtronic has
bought in recent years that was originally established by The Foundry, a business incubator in
Menlo Park, Calif. In 2010, Medtronic acquired
Ardian Inc., another Foundry startup, for $800
million upfront plus milestone payments. Both
Twelve and Ardian were run by Chief Executive
Andrew Cleeland, vice chairman of The Foundry.
Mr. Cleeland and The Foundry didnt immediately respond to requests for comment.
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The Ardian acquisition so far has failed to pan

out. Medtronic last year was forced to take a
$236 million pretax write-down on Ardian assets, after the startups experimental hypertension treatment failed to perform adequately in a
large clinical trial. Medtronic has begun two new
clinical trials of the technology and says it still
views Ardian as a strong strategic acquisition.
Ezequiel Minaya contributed to this article.
Write to Jeanne Whalen at jeanne.whalen@wsj.com
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Chapter
174
BHP Looks Past

Travails, Remains
Upbeat on China
SYDNEYThe worlds biggest mining company,
BHP Billiton Ltd. BHP 3.52 % , reported its
weakest annual earnings since 2003 on Tuesday
and cut its long-term forecast for Chinese steel
demand. But its chief executive expressed confi1085
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dence that top customer China remained on track

despite market and economic turbulence.
Speaking after his company posted an 86% dive
in profit for the year ended June to $1.91 billion,
BHP Chief Executive Andrew Mackenzie said
Chinas economic-reform program would likely
make world markets more volatile. The government is now trying to direct its economy away
from exports and manufacturing to consumer-led
growth.
Even with the recent turmoil, Mr. Mackenzie
said the mining company expects Chinas broader
economy to pick up in the second half, meeting
its 7% growth target for 2015. Interest-rate cuts,
along with moves to support the property market and infrastructure spending, should buttress
growth for the rest of the year, he said.
As the worlds leading commodities producer,
with interests in iron ore, coal, oil and gas and
copper, BHP is among those major global businesses most exposed to Chinas fortunes. The
mining company relies on China for roughly 30%
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of its revenue, UBS estimates.

Weaker prices for all the commodities BHP
produces cut into its earnings last year, and the
company wrote down the value of assets including a gas field and nickel mine by more than $2
billion.
BHP lowered its closely watched forecast of
peak Chinese steel demand to between 935 million metric tons and 985 million tons in the mid2020s, from a previous projection of one billion
to 1.1 billion tons.
Still, Mr. Mackenzie said Chinas leaders had
a clearly articulated strategy, and that his company had adapted accordingly. You have to look
deeply and you have to look across at the sectors,
and that is what we do, he said. We have been
at this game for decades. We have made very
sound business decisions off those forecasts that
have proved to be correct.
Global financial markets have been pummeled
and commodities dumped in a broad-based selloff
in recent days, rooted in concerns over Chinas
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economic slowdown. An equity-market rout in

China continued for a second day on Tuesday,
after its main Shanghai stock market recorded its
worst single-session loss in more than eight years
the previous day.
Concerns about Chinas economy, and particularly its demand for commodities, have been escalating since the surprise devaluation of the yuan
two weeks ago. Recent economic data have also
been uninspiring.
BHPs London-listed shares slumped by 9.1%
Monday. But they recovered by 6% Tuesday despite the profit slide, as the company said it had
paid down debt, cut costs more than expected
and would keep paying a steady-or-rising dividend each year. At current prices, BHPs shares
have a dividend yield of more than 7%.
Cycles are part of our industry, Mr. Mackenzie said. We have to get better in the way we
operate rather than rely on markets improving,
he said.
BHP earlier this year spun off its nickel, alu1088
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minum and other properties into a new company,

South32 Ltd., in an attempt to focus on fewer,
large-scale resources operations.
Cycles are part of our industry.
Chinas breakneck economic growth during the
2000s created a seemingly endless appetite for
commodities used to build new cities and in the
factories that fed an export boom. That led mining companies such as BHP to aggressively dig
new pits and build new processing plants to profit
from surging resources demand.
Now that demand growth has cooled, several
commodities face a period of oversupply. Iron
ore, BHPs primary money spinner, has been at
the sharp end of the deceleration, with the commodity recently slumping to a decade low. It
traded above $190 a metric ton in 2011 but now
trades at roughly $50 a ton.
Chinas appetite for steel, used in skyscrapers
and bridges, has been eroded by a cooling construction sector, resulting in a glut of the material
and the materials used to make it, iron ore and
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coal.
The problem lies in infrastructure-led
growth, said Steve Johnson, chief investment
officer at Sydney-based Forager Funds Management, adding that he is very negative on the
outlook for China. A collapse in that part of
the economy is very bad for resources demand.
Still, he said BHP is better placed to deal with
the slowdown than smaller rivals. You know
they are still going to throw off cash, and they
are a company that is going to be around in 20
years time, he said.
BHP is already adjusting its strategy to account for the governments shift in strategy toward consumer-led growth. It has no plans for
big new investments in iron ore or coal, instead choosing to prioritize growth in copper
and petroleum. Both have been under pressurecopper is trading at a six-year low, and
crude-oil prices have more than halved in the past
12 monthsbut BHP expects a more urbanized,
wealthy China to need them in greater volumes.
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BHP consequently feels to some extent vindicated by the shifts in the Chinese economy, Mr.
Mackenzie said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
1091
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Chapter
175
Transocean Seeks to
Cancel Two Dividend
Payments
Transocean Ltd. RIG -4.92 % is seeking to cancel the third and fourth installments of its dollardenominated dividend this year, which the company had already approved in May.
Shares dropped 12% to $10.75 in after-hours
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trading. Through Tuesdays close, they had

fallen 67% in the past 12 months.
The offshore driller said in February that it
planned four installments of 15 cents each, which
represented an 80% reduction from the previous payout rate, citing its cyclical and capitalintensive industry.
Transocean said Tuesday that it will seek
shareholder approval of the cancellation at an
Oct. 29 meeting. The company is also seeking
a par value reduction of its shares to address expected capital losses. It expects to record impairment charges for investments in affiliates in
light of the deterioration of the offshore drilling
market and concerns regarding the timing of the
markets recovery.
In August, Transocean said its second-quarter
revenue fell 19% to $1.88 billion.
On Monday, Moodys Investors Service MCO
3.62 % placed the ratings of 11 offshore drillers
including Transocean under review for downgrade. The rating firm said contractors will face
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an extremely challenging operating environment

through at least 2017.
In May, BP BP 1.27 % PLC agreed to settle its
remaining claims with Transocean and Halliburton Co. HAL 2.87 % over the 2010 Deepwater
Horizon oil spill, with which all three companies
had involvement.
Write
to
Josh
Beckerman
at
josh.beckerman@wsj.com
1094
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Chapter
176
Bankruptcy Judge Sets

Sept 25 Auction for
Some ZTejas
Restaurants
Investors who want to challenge a $3.7 million
offer for some ZTejas restaurants face a Sept. 15
bid deadline under a sale timeline recently set by
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a bankruptcy judge.
In his court order signed Monday, Judge Paul
Sala in U.S. Bankruptcy Court in Phoenix set
a Sept. 25 auction date for some restaurant in
the chain, which filed for bankruptcy last month,
saying consumer spending had fallen while food
and labor costs had grown.
The auction for some restaurants in the Scottsdale, Ariz., chain will kick off with a $3.7 million purchase offer from a bidder called Cornbread Ventures LP, which promised to continue
to operate five restaurants in Arizona and three
in Austin, Texas.
Any auction-winning bid still needs approval
from Judge Sala, who agreed to look over that
offer once the bidding concludes.
The chain filed for bankruptcy July 22 with
Cornbread Ventures purchase offer in hand. The
buyer is offering to pay $2.3 million in cash and
forgive about $1.4 million in loans it has extended
to the restaurants.
ZTejas officials began looking for buyers as the
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restaurants financial troubles grew. In earlier

court papers, Chief Executive Steven Micheletti
said that as consumer discretionary spending
dropped in the restaurants cities, consumer traffic and sales declined by 5.5% in the past six
months.
Within the restaurant industry, the mid-scale
sector suffered sale declines, he said of the overall
consumer spending drop, adding that the restaurants are located in cities with historically high
unemployment.
To cope, restaurant officials came up with new
advertising campaigns. They also raised prices
and re-engineered the menu, but their moves were
enough to offset the magnitude and duration of
the increased food and commodity costs, Mr.
Micheletti said.
In 2014, restaurant officials began to struggling
to repay its loans, which now amount to roughly
$9.3 million. The chain also owes roughly $2.7
million to landlords, trade vendors and other unsecured creditors.
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In addition to the auction, the chains lawyers

are also preparing to use bankruptcys contractcutting power of real estate leases for its Salt Lake
City and San Antonio restaurants, which they
closed before bankruptcy.
The first ZTejas restaurant began in 1989 in
an old Victorian house on Austins historic Sixth
Street by Larry Foles and Guy Villavaso, who envisioned a menu that would serve dishes with flavors of Arizona, California, Louisiana, New Mexico and Texas, according to court papers.
Write
to
Katy
Stech
at
katherine.stech@wsj.com
Corrections & Amplifications: Cornbread Ventures LP is offering to buy eight ZTejas restaurants in Arizona and Texas out of bankruptcy.
An earlier version of this article was incorrect in
saying a restaurant in Costa Mesa, Calif., was
included in the offer. (Aug. 25, 2015)
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Chapter
177
China Market Turmoil

Dents Corporate
Germany
FRANKFURTCorporate Germany is showing
the first impact of market turmoil spreading from
China, weeks after delivering solid second-quarter
earnings.
Falling sales of German cars and machines in
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China during the first half of the year could

presage more pain to come, analysts said. A
component of the closely watched Ifo businesssentiment survey released Tuesday also hinted at
dimming prospects for Europes largest economy,
even as the broader Ifo survey beat expectations.
Ifos measurement of German businessmanagers outlook for the coming six months
edged down to 102.2 in August, from a downwardly revised 102.3 in July. Overall business
sentiment rose slightly to 108.3, from 108.0 a
month earlier.
The survey doesnt capture the global reverberations of Chinas recent market plunge.
More than half of the 7,000 businesses questioned responded earlier in August, before turmoil on global markets, Ifo survey director Klaus
Wohlrabe said.
German investors, who had pushed the blue
chip DAX-30 index down more than 5% on Monday, were clearly relieved following the Ifo results.
The DAX rose roughly 3% early Tuesday and
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closed 5% higher.
The modest Ifo outlook drop and bounce
in German share prices suggested Germanys
export-centric economy could withstand troubles
from China, which last year accounted for 6.6%
of German exports, or 75 billion euro ($86 billion).
Still, economists and business officials have
said Germany could suffer more from Chinas
malaise than other developed economies. Even
before Chinese shares started plunging recently,
Chinas economy showed signs of weakening,
denting demand for some foreign products.
China is the second-largest foreign market for
German machinery, a bellwether industry. German machinery exports to China slumped 5% in
the first half of the year, according to the industry group VDMA. Chinese customers are already
deferring investment, VDMA economist Ralph
Wiechers said.
German companies in the DAX index are also
generally more reliant on China than their Euro1101
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pean rivals, given higher export exposure. China

accounts for roughly 9% of DAX companies
sales, and for around 15% of earnings per share,
Deutsche Bank DB 2.72 % analysts estimated in
a report last week.
Roughly 11.5% of those earnings are from automobile makers. Comparable data for other countries werent available, Deutsche Bank said.
German car makers, among the biggest foreign
suppliers and manufacturers in China, have been
hit by weaker demand there. Overall sales in
China for the top global car makers fell 2% in
the second quarter, Ernst & Young said in a research note.
Economic woes in China will substantially narrow business margins, particularly at Volkswagen
AG VLKAY 2.60 % and BMW AG BMW -1.47
% , said Niall Gallagher, fund manager at GAM
Star European Equity. A Volkswagen spokesman
declined to comment on margins. In a press
statement, the company later said group sales in
China, its largest single market, dropped 5.3%
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during the first seven months of the year, and it

was not immune to the continuing downturn in
China. A BMW spokeswoman said the company
has solid returns in China and in other markets
right now. BMW has repeatedly pointed to market normalization in China, she said.
The German automobile association VDA said
last month that three in every four jobs in the
countrys auto industry, including at component
makers, depend on exports around the world.
For Germany overall, roughly 300,000 jobs depend directly on China exports, labor agency
market research economist Enzo Weber estimated. Not all of those would be endangered by
a downturn, but indirect job losses could result
from contagion, he said.
Uncertainty about the situation in China and
its broader impact could also prompt executives
to hesitate on spending, as they did during the
financial crisis of 2009.
In more exposed countries, such as Germany,
businesses may once again delay some investment
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decisions for a while until the dust has settled,

said Holger Schmieding, economist at Berenberg
Bank, which clipped its forecast of German economic growth to 1.5% this year from 1.6% and to
2.0% next year from an earlier forecast of 2.1%.
Germanys Bundesbank projected that if a negative shock to Chinas domestic demand reduces
the countrys economic growth by up to 4%, this
would cut Germanys growth annually by 0.3%
for two years.
The past weeks have made clear that we find
ourselves in choppy waters, said Hubert Lienhard, Chairman of Germanys Asia-Pacific Committee representing German business interests in
the region.
Some German companiesparticularly exports
of high-end productshave so far ridden out
exchange-rate fluctuations and price sensitivity.
German electronics exports to China rose 6% in
the first half of the year, to 7.4 billion, said electronics manufacturers group ZVEI.
The group doesnt plan to cut its forecast for a
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1.5% production increase this year because strong

U.S. demand is likely to offset any decline from
China, said ZVEI economist Andreas Gontermann.
Semiconductor maker Infineon Technologies
AG IFNNY 0.89 % said China is one of its most
important markets and is optimistic about future
sales. The company said Monday it doesnt expect currency volatility to cut its profits because
most of its China sales are destined for re-export
in finished products such as mobile phones, or go
to Chinas public sector and so are less dependent
on private consumption.
If Chinese manufacturers become more competitive due to the devaluation of the yuan, this
could be an advantage for some suppliers, Infineon spokesman Gregor Rodehueser said.
For companies that directly compete with Chinese producers, such as German exporters of
medium-quality machinery, Chinese competitors
are better positioned after authorities devalued
the yuan by nearly 2% on Aug. 11, said Mr.
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Wiechers at the machinery association.

Stefan Lange and Christian Grimm contributed to this article.
Write to Monica Houston-Waesch at
nikki.houston@wsj.com
1106
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Chapter
178
Commodity Traders
Feel Unusual Pain of a
Market Rout
LONDONFor years, the secretive club of the
worlds largest commodities traders thrived on
volatility and sometimes tiny price differences in
the raw materials they tradestyling themselves
as nimble middlemen able to profit whether mar1107
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kets were rising or falling.

These days, many outfits are very different animals and thats causing unusual pain amid todays commodities-market rout.
During a decade of booming commodities
prices, many of these trading firms put billions
of dollars into mines, pipelines and storage terminals. Those bets were supposed to help their
traders understand supply and demand, while
providing their trading floors with a ready source
of supply. But they also made them more exposed to falling prices in markets in which they
have built up a physical presence.
Just how much, however, is difficult to gauge,
since many of the biggest traders are still privately held and disclose little. Even the trading floors of big, publicly listed tradersincluding
Glencore GLNCY -1.61 % PLC of Baar, Switzerland, and Hong Kong-based Noble Group Ltd.
N21 -3.23 % are difficult to value because they
have so few peers.
The issue is that theres an opacity around the
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trading business that makes it hard to model,

said Sanford C. Bernstein analyst Paul Gait.
When youve got a mine, you can work out
minute by minute what that mine is worth. Its
much harder to do that with a trading business.
One of the hardest hit in the recent market
carnage has been Glencore, once a privately held
trading firm that, under Chief Executive Ivan
Glasenberg, listed shares in 2011 and then became one of the worlds biggest, diversified miners
after swallowing up Xstrata in 2013. Shares have
swooned this year amid falling prices in most of
the commodities it mines, high debt and concerns
over its investment-grade credit rating, which it
needs to keep trading costs down.
Glencore shares are now trading at about half
their value from the start of the year. Last
week, the company reported a 29% fall in miningrelated earnings for the first half of the year. It
said it made $1.2 billion on the trading floor for
the period. Still, it lowered its full-year trading guidance to between $2.5 billion and $2.6 bil1109
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lion, despite assurances from Mr. Glasenberg in

March it would make between $2.7 billion and
$3.7 billion no matter what commodity prices
are doing.
Glencore is now a big upstream metals and
coal player, and its performance is more driven
by the mining side of the house than the trading
side, said Craig Pirrong, a University of Houston
finance professor.
Glencore declined to comment on Tuesday.
Last week, executives said they were reducing
debt, cutting costs and were confident they could
defend their credit rating.
Bankers said some borrowing costs already
have risen for traders, with scrutiny increasing on
players with high exposure to the fall in prices.
From an access-to-funding point of view, we
look very carefully at the mix of [traders] business, said Jan-Maarten Mulder, global head of
commodities clients at ABN Amro. Clearly if
you have a lot of assets on the balance sheet people will ask a lot more questions.
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Traditionally, trading houses like Glencore,

Trafigura Beheer BV and Vitol Group, have
acted largely as middlemen, moving heaps of copper, coal and oil around the world. Their profits
came from identifying price disparities at different places and at different times. That meant periods of downward volatility could prove highly
profitable. Falling prices reduce working capital costs, and market fluctuations often provided
more varied trading opportunities.
Thats still largely the idea. But companies
also have expanded into physical assets that make
them more exposed to falling prices. Trafigura,
based in Geneva, has focused on infrastructure,
like ports and storage terminals, but it also owns
mines in Spain, Peru, the Democratic Republic
of Congo and Angola.
Trafigura is privately held, but has issued publicly traded debt and discloses some financial figures. It recently reported profit rose 39% and
trading margins doubled in the six months to
March 31, the first half of its fiscal year. Still,
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Trafigura bond prices have fallen since the start

of August, as prices for the crude and base metals
it trades slumped to multiyear lows. The company declined to comment.
Swiss trader Gunvor Group said net profit
tumbled 13% last year as the free fall in crude
prices wiped value off its holding in Swedish
oil producer PA Resources AB. The companys
trading operations performed well though and
discounting the write-down, interest and taxes,
earnings increased by 5%. Gunvors bonds have
risen this month amid a buyback program. Gunvor declined to comment.
Oil-trading giant Vitol also has snapped up assets, including paying $830 million last week to
buy out its partner in a global oil storage business. It doesnt have any public debt and doesnt
disclose earnings. But it said revenue fell to $270
billion in 2014 from $307 billion the year before,
citing falling oil prices at the end of last year.
Vitol declined to comment.
Another company hit hard by the commodities
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rout: Noble, shares of which are down 60% this

year. Noble was listed in 1997an early mover
into the public sphere. But unlike Glencore, it
has resisted taking ownership of producing assets.
It has suffered though as investors have grown
distrustful of its accounting.
Back in February, Iceberg Research, a littleknown firm, started raising issues with Nobles
bookkeeping, saying it had overvalued assets and
long-term contracts. Noble has denied any improper accounting and has accused a former Noble employee of being behind the Iceberg allegations. Iceberg hasnt identified any of its employees.
Write to Sarah Kent at sarah.kent@wsj.com
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Chapter
179
Boeing Fights
Retirement-Plan Class
Action
On Wednesday, a federal judge will begin weighing whether Boeing Co. BA 3.07 % mishandled
its 401(k) plan by offering imprudent investment
options and allowing excessive fees to get passed
on to employees.
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The class-action suit, filed on behalf of 190,000

Boeing employees and retirees, has been in court
for almost a decade. On the plaintiffs side is a
St. Louis lawyer known for waging yearslong battles over retirement plans. Boeing is his biggest
target to date.
The company has vowed to fight the suit, one
of only a few such cases to go to trial. Boeing
said it strongly disagrees with the claims and is
prepared to show that its investment options and
fees have been in line with industry standards.
Backing the suit is Jerome Schlichter, a
personal-injury and civil-rights lawyer who since
2006 has gone after companies for alleged violations of the complex Employee Retirement Income Security Act, or ERISA. Since then, he
has filed 18 suits against major corporations over
purported 401(k) violations. The lawsuit against
Boeing, filed in September 2006, was one of the
first.
Eight settlements have resulted in more than
$214 million in payouts, with $70 million of that
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going to 67-year-old Mr. Schlichter and his law

firm, Schlichter Bogard & Denton LLP. The settlements also required the companies to make
permanent changes to their retirement plan practices. Six of his cases are pending, including one
that went to the U.S. Supreme Court earlier this
year, and four others have been dismissed.
As defined-benefit pension plans in the private
sector are phased out, more Americans have come
to rely on 401(k) plans, which allow employees to
save pretax dollars, for their retirement. Of the
$24.9 trillion in U.S. retirement assets at the end
of March, 18.7% was in 401(k) plans, according
to the Investment Company Institute, a mutualfund trade group. That is up from 15.5% of the
$14.2 trillion retirement market in 2008.
Boeings $44 billion 401(k) plan is the secondlargest in the nation after International Business
Machines Corp., according to the Labor Department.
The lawsuit, which will be heard in federal
court in East St. Louis, Ill., accuses Boeing of
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failing to uphold its fiduciary duties to employees

by allowing excessive fees to go unchecked, choosing higher-cost retail mutual funds over cheaper
options, and improperly making 401(k) plan decisions to benefit vendors receiving other Boeing
business.
In court documents, the plaintiffs say Boeing
employees each paid $103 for administrative services in 2005, when a plan of its size should have
charged no more than $42, according to an expert
hired by the plaintiffs. Between 1997 and 2005,
the plan overpaid for record-keeping and administrative services by $35.4 million, according to
the hired expert.
In 2007, the company reduced its per-employee
fees to $32 after putting out a bid for a new contract, court filings show.
The class action also criticizes Boeing for including options to invest in the companys own
stock and in a money-losing technology-sector
fund.
In a deposition, one former Boeing executive
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defended the tech fund, saying the investment

was optional. An individual has the right to
shoot themself (sic) in the foot if they so desire,
the executive said. They pay the price.
In court papers, Boeing, represented by
OMelveny & Myers LLP and Bryan Cave LLP,
said that it isnt the companys fault if a particular investment underperformed. There is no
crystal-ball requirement in ERISA, the company
said in a 2009 court filing.
Across the country, 401(k) plan fees dropped
by an average of 0.1% between 2009 and 2012,
according to a study released last year by
BrightScope Inc., a company that rates 401(k)
plans, and the Investment Company Institute.
Some industry experts say the fee reductions
are the natural evolution of an industry that has
been in existence only since the 1980s.
Mike Alfred,
the chief executive of
BrightScope, said he believes the string of classaction lawsuits has improved industry practicesthough he added that some companies
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named in the suits, including Boeing, have had

strong overall 401(k) plans compared with the
rest of the market.
Mr. Schlichter, the son of an aircraft mechanic,
said he was inspired to look into the industry after watching his mother survive on his fathers
federal pension. She didnt have to worry about
stocks and fees, he said. Making sure companies
are upholding their fiduciary responsibilities, he
said, levels the playing field for an unsophisticated employee.
One Boeing employee who is an original party
to the suit is John Bunk, an aircraft assembly inspector who took a retirement buyout from the
company in May. Now, he is living on an Alpaca
farm in Illinois and relying on both a Boeing pension and 401(k) plan. We just thought Boeing
was mishandling our money, Mr. Bunk said of
how the suit began. I never dreamed it would
take this long.
The trial, expected to last about four weeks,
is the oldest case on the docket of U.S. District
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Judge Nancy Rosenstengel. Nine years of litigation has resulted in deep antagonism and hostile posturing, Judge Rosenstengel wrote in a recent court order encouraging the parties to settle, while acknowledging that such a deal was unlikely.
Write to Sara Randazzo at sara.randazzo@wsj.com
1120
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Chapter
180
Europe-to-Asia Freight
Rates Fall as Volume
Forecasts Cut
LONDONMaritime and air freight rates for
some of the worlds busiest trade routes are tumbling as slower growth in China combined with
a sluggish eurozone economy dash forecasts for
higher volumes during the normally busy late1121
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summer season.
Ship operators on key Europe-to-Asia circuits
have been struggling for a while with falling
rates amid lingering overcapacity from the global
economic crisis. This time of the year typically provides a lift as retailers of Asian-made
goodsitems as diverse as toys, clothing and electronicsstart to move cargoes ahead of the endof-year holidays in Europe and North America.
This year that gift-giving bounce hasnt yet
materialized, and market watchers are blaming
lower demand from Europe, as well as an easing
Chinese appetite for luxury items and other imports. Shipping brokers in London and Singapore
said last weeks devaluation of the yuan already is
having a profound effect on shipments of luxury
goods from Europe.
We are seeing shipments of luxury items like
handbags, branded clothing and shoes down by
around 17% since the devaluation, said one broker, adding that the stock markets meltdown
would make Chinese and Hong Kong consumers
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even more jittery. He said shipments of upmarket

European cars are also dropping, though would
take a few weeks to determine the impact.
The outlook for airfreight, which shippers rely
on for more time-sensitive goods like pharmaceuticals, flowers and electronics, also is souring. Martin Dixon, director of research at Drewry
Shipping Consultants Ltd., said the firm now expects global air-cargo traffic to stagnate for the
year, after initially projecting growth. A big
weight is falling demand in China and Asia.
China accounts for about 20% of global air exports by weight, and 10% of global air imports,
according to advisory and merchant-banking firm
Seabury Group LLC.
Air-cargo shipments passing through Hong
Kong, for instance, slumped 2% last month, Mr.
Dixon said. Prices across 21 global routes have
fallen 27% since November to a record low in
June, his consultancy said.
The air-cargo market is suffering on several
fronts. Lower demand in Asia is coming at the
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same time air-cargo capacity is climbing. A large

chunk of the air-cargo market is transported in
the hold of passenger planes. With major airlines
adding flights globally this year, that is weighing
on cargo rates. Falling fuel costs also are delaying
plans by airlines to retire older jets, exacerbating
the problem.
With capacity continuing to rise, supported
by strong passenger demand, the industry faces
a challenging period of weak load factors and low
yields, said Mr. Dixon. And with jet-fuel costs
set to fall further, we expect airfreight pricing to
weaken further.
At sea, the cost to ship a container from Shanghai to Rotterdam in the Netherlands fell 27% this
week to $469, according to data by the Shanghai Containerized Freight Index. It was the third
straight week of weakening rates, which have now
slumped close to 60% since late Julythe last
time carriers succeeded in boosting rates, albeit
temporarily.
Containers to and from China and Hong Kong
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represent 30% of global traffic, according to

Drewry, which earlier this month cut its 2015
growth forecast for boxes moving through Chinese and Hong Kong ports to 4.9%, from a 5.8%.
That is the equivalent of removing 1.85 million
20-foot containers, or 1% of world-wide container
traffic, from ocean trade lanes.
Going into 2015, our expectation was [for]
around 3% growth, but the reality is that the
market has contracted by 3% year to date, said
Michael Storgaard, a spokesman at Maersk Line,
the shipping unit of Danish conglomerate A.P.
Moeller-Maersk AMKBY -0.69 % A/S and the
worlds biggest container operator.
China, meanwhile, is the worlds biggest importer of coal and iron ore, and freight rates for
so-called dry bulk vessels that carry such goods
are suffering. The Baltic Dry Index fell to 968
points on Tuesday from 1,222, at the beginning
of August.
The past month has been brutal for both
the dry bulk and container markets, said Basil
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Karatzas, who runs New York-based Karatzas

Marine Advisors & Co. The slowing Chinese
economy is exacerbating overcapacity problems
at a time when trade is supposed to be picking
up.
Write to Costas Paris at costas.paris@wsj.com
and Robert Wall at robert.wall@wsj.com
1126
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Chapter
181
Relativity Media
Stung by Request to
Delay Key Hearing
An affiliate of Paul Singers Elliott Management
has asked a bankruptcy judge to push back a
hearing on Relativity Media LLCs proposed sale
by a few days, saying anything less would amount
to a trial by ambush.
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In court papers filed early Monday with the

U.S. Bankruptcy Court in Manhattan, the affiliate, Manchester Securities Corp., said Relativity waited until the 11th hour to foist new and
conflicting information on its creditors, violating
basic notions of due process and fundamental
fairness. Manchester asked Judge Michael Wiles
to delay a key hearing scheduled for Tuesday until Friday, saying the postponement would have
no negative consequences for Relativity or other
creditors.
A spokesman for Relativity declined to comment Monday.
The new information disclosed late Fridaysome of it under sealincludes essential
facts and figures related to the companys plan
to hand its assets to a group of lenders, some of
whom have also agreed to provide $45 million in
financing to fund Relativitys operations while in
bankruptcy.
In court papers, Manchester says it needs more
time to evaluate the new evidence. It also
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said Relativity hasnt divulged basic information

about the companys valuation or its marketing
efforts, depositions of witnesses including Chief
Executive Ryan Kavanaugh and other information needed to determine whether its proposed
sale process will maximize recovery for creditors.
The three-day delay should allow Manchester
to depose Mr. Kavanaugh, whose testimony it
called absolutely critical.
Before filing for bankruptcy in July, Relativity struck a deal with a group of lenders on the
$45 million financing package and an offer to forgive $250 million in debt in exchange for the
companys assets, subject to higher bids at an
auction. The investor group includes Anchorage
Capital, Luxor Capital Group and Falcon Investment Advisors, court papers show.
But the deal has come under heavy fire from
Manchester and other creditors that say Relativity hasnt provided enough information about
the deal and that the companys race to the auction block could stifle competitive bidding. Judge
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Wiles has also shown skepticism about the speed

of the sale, prompting the company to delay the
process by two weeks.
In earlier court papers, Relativity has said its
bidding procedures are fair and that the accelerated sale timeline is necessary to ensuring its
continued operations.
Burdensome debt and a string of box-office
flops led Relativity and nearly 150 affiliates to
file for chapter 11 protection July 30. Founded
by Mr. Kavanaugh in 2004, Relativity is behind
such films and television shows as the Bradley
Cooper thriller Limitless and MTV reality show
Catfish, although its misses have outnumbered
its hits. Recent releases include the flops 3 Days
to Kill and Black or White.
Write to Tom Corrigan at tom.corrigan@wsj.com
1130
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Chapter
182
The Best Way to

Cheer for Your Child
Weve all read about parents who yell and get into
fights at their childrens games. But how are parents supposed to behave on the sidelines? What
type of cheering helps? What adds pressure? Is
coaching from the sidelines ever OK?
Here are some ground rules.
Being a spectator is tough. Watching a child
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struggle can unleash parents competitiveness, or

rekindle the pride or pain they once felt when
playing sports in their youth. Many of the soccer, football, hockey and other programs starting
up again this fall are costly and time-consuming,
making it harder to stay calm if your child doesnt
try hard or a coach seems misguided.
Coaches say it is best for parents to set aside
emotion and ego, watch the game closely, avoid
shouting criticism or instructions from the sidelines and cheer for the whole team, not just their
own child.
Kimberly Atnip of Wardsville, Mo., gets excited when she watches her three sons, ages 7, 9
and 14, play football. Its intense. Nobody likes
to lose, she says. However, she yells only positive encouragement from the sidelines, she says.
If a kid makes a mistake, you dont need to call
it out.
She uses self-talk to stay calm. If her son
doesnt seem to be trying hard, she tells herself,
I dont have fire and drive every day at my work
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either. If the team falters, she thinks, These

are 14-year-old kids. Theyre not going to play
in the NFL. She directs her sons toward other
goalsbonding with teammates, learning to take
coaching well and stretching their physical limits.
If other parents on her team lose control and
start screaming, she tells them softly, Calm
down. Its just a ballgame. Other times, she
says, she gets up and walks away. Its a reflection on the whole team when one parent is loud
and obnoxious.
Children and teens are embarrassed when parents yell or single out their own child with loud
cheers, according to a 2011 study of 57 players
ages 7 to 14 published in the Research Quarterly
for Exercise and Sport. Even seemingly encouraging cheers, such as Come on, you can do it!
can imply criticism to players that theyre not doing their best, says the study, led by Jens Omli,
an instructor of kinesiology at California Polytechnic State University, San Luis Obispo.
Children often connect parents attitude about
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their sports performance to their value as a person, says Bruce E. Brown, a teacher, coach and
director of Proactive Coaching, a training firm in
Camano Island, Wash. They think parents who
yell instructions from the sidelines believe children cant figure out what to do on their own, Mr.
Brown says. Hurling insults at the ref teaches
children it is OK to challenge authority.
Criticizing a childs teammate suggests it is OK
for a child to dump on teammates too. Some
23% of 400 sports parents surveyed in 2013 by
i9 Sports, Riverview, Fla., a youth-sports league
franchiser, said they or their children had been
excluded socially because the kids werent as
good as other players.
Self-control is tough for parents who are confused about what the goal is in youth sports,
says Jim Thompson, founder of the Positive
Coaching Alliance in Mountain View, Calif., a
nonprofit that trains 100,000 coaches a year.
The goal is to develop better athletes and better people, and trying to win is part of that, he
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says. If your definition of success is that your

kids team wins and your kid plays fantastically,
youre going to be disappointed a lot of the time.
In the stands, Mr. Thompson adds, no sports
parent has a totally positive experience. And
most parents dont feel like they have any power,
any control.
Many parents get angry because they think
their children are being treated unfairly or carelessly by officials, coaches or other players, according to another study led by Mr. Omli, a
survey of 773 parents published in 2012 in the
Journal of Applied Sport Psychology.
Others erupt with unresolved frustration or
anger over their own childhood sports experiences, says Luis Fernando Llosa, co-author of
Beyond Winning, a 2013 book on improving the
experience of youth sports. A man who hated the
pressure he faced as a child from a hypercompetitive father might unwittingly pressure his son in
the same ways, because that is the behavior he
knows. Mr. Llosa advises parents to recall their
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own sports biographies and think about what

parts are worth passing on.
Parents can stay productively occupied on the
sidelines by watching the game closely and making mental notes on signs that their child or the
team is improving, Mr. Llosa says. Notice even
subtle successes, such as getting up quickly after
a fall to help defend the goal, he says. This mental highlight reel can provide fodder for conversations later. Coaches also recommend doing progressive muscle-relaxation exercises on the sidelines or counting backward from 100.
The quality of coaching is a hot button. More
than 80% of 1,511 parents surveyed last year by
ESPN and Aspen Institute Project Play, a research and advocacy group, worry about the competence or behavior of their childrens coaches.
Parents who react by coaching from the sidelines only confuse their children. Longtime coach
John Engh tried to teach a 6-year-old boy to stop
hitting the baseball toward left field by telling
him: Dont think of anything else while youre
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swinging but stepping toward the pitcher, says

Mr. Engh, chief operating officer of the National
Alliance for Youth Sports, a West Palm Beach,
Fla., nonprofit that trains more than 100,000
coaches a year. When the child came to bat,
however, his father yelled from the stands: Keep
your eye on the ball. The boy forgot everything
Mr. Engh said, and hit to left again.
Frustrations over whether a coach is giving
your child enough playing time are common. Parents should look for a program that matches their
philosophy. Some promise ample or equal playing time for all. Still, coaches sometimes bend
the rules to win.
No matter how frustrated parents become,
they should avoid criticizing a coach in front of
their children. Longtime youth coach Edward
Garcia was annoyed two years ago when two angry parents confronted him just as he got up from
the bench after a middle-school basketball game,
complaining that a player wasnt passing the ball
enough to their daughter. Hurrying to complete
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his coaching duties, Mr. Garcia, of Henderson,

Nev., deflected their anger by saying he was working on passing during practices.
Many programs ask parents to wait 24 hours
after a game before complaining to a coach, to
let emotions cool. This is often part of a pledge
parents are asked to sign. Examples can be found
at PCADevZone.org and nays.org/parents.
Preteens should start learning to advocate for
themselves. Matt Herr, who coached prep-school
hockey for seven years, often got emails from parents that began, Dont tell my son that Im
contacting you, says Mr. Herr, a former pro
hockey player and a former player-development
manager with USA Hockey, the sports U.S. governing body. His response: Talk to your child,
and please have him come to see me, too.
Parents can monitor their own behavior by asking themselves what their child would see if he
looked up at them in the stands, Mr. Brown
says: Would he draw confidence, assurance and
poise from what he saw?
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Tracy Kistemaker of Strongsville, Ohio, agonized when watching her 11-year-old son Dylans
basketball games two years ago. Dylan was trying hard, but he seldom got the ball, because
the coach allowed four other players to dominate
play.
Ms. Kistemaker knew her son was devastated, but she kept a positive expression on her
face. Children feed off your emotions, she says.
She did deep-breathing exercises to stay relaxed.
Lamaze might be good for childbirth, but its
even better after you have your children, she
says.
She wanted Dylan to learn to hang in there in
tough situations. After the coach didnt respond
to her two email requests to meet and discuss the
problem, however, she and Dylans dad let him
quit the team. Now 13, Dylan is doing well in
soccer and track.
Write
to
Sue
Shellenbarger
at
sue.shellenbarger@wsj.com
1139
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Chapter
183
Australian Military to
Get Cozier With U.S.
SYDNEYAustralias
coming
strategic
blueprint will call for more closely entwining
its military with its U.S. counterpart, including
a more visible presence in the country of U.S.
naval ships and warplanes.
Defense Minister Kevin Andrews was to give a
preliminary outline Thursday of the 20-year, $300
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billion Australia dollar (US$214 billion) plan to

boost the military, which will be detailed in a
future white paper.
Through this white paper, the government
will seek to broaden and deepen our alliance with
the United States, recognizing that the U.S. alliance will remain fundamental to our security
and defense planning and the highest priority
for our international cooperation, Mr. Andrews
planned to say in a speech to U.S. and Australian
business groups. Parts of the speech were obtained in advance by The Wall Street Journal.
The much-delayed paper, now expected in October, is based on the long-standing belief that
Australias security is most effectively underpinned by a strong U.S. presence in Asia, offsetting a more assertive China.
But while it will lay out a more muscular approach in line with Washingtonand welcome the
U.S. strategic rebalance toward the region, as Mr.
Andrewss speech saysit will also look to avoid
overt criticism of Beijing.
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Six years ago then-Prime Minister Kevin Rudd

enraged China, Australias biggest trading partner, with a defense white paper that argued Beijings rise posed regional security risks.
Prime Minister Tony Abbott has promised to
boost military spending to 2% of gross domestic
product inside a decade, with a military budget
of A$32 billion next year and a cumulative A$132
billion over the next few years.
Last year Australia ranked sixth globally in
weapons imports, according to the Stockholm Institute for Peace Research, spending almost A$14
billion on arms.
A large chunk of the added spending will
go to a stronger open-ocean presence for Australias navy, including eight new submarines,
nine frigates and up to 20 corvettes at a cost of
A$89 billion. Australia is also introducing two
amphibious carriers and missile destroyers as well
as stealth fighter planes.
Submarine makers from Japan, France and
Germany are pursuing the business. Japanese
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shipbuilders and defense officials were in Adelaide

on Wednesday to push a 10-year, A$50 billion
deal for Soryu submarines. Japan is seeking to
become a major weapons exporter for the first
time since World War II.
This white paper will deliver a future Australian Defense Force that is potent, agile and
ready to respond whenever our interests are engaged across the world, Mr. Andrews was to say
in his speech, according to the excerpts.
It added that Force Posture Initiatives being
discussed with the U.S. and likely to be reflected
in the white paper would enhance the ability of
their militaries to operate together, building on
current rotations by U.S. Marines in Australias
north.
We are also continuing to develop enhanced
cooperation between the Royal Australian Air
Force and the United States Air Force, and we
are examining a range of practical options to enhance naval cooperation, the speech says.
Write to Rob Taylor at rob.taylor@wsj.com
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Chapter
184
Oil Prices Fall on Less

Gas Demand, Growing
Glut
Oil prices resumed falling after U.S. stockpile
data showed a surprise drop in gasoline demand
and record supplies of crude oil and petroleum
products.
The data reaffirmed growing concerns that the
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global oil market will remain awash in crude

through the end of the year.
Oil prices have plunged in recent weeks on worries that the global glut of crude that halved oil
prices in 2014 has yet to shrink. U.S. crude production remains near multidecade highs, despite
large spending cuts by producers, and members
of the Organization of the Petroleum Exporting
Countries continue to pump at high levels.
U.S. crude inventories unexpectedly fell by 5.5
million barrels in the week ended Aug. 21, but
stockpiles of gasoline and other fuels rose, pushing total supplies of crude oil and refined products to 1.283 billion barrels, a record in data going back to 1990, the U.S. Energy Information
Administration said Wednesday.
Light, sweet crude for October delivery fell 71
cents, or 1.8%, to $38.60 a barrel on the New York
Mercantile Exchange. Brent, the global benchmark, fell seven cents, or 0.2%, to $43.14 a barrel
on ICE Futures Europe.
Both benchmarks settled less than $1 a barrel
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above their six-year lows reached on Monday.

Robust gasoline demand has been a key factor
supporting the market this summer, as relatively
low prices at the pump and higher employment
have spurred more driving. Americans drove 1.54
trillion miles in the first half of 2015, a record,
based on the Federal Highway Administration.
But consumption of gasoline and other fuels fell
by about two million barrels a day in the week,
the EIA said, with gasoline accounting for more
than 500,000 barrels a day of that drop.
Its been a good driving season here in the
U.S., but it hasnt really been enough to bring inventories back down to average levels, said Rob
Haworth, senior investment strategist at U.S.
Bank Wealth Management, which oversees $127
billion. That supply overhang doesnt seem like
its going to go away very quickly.
Gasoline for September delivery slid 8.37 cents,
or 5.8%, to a seven-month low of $1.3549 a gallon.
Retail U.S. gasoline prices averaged $2.56 a gallon
Wednesday, the lowest price for that date since
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2004, according to AAA.

Analysts have warned that gasoline demand is
likely to wane at the end of the busy summerdriving season, which could weigh on oil prices,
along with seasonal refinery maintenance, which
typically lowers demand for crude oil in the fall.
Some market watchers expect commercial crude
supplies to reach records this year and even test
storage-capacity limits in some locations.
Crude inventories in Western Canada hit a
record of 27 million barrels last week, according
to data provider Genscape Inc.
U.S. crude output was nearly unchanged last
week at 9.3 million barrels a day, the EIA said.
We need to see production level off. Were just
not seeing that yet, said Joseph Tanious, investment strategist at Bessemer Trust, a New York
wealth-management firm overseeing $105 billion.
Also, investors are concerned that Chinas economic growth is slowing significantly, which could
reduce demand from the worlds No. 2 oil consumer.
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Traders say physical oil markets remain strong

and that the volume of oil cargoes being shipped
globally and toward Chinese ports continues to
rise. Chinese oil purchases on the Dubai spot
market are set to hit a record this month.
Still, some market watchers say high Chinese
oil imports are largely being driven by the countrys efforts to stockpile emergency reserves amid
low prices, rather than genuine demand for current use.
The same factors that have basically driven
us to six-year lows are still the main focus of the
market, said Gene McGillian, senior analyst at
Tradition Energy in Stamford, Conn. I think
the markets setting its sights on 09 lows. That
means that we have the possibility of another $6
or so to go. The U.S. oil benchmark fell as low
as $33.98 a barrel in January 2009.
Diesel futures settled down 1.43 cents, or 1%,
to $1.3809 a gallon, the lowest settlement since
April 2009.
David George-Cosh and Eric Yep contributed
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to this article.
Write
to
Nicole
nicole.friedman@wsj.com
1149
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Friedman
at
Chapter
185
Why Chinas Thirst

for Oil Cant Lift
Prices
SINGAPOREOil prices havent proved immune
as commodities prices tumble amid jitters about
Chinas economy, with key global benchmarks
trading around six-year lows. That is despite
Chinese crude demand remaining remarkably ro1150
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bust.
Chinese oil data might even be expected to be
pushing up prices. The countrys crude imports
jumped 22% in July compared with a year ago, to
7.25 million barrels a day, according to customs
data. That sort of surge might prove unsustainable, but Chinas oil imports could still rise by
over 7% this year, according to Citi Research.
Chinas oil thirst looks all the stronger when
compared with its appetite for other energy
sources. Demand for coal in the worlds secondlargest economy has slipped this year, for example.
Even so, oil-market participants blame China
for the latest leg-down in oil prices. The selloff was triggered by the plunge in Chinas stock
markets and the yuans devaluation earlier this
month, stoking fears of a hard landing for Chinas
economy and a collapse in its commodities demand.
West Texas Intermediate prices have slipped
to $39.60 a barrel in recent days, their first dip
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under $40 since March 2009, while Brent crude

has fallen to $43.50 a barrel.
While Chinas economy has been a depressing
factor for commodities in general this year. . . it
is only in the past two weeks that it has taken
over as the main driver of oil prices, said Paul
Horsnell, head of commodity research at Standard Chartered. STAN -5.06 %
So why isnt strong Chinese oil demand doing
more to support markets?
One answer lies in Chinas relative lack of clout
in international oil markets. The country accounts for around 12% of global demand. That
is high, for sureChina is the worlds secondbiggest oil importerbut low compared with its
role in metals and minerals markets. China accounts for roughly 40%-50% of global demand for
a range of industrial metals like steel and copper.
Moreover, the seemingly unstoppable rise in
oil supply from the U.S., thanks to the shale
revolution there, remains the key factor depressing prices. With other producers, particularly
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members of the Organization of the Petroleum

Exporting Countries, unwilling to cut output,
surplus oil from competing producers is driving
prices down rather than demand pushing prices
up.
But the negativity in oil markets, despite
Chinas high demand, also demonstrates the extent to which pessimism now pervades investor
attitudes globally.
Theres a clear disconnect between physical oil
markets and benchmark prices.
The oil market is no longer pricing in any sort
of soft landing for Chinas economy and is instead
losing confidence the countrys economy will stabilize, Standard Chartereds Mr. Horsnell said.
Regardless of actual oil supply and demand balances, market sentiment is now more negative
than during the 2008-09 global financial crisis,
he said.
Traders say physical oil markets remain strong
and that the volume of oil cargoes being shipped
globally and toward Chinese ports continues to
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grow. Chinese oil purchases on the Dubai spot

market are set to hit a record high this month.
Theres a clear disconnect between physical
oil markets and benchmark prices, a Singaporebased oil trader said.
Still, traders say high Chinese oil imports are
largely being driven by the countrys efforts to
stockpile emergency reserves amid low prices,
rather than genuine demand for current use.
A breakdown of Chinas fuel use also shows a
rapid deceleration in its consumption of diesel,
widely seen as a proxy for industrial demand
since it is most often used as a power source
by factories, in agriculture and commercial transport. Higher demand for gasoline and jet fuel are
partially offsetting the fall in diesel use. These
trends in Chinese fuel consumption reflect the rebalancing taking place in China, as it shifts from
an investment-driven economy to one driven by
consumers.
Chinas oil demand is sending us the same
mixed messages seen in other data, Jefferies an1154
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alysts said in a note.

Write to Eric Yep at eric.yep@wsj.com
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Chapter
186
Stephen Hawking
Offers New Theory on
How Information
Might Escape Black
Holes
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STOCKHOLMPhysicist Stephen Hawking offered up a new theory about how information

might escape the powerful clutches of a black
hole, an idea he hopes will help resolve one of
the most vexing enigmas of physics.
Prof. Hawking of the University of Cambridge
presented his idea at a small conference being
held at the KTH Royal Institute of Technology in
Stockholm. The six-day meeting, titled Hawking
Radiation, is a closed-door gathering of about
three dozen eminent physicists who have come to
hash out a puzzle related to black holes known as
the information paradox.
Black holes are cosmic entities that form when
stars of a certain size run out of fuel and collapse
inward. Their remaining matter gets squeezed
into a tiny area, which then leads to the creation
of an immensely powerful gravitational field. For
a long time, scientists believed that nothing could
escape the gravity of a black holenot even light,
the fastest phenomenon in the universe.
In 1974, Prof.
Hawking famously de1157
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scribed how black holescontrary to expectationswould emit radiation. Most physicists today believe that idea is correct and have dubbed
it Hawking radiation. However, Prof. Hawkings research also indicated that a black hole that
emits radiation will eventually evaporate and all
the information about every particle it has ever
swallowed should disappear for good.
I have now discovered how information is returned from black holes.
There lies the source of the enigma. Quantum
mechanicsa highly successful theory that describes physical phenomena at the scale of atoms
and subatomic particlessays that information
can never be lost, even when it falls into a black
hole. It is widely believed to be an inviolable law
of nature.
How to get around this so-called information
paradox? Some physicists suggested that perhaps information did somehow escape a black
hole. Prof. Hawking vociferously maintained
that this could never happen. Then, some three
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decades later, he presented calculations that

showed how information could leak out of a black
hole, after all. The challenge has been to figure
out how that might happen.
On Monday night, Prof. Hawking delivered
a talk about black holes for a lay audience in
Stockholm. At the end of his sold-out lecture,
which was attended by about 3,000 people, Prof.
Hawking couldnt resist throwing out a teaser.
I have now discovered how information is returned from black holes, Prof. Hawking said
from the dimly lit stage, as a strong spotlight
lit up his small, wheelchair-bound frame. I will
talk about it at the conference tomorrow.
At KTH today, Prof. Hawking made good on
his promise. In a highly technical presentation
delivered to fellow physicists and a handful of
other observers, he concluded: I propose that
the information is stored not in the interior of
the black hole as one might expect, but in its
boundary, the event horizon.
Prof. Hawking, 73 years old, had originally
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suggested that even though a black hole leaks out

radiation, that radiation doesnt carry any information about the material swallowed up inside
it. His new idea is that everything that falls in
affects the way the Hawking radiation comes out.
So information about what gets sucked in is really stored in the Hawking radiation after all. It
is thus not lost and quantum mechanics crucial
tenet isnt violated.
Physicists at the conference, which was coorganized by the University of North Carolina at
Chapel Hill and the Nordic Institute for Theoretical Physics in Stockholm, said it was an interesting theory but needed to be fleshed out further.
I wouldnt say the solution to the information
paradox has been found because there are several
competing ideas, said Carlo Rovelli, physicist at
the Aix-Marseille Universite in France and one
of the attendees. But Stephen being Stephen,
everybodys going to take it seriously.
Prof. Hawkings theory, if fact, echoes one
posed by Gerard t Hooft of Utrecht University
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and winner of the 1999 Nobel Prize in Physics.

Prof. t Hooft published his idea in 1996 but he
says it was buried in a long article and didnt
cause much of a stir.
In that article, I said that Hawking radiation
does carry information out of the black hole, said
Prof. t Hooft, who was also present at the conference. But, he added, the 1996 approach didnt
seem too promising because I made some assumptions and my calculations showed that I get
too much information escaping from the black
hole.
Prof. t Hooft said it wasnt clear whether Prof.
Hawkings version of the same theory would go
much further. I claim he is now where I was 20
years ago, he said. If he announces this as a
new idea, I wont be thrilled.
Write
to
Gautam
Naik
at
gautam.naik@wsj.com
1161
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Chapter
187
Stock-Market Tumult
Exposes Flaws in
Modern Markets
Mondays mayhem exposed significant flaws in
the new architecture of Wall Street, where stocklinked fundsas much as shares themselvesnow
trade en masse on U.S. markets.
Many traders reported difficulty buying and
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selling exchange-traded funds, a popular investment in which baskets of stocks and other assets
are packaged to facilitate easy trading. Dozens
of ETFs traded at sharp discounts to their net
asset valueor their components worthleading
to outsize losses for investors who entered sell orders at the depth of the panic.
Products built to provide insurance for investors came up short. As a result of trading
halts in futures tied to the S&P 500 index, it
was difficult for investors to get consistent prices
on contracts linked to them that offer insurance
against S&P 500 declines.
Elsewhere, the value of the most widely tracked
Wall Street gauge of investor anxiety, the CBOE
CBOE 3.62 % Volatility Index, or VIX, wasnt
published until almost 10 a.m. Monday, half an
hour after stock trading began and after the Dow
Jones Industrial Average had already posted its
largest-ever intraday point decline. That made it
difficult for investors to easily gauge the fear in
the market.
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ETFs have democratized investing, said

David Mazza, head of ETF research at State
Street STT 3.94 % Global Advisors, a major ETF
provider. But he and others added that ETFs
dont prevent investors from suffering losses if
they buy or sell when the market is under stress.
Analysts said that, while losses were inevitable
for some investors amid the turmoil, and unruly trading is hardly unheard of on late-summer
days, Mondays issues are likely to lead to
changes in how markets operate at times of uncertainty.
Circuit breakers, which are designed to pause
trading in single stocks and ETFs during big
moves, were triggered nearly 1,300 times Monday. The circuit breakers were added to make
markets more orderly after the May 2010 flash
crash, when the Dow Jones Industrial Average
dropped nearly 1,000 points before quickly recovering.
But Monday, they sometimes exacerbated
problems by preventing prices from returning to
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normal levels quickly, according to traders, investors and market observers.

For example, the $2.5 billion Vanguard Consumer Staples Index ETF and the $5.8 billion
Vanguard Health Care Index ETF both plunged
32% within the opening minutes of trading. The
Vanguard Consumer Staples ETF was halted six
times over the course of 37 minutes early in the
day, according to trading records. The healthcare ETF was halted eight times Monday.
The declines in these and other ETFs were notable in that they exceeded the declines in the
prices of their underlying holdings. In the case of
the Vanguard Consumer Staples ETF, the value
of the underlying holdings in the fund fell only
9%, according to FactSet.
The giant swings in the market and problems
with ETFs pointed to a need to rethink rules governing stock trading, analysts said.
There needs to be a deeper examination of
how the stock-market circuit breakers behaved on
Monday, said Joel Dickson, a senior investment
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strategist at Vanguard Group of Valley Forge, Pa.

There was a major market-structure component
to what happened.
The disarray also underscores the complications created by a decadelong boom in exchangetraded products pitched as providing investors a
convenient way to broadly play market trends.
Today, there are more than 1,400 ETFs trading
in the U.S. markets.
The turmoil Monday began when a steep selloff
in Chinese stocks overnight in New York led to
sharp declines in U.S. stock-index futures ahead
of the market open.
Blue-chip stocks from J.P. Morgan Chase JPM
5.01 % & Co. to Ford Motor Co. F 2.40 % to
HD 4.47 %
Home Depot Inc. HD 4.47 % opened at least
20% lower before largely recovering.
When the market sold off in the first six minutes of trading, many stocks were halted after
triggering circuit breakers, including stocks that
are included in popular exchange-traded funds.
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Because this happened so quickly, many ETF

market makers, or the broker-dealers who buy
and sell those products, were unable to accurately
calculate the value of the underlying holdings or
properly hedge their trades. That caused them
to lowball their buy offers and overprice their sell
orders to ensure they didnt take on too much
risk. This sent ETF market values tumbling, too,
and caused disruptions in the trading of other
assets.
Pricing options is almost impossible on the
kind of move you had that day, said Wayne Wu,
who trades SPDR S&P 500 ETF SPY5 -2.66 %
options on the NYSE floor for Integral Derivatives. An option gives investors the right to buy
or sell a stock or ETF at a set price by a set date.
In order to protect their positions, when market makers buy ETF shares, they often sell the
shares of an ETFs holdings as a hedge. The price
of ETFs is a derivative of the underlying stocks it
represents, so this allows them to mitigate some
of the risk. The number of trading halts in under1167
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lying stocks made this type of hedging impossible, traders said. Unable to properly hedge, they
traded less because it was too risky, they said.
I dont think ETFs are to blame, but there was
just such huge negative sentiment in the market,
it caused the market to sell off dramatically, and
ETFs were essentially another victim, said Mohit Bajaj, director of ETF trading solutions at
broker WallachBeth Capital LLC.
Analysts said many parts of the markets performed well Monday given the stresses created in
the global selloff. BATS Global Markets, one of
the three prominent U.S. stock exchange operators, processed 1.3 billion stock orders Monday,
a record amount for the firm.
Lansing,
Mich.-based financial adviser
Theodore Feight had set up an automatic sale for
iShares Core U.S. Value ETF IUSV 3.49 % if it
were to fall a certain amount. The ETF tumbled
34% in early trading, and instead of Mr. Feights
position selling at his target price of $108.69,
down 14%, it sold at $87.32, off 31%. By noon,
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the ETF had bounced back, and it ended the

day down 4.3% at $121.18.
Im really disappointed, said Mr. Feight, who
invested in ETFs for more than a decade. They
werent as liquid as they should have been.
We are concerned about the impact of this
dislocation on our clients, and are working with
a broad set of market participants to identify and
remedy whatever underlying issues exist, said
Melissa Garville, a spokeswoman for BlackRock
Inc., BLK 2.86 % a large ETF provider through
its iShares business.
The rise of ETFs has its roots in the Black
Monday selloff of 1987, when investors holding
mutual funds were frustrated that they couldnt
sell shares until the market closedat which
point the Dow industrials had tumbled 23%.
The answer born out of that frustration was to
create a way to trade a basket of securities. In
1990, funds that could do just this were created.
Since then, assets in exchange-traded funds in
the U.S. have ballooned to $2.1 trillion, according
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to Morningstar.
Individual investors are increasingly pouring
money into the products, attracted to the typically low fees and the ability to track indexes
like the S&P 500 using the increasingly popular
strategy of passive investing.
While several big-name stocks and ETFs
traded down more than 20%and some more
than 40%Monday, they didnt meet the standards to be canceled under the clearly erroneous
transactions rule of the stock exchanges. During the so-called flash crash in May 2010, some
trades were executed at as low as a penny or as
high as $99,999, which were determined to be erroneous and canceled. NYSE canceled all trades
that were more than 30% beyond opening prices
that day, though that only affected a handful of
stocks.
Dennis Houlihan, a financial adviser based in
Fort Wayne, Ind., said issues like those on Monday have implications that go far beyond portfolio losses for individual clients.
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On days like yesterday, its up for debate if

there was a larger, more systemic issue in the
market, said Mr. Houlihan. I think you are
going to lose generations of investors.
Write to Bradley Hope at bradley.hope@wsj.com,
Saumya Vaishampayan at saumya.vaishampayan@wsj
and Corrie Driebusch at corrie.driebusch@wsj.com
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Chapter
188
Australia Treasurer
Says Reaction to
China Slowdown Is
Overblown
SYDNEYGlobal market volatility sparked by
fears over Chinas worsening outlook and uncertainty surrounding U.S. interest-rate policy has
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been an overreaction, Australias top finance official said Wednesday.

In an interview with The Wall Street Journal, Australian Treasurer Joe Hockey said people shouldnt forget the underlying strength of
the worlds second-biggest economy nor underestimate Beijings determination to stimulate it.
Mr. Hockey also suggested he was better informed about the unfolding economic situation
than others further afield who sounded more
downbeat, since China is Australias biggest trading partner, accounting for some 140 billion Australian dollars (US$100 billion) in annual twoway trade.
Theres a lot of people sitting in London or
New York, or any other town or city a long way
from China, who is a self-proclaimed expert, Mr.
Hockey said. Were confident about our understanding of the Chinese economy and we see over
time huge opportunities for growth.
He added that Australia was part and parcel
of Chinas growth story, just as many emerging1173
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market economies have become reliant on the

country for their own growth.
The Peoples Bank of China cut interest rates
and flooded its banking system with liquidity
Tuesday, the latest effort to battle the countrys
deepening economic slowdown. Two weeks ago,
China also devalued its currency by almost 2%,
helping make its exports more competitive.
Still, analysts and investors remain concerned
such measures wont be enough to arrest a selloff
that has roiled markets from currencies to commodities. More than $1 trillion has evaporated
from Chinese equities over the past four trading
days.
Mr. Hockey said he was sympathetic toward
Chinas currency devaluation, arguing that stimulating the economy was understandably Beijings main priority.
Frankly I dont see it as currency wars, he
said. Obviously, from time-to-time they will
make decisions about the yuan that are in the
best interests of China. You can totally under1174
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stand that.
The Australian dollar has shed more than
5% and the benchmark stock index has lost
about 6% since the yuan devaluationwhich investors worry may point to deeper problems in
Chinas economy than many anticipated. One
research firm, Capital Economics, recently said
Australias growth could slow to 2.0% from 2.7%
last year if Chinas economy continues to weaken.
As economic growth slows, Chinas government
is trying to shore things up. Investors are questioning whether the Chinese government can successfully navigate its economy from an exportand infrastructure-driven one to one that is powered by services and consumer spending. Many
are also skeptical over the veracity of Chinas
economic data, with some economists predicting
growth rates of around 4% this year, well below
the official target of 7%, based on readings of
indicators such power generation and passenger
travel.
Mr. Hockey said given the market volatility,
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finance ministers and central bankers from major

economies meeting in Turkey next week should
reaffirm ambitions to increase global growth by
an additional 2.1% by 2018adding more than
US$2 trillion to the world economy.
But he said investors shouldnt expect those at
the G-20 meeting to approve any sort of coordinated intervention to steady markets. Its not
the job of central bankers to respond to equitymarket volatility, Mr. Hockey said. It is the
job of investors to see through that volatility, to
look for fundamentals. Im more positive about
the global economy than Ive been for a while.
As for U.S. rates, Mr. Hockey said their inevitable rise, possibly as early as next month,
should be welcomed as a sign of policy makers confidence in the nations economic recovery.
U.S. rates have been at levels near zero since early
on in the global financial crisis. Europe is also on
a surer footing, he added, thanks to lower energy
prices and a weaker euro.
Any movement should be seen as a sign of
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confidence. It illustrates the fact that they now

believe the worst is over and that were going to
see good growth in the worlds biggest economy,
Mr. Hockey said. We want that.
Still, Chinas problems and the volatility in
global markets has added a new layer of uncertainty as to the timing of any Federal Reserve decision to begin raising rateswhich is expected to
rock emerging markets that have benefited from
years of loose U.S. monetary policy.
Write to Rob Taylor at rob.taylor@wsj.com
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Chapter
189
Late Tumble in U.S.

Stocks Dashes Hopes
for Rebound
For most of Tuesday, U.S. stocks looked like they
would rebound from a week of China-driven woe
after Beijing cut interest rates and flooded its
banking system with cash, but the Dow Jones Industrial Average gave up big early gains to tumble
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1.3% in the final minutes of trading.

The late-day selloff shattered the veneer of stability that had settled over global markets following the latest moves by Chinas central bank to
battle a deepening economic slowdown and its
worst stock-market rout in decades. The Dow
had tracked European markets higher and was
up as much as 442 points at one point on Tuesday, but closed down 204.91 points at 15666.44.
The blue-chip index has now shed 11% after six
straight days of losses, and Tuesdays drop underscored that the pain sparked by Chinas surprise
devaluation of its currency earlier this month has
yet to come to an end.
Its disappointing to see the market give these
gains away, said Ed Cowart, portfolio manager
of equity income and value strategies at Eagle Asset Management in St. Petersburg, Fla. People
used the bounce to lower their exposure to equities. There is still a lot of concern out there.
Since Aug. 17, more than $2 trillion in market
value has been wiped out for U.S. stocks.
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The one-two punch announced by the Peoples

Bank of China late Tuesday was the second such
maneuver in two months. The central banks announcement came after the Shanghai Composite Index fell 7.6%, following an 8.5% plunge on
Monday. More than $1 trillion in market value
there has evaporated over the past four trading
days.
In a statement posted on its website, the Peoples Bank of Chinadubbed Yang Ma, or Big
Mama, in Chinasaid big fluctuations in financial markets around the world prompted it to
make flexible use of monetary-policy tools to
ensure steady growth.
The measures initially appeared to have
stemmed the contagion that had knocked global
markets for big losses over the past week. European markets rose, with Germanys DAX index
climbing 5%, Frances CAC-40 gaining 4.1% and
the U.K.s FTSE 100 rising 3.1%. Commodities
such as crude oil and copper posted modest rebounds, while U.S. Treasurys, seen as a haven in
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times of trouble, fell.

U.S. stocks also started off higher, shaking
off their beating Monday, when the Dow closed
588.40 lower. But Tuesdays early gains evaporated in the last half-hour of trading. The
broader S&P 500 index closed down 1.4%, to
1867.61, with all of its main industry sectors in
the red.
The latest market moves are likely to intensify
concerns over whether Chinas economic slowdown will spill over into the U.S. and whether the
Federal Reserve is likely to delay plans to start
to raise interest rates from near zero for the first
time in about a decade.
It is this tug of war between those who see
good opportunities and those who remain fearful
that Chinas slowdown will continue to worsen,
Kate Warne, investment strategist at Edward
Jones, said of the action in U.S. stock markets
Tuesday.
China has targeted year-over-year economic
growth of about 7% for 2015, which already
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would be the slowest pace in a quarter-century.

Data since July have called its ability to hit that
target into question. In particular, a privatesector gauge of factory activity fell to a 77-month
low in August. Meanwhile, the surprise 2% devaluation earlier this month of the countrys currency, the yuan, was interpreted by investors as
a sign that growth in the worlds No. 2 economy
is slowing more than Beijing had anticipated.
Chinese companies are struggling with high
debt loads and low prices. Persistently low prices
have put disinflationary pressure on the Chinese economy and has led to worries that China
could enter deflationa damaging spiral of falling
wages and priceswhich would push up borrowing costs and make it more difficult for businesses
to service debt.
Chinas economy will get worse before it gets
better, said Yu Yongding, a Chinese economist
and former adviser to the central bank.
With Tuesdays action, the Chinese central
bank has cut interest rates for the fifth time since
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November and broadly lowered for the third time

the amount of deposits banks are required to hold
in reserve. It is uncommon for the central bank
to simultaneously cut interest rates and banks
reserve requirements. The last time it made that
combo move was June 27, soon after Chinese
stocks started to sell off.
The steps have largely failed to lift market sentiment, raising concerns about the governments
ability to effectively manage the economy. The
issue for investors is whether the latest easing
steps will help restore, or further hurt, confidence
in Beijings stewardship.
One key question is whether these measures
will gain much traction at a time of slipping confidence and weakening growth momentum, said
Eswar Prasad, a Cornell University professor and
former China head for the International Monetary Fund.
On Aug. 11, the central bank unexpectedly devalued the yuan by setting its official rate nearly
2% weaker in a move it said was intended to bring
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the yuans value more in line with market expectations. The surprise action prompted investors
to sell the yuan both on the mainland and in
what is known as the Hong Kong offshore market
in expectations it would go lower.
China limits the yuans daily trading on the
mainland to a tight band, but under a new policy
its value is supposed to be determined more by
daily trading action. To contain those moves,
the central bank has frequently bought the yuan
and sold the U.S. dollar to prevent the Chinese
currency from falling too much.
Analysts at Orient Securities Co., a Shanghai
brokerage, estimate that the central bank has
spent more than $40 billion of Chinas roughly
$3.7 trillion in foreign-exchange reserves. It could
become costlier if the market continues to drive
the yuan down.
The intervention also has had the effect of
draining yuan funds out of the market, threatening to cause a shortage of money at Chinese
banks that already are battling rising bad-loan
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levels and falling profitability.

The Wall Street Journal reported Sunday that
the central bank had planned to flood the financial system with funding in a bid to counter a
liquidity squeeze.
The half-percentage-point reduction in banks
reserve requirements, which will become effective
Sept. 6, will pump about 678 billion yuan, or
roughly $105.9 billion, into Chinas banking system. After the interest-rate cuts, which will take
effect Wednesday, Chinas benchmark one-year
lending rate will fall to 4.6% from 4.85%, and the
one-year deposit rate will drop to 1.75% from 2%.
Peoples Bank of China officials hope the new
funds will encourage Chinese lenders to make
more loans to help the part of the economy
that can generate jobs and boost productivity.
Based on recent official data, credit to those areas
slumped in July, while lending to financial institutions surged amid government efforts to prop
up the stock market.
In the statement, the central bank said China
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faces an arduous task to maintain growth and

press ahead with overhauling the economy.
Grace Zhu, Leslie Josephs and Mark Magnier
contributed to this article.
1186
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Chapter
190
In Shanghai, Investors
Bemoan Stocks Rout
SHANGHAIFaced with a brutal stock-market
decline, the mood among many Chinese investors
has shifted from anger to despair.
Things are getting really complicated now,
said Tong Genshen, an 80-year-old retiree from a
state-owned tobacco firm in Shanghai, who was
trading stocks at a dimly lit but crowded local
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brokerage here. He said Tuesday that although

Mondays stock-market decline was triggered by
moves on Wall Street on Friday, we dont even
know who to blame now.
Mr. Tong spoke after Chinese stocks tumbled 7.6% in the latest trading session, bringing six-day losses to 26%, the latest swing in a
volatile year that has shaken investors confidence
in Chinas stock market. After the market closed,
Chinas central bank moved to stanch the turmoil
by cutting interest rates, reducing bank-reserve
requirements and eliminating the ceiling on most
bank deposits.
Still, like many investors, Gu Yuan, an employee of an Internet firm in Shanghai, said he
was increasingly skeptical of the governments
ability to handle the rout.
I was terrified by how messy government interventions have been, Mr. Gu said, calling
Shanghai not a normal market environment. He
added: Id rather be a spectator of Chinas stock
market than a participant from now on.
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After reaching a seven-year high, the Shanghai exchange, Chinas biggest, suffered one of its
worst selloffs between mid June and early July.
Beijing responded with drastic steps, including
an interest-rate cut, helping shares partly recover
late last month.
But the calm didnt last. Less than a week after Beijing abruptly devalued the yuan on Aug.
11, pessimism returned to the Chinese stock market following a plunge in global commodity prices
and emerging-market currencies.
The yuans devaluation was certainly a catalyst as it aggravated concerns about Chinas
weakening economy, but now the situation is
much trickier as the emerging economies, including our neighbors in Southeast Asia, are almost in
a currency war, said Chaoping Zhu, economist
at UOB Kay Hian Holdings Ltd., a Singaporebased brokerage firm.
The contagion quickly spread to Wall Street
and ricocheted back to Shanghai. To some observers, Chinese investorsespecially the mom1189
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and pop buyers that dominate the marketcould

only blame themselves.
The so-called bull market in China lacks the
support of either economic growth or corporate
earnings, said Peter Zhao, chief executive of Eagle Investments (Shanghai) Co., a private-equity
fund. Instead, its a market filled with speculators whose mood tends to quickly swing from
immature euphoria to extreme pessimism.
Unlike in previous heavy selloffs, in the past
two days Beijing didnt mobilize its so-called national teama stabilization fund to prop up the
market by buying blue-chip shares. On Monday
and Tuesday, Shanghais main index fell a total
of 15.4% and traded as low as 3004.
But some believe Beijing will return to supporting the market if needed. Theres a global
stock market crisis, but China is different, because it has the national team, said Ye Fei,
who manages the top-performing private securities fund Yi Tian. I believe they will make their
presence felt if stocks fall below the 3000 level.
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Still, Beijings inaction has left other local investors feeling abandoned.
The government must do everything to stabilize the market and the financial system, because
investor confidence is more precious than gold,
said Mr. Tong, whose 100,000 yuan of investments in Chinese stocks in February had nearly
doubled before the summer rout. The slump in
the past week has left him with half of what he
had when he started.
I am the best trader in this room. If I am
losing money like this, all these folks sitting in
the front rows had better go home.
Yifan Xie and Wei Gu contributed to this
article.
Write to Shen Hong at hong.shen@wsj.com
1191
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Chapter
191
China Reveals Guest

List for Big Military
Parade
China released the guest list for its World War II
Victory Day parade, providing a snapshot of its
growing clout in many parts of the world while
showing the strains the event is placing on relations with the U.S. and its allies.
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The military parade through Beijings Tiananmen Square on Sept. 3 marks the first time China
is commemorating the allied victory with such a
high-profile event. Top leaders from 30 countries,
including Russia, Venezuela and Sudan, will attend, and 17 countries will contribute troops to
the spectacle, senior Chinese officials told a news
conference Tuesday.
Absent from the guest list are leaders or troops
from the U.S. or other major Western powers that
fought alongside China in World War II. It also
doesnt include Kim Jong Un, the leader of North
Korea, Chinas only military ally.
The low Western turnout reflects concerns
that China will use the parade to showcase its
expanding military firepower and to discredit
Shinzo Abe, the Japanese prime minister, whose
spokesman has said he isnt attending.
Chinese officials say the commemoration isnt
aimed at Japan or any other country. Still, the
parade will feature 10,000 Chinese troops and
some of Chinas most advanced weaponry, includ1193
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ing fighter jets, attack helicopters and ballistic

missiles.
To compensate for the poor Western showing,
Beijing is inviting retired politicians and encouraging nations that played marginal roles in World
War II to send soldiers, according to people familiar with the discussions.
What this shows is the countries which are
keen to send a message that they want a strong
relationship with China, said Steve Tsang, senior
fellow at the University of Nottinghams China
Policy Institute.
It doesnt represent the people most actively
involved in fighting the Japanese.
Retired leaders attending include former U.K.
Prime Minister Tony Blair and former German
Chancellor Gerhard Schroder, Chinese Vice Foreign Minister Zhang Ming told the news conference. Also attending, he said, will be former
Japanese Prime Minister Tomiichi Murayama.
As prime minister in 1995, Mr. Murayama delivered an apology for Japans World War II ag1194
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gression, and this year he has accused Mr. Abe of

trying to go back on past government statements.
Current leaders attending the parade include
Russian President Vladimir Putin, Sudans President Omar Hassan al-Bashir and Venezuelan
President Nicolas Maduro, Mr. Zhang said.
Several Western countries, including the U.K.,
France and Australia, will send government ministers, while the U.S. is among nations that will
be represented by their diplomatic envoys in
China, Mr. Zhang said.
The U.S. Embassy didnt immediately respond
to a request for comment but it has urged China
to hold a forward-looking event that promotes
reconciliation and healing.
Qu Rui, deputy chief of operations for the Chinese militarys general staff, shrugged off the decision by the U.S. and certain other countries
not to send high-level delegations. We respect
countries choices over whether to come or not,
and we will extend our warmest welcome for all
foreign troops and delegations that have decided
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to come, Maj. Gen. Qu said at the news conference. He later added: History would not be
changed by the attitude of certain countries.
North Korea will be represented by Choe
Ryong-hae, secretary of the ruling Workers
Party, Mr. Zhang said. Mr. Choe is thought by
analysts and diplomats to be close to Mr. Kim,
the North Korean leader.
Mr. Kims absence is likely due to a cooling of
ties with Beijing, which has grown closer to Seoul
in recent years, as well as concerns about his own
domestic standing, especially given a recent exchange of artillery fire with the South, analysts
said.
It remains unclear whether South Korean President Park Geun-hye will attend Chinas parade.
Mr. Zhang said that she would, along with military observers. But a South Korean presidential
spokeswoman said Tuesday that President Park
hadnt decided yet and a decision would be announced at an appropriate time. A spokesman
for South Koreas Defense Ministry said that it
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would send three military observers.

Nearly 1,000 foreign troops will take part in
the parade in all, said Maj. Gen. Qu.
Belarus, Cuba, Egypt, Kazakhstan, Kyrgyzstan, Mexico, Mongolia, Pakistan, Serbia, Tajikistan and Russia were sending the largest contingents of about 75 troops each, he said. Another six countriesCambodia, Fiji, Laos, Vanuatu and Venezuelawere contributing smaller
teams of around seven people each, he said.
Write to Jeremy Page at jeremy.page@wsj.com
and Jeyup S. Kwaak at jeyup.kwaak@wsj.com
1197
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Chapter
192
In Beijings World War

II Narrative,
Communists Get
Starring Role
As Japanese troops rampaged across China in
1938, the countrys wartime leader Chiang Kaishek ordered his soldiers to breach the dikes that
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held back the Yellow River in a desperate effort

to slow the enemys advance.
A wall of water thundered over the fertile plains
of central China, destroying everything in its
path. The flood took around 500,000 lives and
made up to five million homeless.
In wartime China, for better or worse, it was
Chiang who made the fateful decisions when the
countrys future hung in the balance.
The Kuomintang generalissimo controlled the
armies that fought almost all the major battles,
confronting a vastly superior foe for eight years.
When eventually he sat down with U.S. President
Franklin D. Roosevelt and British Prime Minister
Winston Churchill to work out postwar arrangements for Asia, Chiang symbolized the heroic resistance that had earned China a seat among the
worlds top powers.
Yet as Beijing gets ready for a huge military
parade next week to mark the 70th anniversary
of World War IIs end, its version of history reduces the towering figure of Chiang to a minor
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player. On the outskirts of Beijingwhere the

first shots were fired in whats called The Chinese Peoples War of Resistance against Japanese
Aggressiona newly expanded national war museum almost completely omits mention of him.
Instead, the glory for defeating Japan goes to
Mao and his Communist guerrillas, who did play
a key role in pinning down 800,000 Japanese
troops in China, although largely in the rear.
The Communists husbanded their strength for
the subsequent civil war against the Kuomintang
that they won in 1949.
Beijings reading of history is intended to serve
two purposes: to emphasize the war guilt of
Japan, Chinas archrival, and elevate the role
of the Chinese Communist Party in defeating
Japanese militarism. Both support President Xi
Jinpings aspirations for China to throw aside the
postwar order in Asia and assert itself more vigorously.
Thats the message China will send next week
as warplanes streak over Beijing and missiles,
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tanks and goose-stepping soldiers parade through

Tiananmen Square. Mr. Xi is intent on challenging a regional security arrangement dominated by
the U.S. and its military alliance with Japan.
China, to be sure, has good reason to remind
the world about its enormous sacrifices14 million dead, 80 million refugeesthat helped the
Allies win the war against fascism.
In the West, the memory of those losses was
hastily buried in Cold War animus toward the
new Communist regime.
In todays China, theres a similar amnesia
about the Kuomintangs role.
But a proper accounting of the war, says
Rana Mitter, the author of Forgotten Ally:
Chinas World War II, 1937-1945 must go beyond a simple Communist-versus-Kuomintang
scorecard. An argument that one side did everything and the other side did nothing doesnt
stand up, he says. Besides, Mr. Mitter adds,
neither side could have prevailed without the critical intervention of America into the Pacific war.
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Me
Mr. Xis problem is that much of the world

isnt buying the official Chinese history on offer.
For a start, the narrative has transformed over
the years. During the Cold War, when China was
trying to lure Japan away from its alliance with
America, China didnt speak of Japanese wartime
atrocities. That changed after Beijings violent
1989 crackdown on student protesters when the
party fanned an anti-Japanese nationalism to
bolster its flagging legitimacy.
Moreover, theres little desire outside China
to vilify a peace-loving and democratic postwar
Japan (South Korea is a notable exception) or
to celebrate Chinas military rise, which explains
why so few world leaders plan to show up for
the Tiananmen spectacle. The venue is an added
turnoff: Tiananmen is indelibly associated in
Western minds with the Chinese armys 1989 assault on the pro-democracy demonstrators.
Nor is the region keen to see Americas role
diminished to accommodate a rising China. On
the contrary, Chinas assertiveness has triggered
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a clamor among its neighbors for America to beef

up its military presence.
Where does all this lead? Bitter disputes over
wartime history roil the politics of Asia, and may
sow the seeds of new tragedies. The rise of nationalism around the region exacerbates the dangers.
Yet its not all bleak. In China, Mr. Mitter notes pressure for a more reliable historical
reckoning coming from the grass roots of society. One surprising source adding nuance: online videogames that have given millions of young
people a detailed familiarity with the Kuomintangs top wartime generals, their battles and
victories. Comics play a similar role.
A poster this month for a war movie that appears to depict Mao at the historic Cairo Conferencethe meeting where Allied leaders mapped
out plans for postwar Asiawas met with a hail
of derision on social media. Mao, of course, was
never there. Chiang represented China.
In Taiwan, where Chiang led the Kuomintang
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in exile until his death in 1975, plans to mark the

wars end are more subdued.
Chinese historians acknowledge that Chiang
was a patriot but portray his decision to unleash
the Yellow River as a callous gambit that didnt
do much to contain the Japanese. Objectively,
it created a massive humanitarian catastrophe,
says Li Zongyuan, the deputy director of the Beijing war museum.
But the online ruckus around the war-movie
poster demonstrated how sections of the Chinese
public are pushing back against a concocted history. Thats the first step toward a reconciliation
that Asia urgently needs.
Write
to
Andrew
Browne
at
andrew.browne@wsj.com
1204
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Chapter
193
Oil Rebounds After

Rout
Oil prices staged a comeback on Tuesday, amid
gains from bargain hunting and short covering
spurred on by an interest-rate cut from Chinas
central bank.
Light, sweet crude for October delivery settled
up $1.07, or 2.8%, at $39.31 a barrel on the New
York Mercantile Exchange. Brent, the global
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benchmark, gained 52 cents, or 1.2%, to $43.21 a

barrel on ICE Futures Europe. Both had fallen
to fresh six-year lows Monday as a broad market
selloff sparked by China added to a series of massive losses from an unrelenting flood of supply.
The Peoples Bank of China said Tuesday that
it cut interest rates by one-quarter of a percentage point. That has encouraged broader market
rebounds, especially in U.S. and European equities, said Matt Smith, director of commodity
research at ClipperData, in a note. A slowdown
in the Chinese economy has been especially important for oil markets because the country is the
worlds second-biggest oil consumer after the U.S.
Anything the (Chinese) government does that
is viewed as credible will help the market, said
Amrita Sen, a market analyst at Energy Aspects.
[However], the broader theme is still that demand is very robust and its the supply side thats
been the problem. . . Prices need to be lower for
longer to make sure the supply side start reacting.
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Oil traders shrugged off a 7.6% decline in

Chinese equities, instead taking the opportunity
from a recent slate of losses to cover winning bets
on falling prices, analysts said. Investors should
expect the gains that caused Tuesdays comeback
to be temporary, said Daniel Ang, an analyst at
Philip Futures in Singapore. Oil could fall as far
as its 2008 lows, when the U.S. benchmark hit
$33.87 a barrel and Brent declined to $36.61, he
said.
The oil market is simply storing up power for
another down leg, Jim Ritterbusch, president
of energy-advisory firm Ritterbusch & Associates
said in a note.
Concerns about Chinas economy have coupled
with persistently high oil output from the U.S.
and the Organization of the Petroleum Exporting Countries, the 12-nation oil cartel, to sour
investor sentiment in recent weeks. Oil prices
plunged into a bear market last month and are
now down about 25% in the year to date.
The massive selloff in oil and commodities mar1207
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kets has prompted analysts to draw a comparison

with the global financial crisis in 2008 and 2009.
If anything, sentiment appears to be more negative now than it was in [the fourth quarter of]
2008, Paul Horsnell, global head of commodities
at Standard Chartered, wrote in a note.
Mr. Horsnell said after the 2008 financial crisis,
OPEC took some time to stabilize the market
with a production cut of 5.5 million barrels a day,
something that it hasnt done now and isnt likely
to do in the immediate future.
Some analysts believe the market is looking at
$35 a barrel as the next price target for WTI.
Supply, from both OPEC and non-OPEC producers, shows few signs of being curbed in any
significant way. The market is also anticipating
fresh supply from Iran, after its nuclear deal with
a group of world powers.
Mr. Ritterbusch said the belief in oversupply
may be reinforced by stockpile data due Wednesday morning. The U.S. Energy Information Administration posts its closely watched inventory
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report, and estimates from 10 analysts surveyed

by The Wall Street Journal showed that U.S. oil
inventories are projected to grow by 300,000 barrels, on average, in the week ended Aug. 21.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for
the same week showed a drawdown of 7.3 million
barrels in crude supplies, according to sources.
The group said gasoline supplies rose by 71,000
barrels and U.S. distillate stocks increased by 1.5
million barrels in the week, according to a source.
Analysts expect that gasoline stockpiles fell by
1.1 million barrels, but gasoline futures fell Tuesday, likely from BP BP 1.27 % PLCs announcement that it restarted a key unit of its large refinery in Indiana, analysts said. The move will make
gasoline supplies bigger and cheaper, especially in
the Midwest, and cut the amount of imported oil
the U.S. market will need for gasoline, analysts
have said. The refinery is a big consumer of U.S.
and Canadian crude. Brent prices were able to
equal only half of the U.S. price gain Tuesday.
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Gasoline futures settled down 3.24 cents, or

2.2%, at $1.4386 a gallon. They have fallen in
eight of nine sessions.
Diesel futures gained 0.23 cent, or 0.2%, to
$1.3952 a gallon.
Eric Yep contributed to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com
and Timothy Puko at tim.puko@wsj.com
1210
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Chapter
194
Traders Increase Bets

Against Yuan
China rattled global markets with the surprise
devaluation of its currency this month, and Wall
Street traders are betting that the adjustment
isnt over.
Wagers that Chinas yuan will weaken further
against the dollar have surged since the Peoples
Bank of China loosened its control over the cur1211
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rency. Investors are betting the yuan will weaken

4% to 6.75 per dollar over the next year, adding
to a 4.4% drop since Aug. 11.
The bets in part reflect expectations for slowing growth in China and concerns about capital outflows. Pressure also is piling up on other
currencies that could suffer knock-on effects. In
the Hong Kong dollar options market, the cost
of buying protection against a change in Hong
Kongs peg against the U.S. dollar, over the next
month, has surged to its highest in over a decade.
Traders and investors say the betting against
currency pegs in Egypt, Hong Kong and Saudi
Arabia accelerated after Chinas devaluation and
picked up further after Kazakhstan and Vietnam
moved to free their exchange rates too.
China devalued its currency Aug. 11, a reflection of slowing growth in the country. The move
put pressure on other export-driven emergingmarket economies around the world, many of
them already suffering from reduced Chinese demand for their oil and other commodities.
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Trading volume in the renminbi forward market has increased about 60% since the PBOC
announcement, according to an estimate by
Riverside Risk Advisors, an adviser on foreignexchange risks.
In the options market, where traders can buy
protections against a weakening of the yuan,
daily volume has jumped to $12 billion since the
PBOCs move, up from an average of $4.2 billion over the prior month, according to Riverside. The cost to insure against a weaker yuan
has surged from $30,500 per $100 million to $1.7
million since the PBOC move, traders say.
Many investors believe that the yuan could
come under more selling pressure, said Stephen
Jen, managing partner of London-based hedge
fund SLJ Macro Partners LLP. Mr. Jen expects
the yuan to weaken a further 10% against the
dollar this year.
Shortly after the PBOC move, the $1.6 billion Thornburg Developing World Fund rushed
to hedge all its renminbi exposure through the
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forward market.
The Chinese [authority] has made it clear that
it is willing to use the currency, if necessary, as a
tool to relieve some of the pressure on the economy, said Charles Wilson, a co-portfolio manager of the fund, which has a nearly 20% allocation to Chinese stocks.
Beijing has been trying to stave off speculation.
Overnight, the Chinese central bank cut both the
interest rates and the deposit ratios required for
banks, a rare move to provide more liquidity to
the markets and stimulate growth.
Chinese Premier Li Keqiang said Tuesday there
was no basis for the yuan to weaken further and
the exchange rate would be maintained at a basically stable level.
Betting against pegs can be a risky undertaking. China had $3.65 trillion of foreign-exchange
reserves at the end of July and has reasons to
fight further substantial weakening of the yuan,
which could worsen capital outflows and hurt its
efforts to get the yuan added to the International
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Monetary Funds basket of reserve currencies.

China doesnt necessarily want a significantly
weaker currency, said David P. Loevinger, a
sovereign analyst in TCW Group Inc., who was
a senior coordinator for China affairs at the U.S.
Treasury Department.
But short sellers continued to swarm over the
yuan and other currencies. Investors are looking at whos next, said Cynthia Wong, head
of Societe Generale SAs emerging market Asia
fixed income and currencies trading in Hong
Kong and Singapore.
Many countries, especially in Asia, had abandoned their currency pegs following the Asian financial crisis. Still, there are dozens of countries
that keep their currencies pegged to the dollar or
euro. In Europe, the Danish krone and Bulgarian lev still are pegged to the euro. Many African
countries use the CFA franc that is pegged to the
euro, while a few choose to peg the South African
rand. In Asia, the Hong Kong dollar is pegged to
the U.S. dollar, while Nepal pegs its currency to
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the Indian rupee.

Central Asias Kazakhstan was the latest country that let go of its currency. Last week, the government decided to remove the dollar peg for the
tenge amid falling copper and oil prices, leading
to an over 20% depreciation of the currency.
Policy makers across the developing world have
intervened in the market to keep their currencies
in narrow trading bands, in some cases dipping
into formidable foreign-exchange reserves to do
so. But wild market swings can make that task
more difficult while raising concerns about the
ultimate cost of the effort.
The market sees Chinas devaluation as an opportunity to try to find whether thats truly the
level at which they want to defend or whether
its going to move more, said Ricardo Adrogue,
head of emerging-market debt at Babson Capital
Management, which has $212.8 billion of assets
under management.
Investors are betting on the Egyptian pound
to depreciate 22% in 12 months to 10.06 per dol1216
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lar from the currency peg to the dollar at 7.82.

Egypt has been struggling from record trade and
budget deficits due to poor growth. So far this
year, the Egyptian government has already devalued its currency twice.
Even though theyre trying to hang on to this
peg over the last few years, it has been slipping
generally, said Peter Lannigan, an emergingmarkets strategist at CRT Capital Group LLC.
The Saudi central bank has effectively fixed the
riyals exchange rate with the U.S. dollar since
1986. Some analysts say that the peg could be
vulnerable due to the rapid fall in the price of
oil. Though the kingdom still boasts among the
largest foreign reserves in the world, they have
declined 9% over the 12 months ending in June
as a result of lower oil revenue, according to the
International Monetary Fund.
On Tuesday, a senior Saudi central bank official
confirmed its commitment to the currency peg,
saying that the policy has served the kingdom
well in the past.
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Hong Kongs 32-year-old peg to the U.S. dollar

is backed by its de facto central banks currency
board and has weathered bouts of volatility. The
Hong Kong Monetary Authority closely monitors
the peg against the U.S. dollar and is obliged
to intervene if the currency tests the limits of
HK$7.75 or HK$7.85 against the U.S. dollar.
A representative from the authority said the
exchange rate and interest rates have remained
steady, and that Hong Kongs government is
fully committed to maintaining its peg.
Strains in global markets have forced central
banks in several countries to abandon long-held
currency policies. Late last year, Russias central bank announced that it would let the ruble
float freely as the countrys economy came under
stress. Switzerlands central bank abandoned its
long-held cap on the value of the franc earlier
this year, sending the currency soaring against
the euro.
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Chapter
195
U.S. Stocks Tumble at

Close, Dashing Hopes
for Relief
U.S. stocks resumed their tumble after a brief upturn on Tuesday, as actions by China to shore up
its economy failed to soothe investors rattled by
the weeklong rout.
After Mondays tumultuous session, during
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which the Dow Jones Industrial Average plummeted more than 1,000 points intraday, trading
was calmer. But worries about the pace of global
growth persisted, and an early rally presented
investors with an opportunity to sell shares at
prices higher than in previous days.
The blue-chip index surged by as much as 442
points before paring gains the rest of the day.
Selling accelerated ahead of market close, with
the Dow industrials ending down 204.91, or 1.3%,
lower at 15666.44. The index has shed 11% after
six straight days of losses.
The late-day selloff shattered a veneer of stability that had supported global markets after Chinas central bank cut interest rates and
flooded its banking system with liquidity. The
announcement from the PBOC, which came after many Asian markets had closed, helped buoy
shares in Europe and spurred exits from havens
such as Treasurys and the Japanese yen.
Its disappointing to see the market give these
gains away, said Ed Cowart, portfolio manager
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of equity income and value strategies at Eagle

Asset Management. People used the bounce to
lower their exposure to equities. There is still a
lot of concern out there.
Commodities such as crude oil and copper
posted modest rebounds, and moves in emerging
markets were subdued.
Tuesdays moves are likely to intensify the debate over whether Chinas economic slowdown
will spill over into the U.S. and whether the Federal Reserve is likely to hold off on raising interest
rates in response to the market turmoil. Fed officials have said they believe the U.S. recovery has
picked up enough speed to warrant the first rate
increase in nearly a decade.
Before the latest gyrations, many economists
and investors expected the Fed to tighten at their
next policy-making meeting in September. Fedfunds futures, used by investors and traders to
place bets on central-bank policy, showed Tuesday that investors and traders see a 21% likelihood of a rate increase in September, according
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to data from the CME Group. CME 2.96 % A

couple of weeks ago, the odds were around 50%.
It is this tug of war between those who see
good opportunities [developed markets equities]
and those who remain fearful that Chinas slowdown will continue to worsen, said Kate Warne,
investment strategist at Edward Jones.
A reading of U.S. consumer confidence for
August rose to the highest level since January.
However, the survey was conducted this month
through Aug. 13, meaning responses dont reflect
sentiment following the recent financial markets
plunge.
Earlier Tuesday, there was no letup in the
selling in Chinese markets. Shares in Shanghai
closed 7.6% lower as the index fell below 3000 for
the first time since December, following the worst
one-day loss in more than eight years on Monday.
Japans Nikkei closed 4% lower after staging a
short-lived recovery.
European shares rebounded sharply from the
previous sessions slump. The Stoxx Europe 600
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index closed 4.2% higher, its biggest one-day gain

since September 2011.
Germanys DAX rose 5%, Frances CAC 40
climbed 4.1%, and the U.K.s FTSE 100 was 3.1%
higher.
I suspect things will calm down in the short
term, said Guy Foster, head of research at
wealth manager Brewin Dolphin. BRW -1.85 %
Some investors went bargain hunting in the
wreckage of the stock-market selloff. Some stocks
that had suffered big declines in recent weeks
were able to eke out gains on Tuesday. Among
the Dow industrials, Apple and Walt Disney both
closed 0.6% higher. In the past week, Apple
shares are off 11% while Disneys are off 10%.
All sectors in the S&P 500 500 ended lower,
with utilities companies and telecom shares down
the most, coinciding with a bounce back in Treasury yields. The S&P 500 fell 25.60, or 1.4%,
to 1867.61, the lowest since October 2014. The
Nasdaq NDAQ 1.74 % Composite Index declined
19.76, or 0.4%, to 4506.49.
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The yield on the 10-year Treasury note jumped

back above 2% after piercing that level early
Monday. In late-afternoon trading in New York,
the yield closed at 2.133%, marking the biggest
one-day increase since July 2013. Later, the yield
crept back down as stocks sold off.
There seems to be a more rational, calm environment today, whereas yesterday was more
panicky, said Jim McDonald, chief Investment
strategist at Northern Trust.
Investors are realizing that growth in the U.S.
and Europe is driven more by domestic factors,
rather than a reliance on exports to China, Mr.
McDonald said.
Because of that, there is an increased confidence that Chinas crisis wont contaminate developed markets, he said.
Oil prices also steadied, with Brent crude 1.2%
higher at $43.21 a barrel. U.S. crude rose 2.8%
to $39.31.
Is this the bottom? We dont know. But
risk assets are much better priced than they were
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three weeks ago, said Colin Harte, a multiasset portfolio manager at BNP Paribas Investment
Partners, BNPQY 2.80 % which manages 532
billion ($611.4 billion). Mr. Harte said he has
bought global stocks and emerging-market bonds
after Mondays selloff.
Some investors were skeptical that global
growth could persevere against the double
whammy of a sharp deterioration in the outlook
for China and higher rates in the U.S.
The world economy isnt robust enough to
deal with that uncertainty, said Scott Jamieson,
head of multiasset investing at Kames Capital,
which manages 52 billion ($81.7 billion) of assets. I dont think we are out of the woods yet.
Tommy Stubbington contributed to this article.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com
and Leslie Josephs at leslie.josephs@wsj.com
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Chapter
196
For All Its Heft,

Chinas Economy Is a
Black Box
For sheer clout, Chinas economy outweighs every country in the world save the U.S. But on
transparency, it remains distinctly an emerging
market, with murky politics, unreliable data and
opaque decision making.
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This veil dims the understanding of Chinas

economy and is an important reason its recent
slowdown has produced so much turmoil.
Economists widely doubt that China grew at
a robust 7% pace in the second quarter, as the
countrys official statistics say. Citing other data,
such as power generation and passenger travel,
some think the rate might be as little as half that.
Similarly, when the Peoples Bank of China devalued its currency two weeks ago, a step that
sparked much of the recent market upheaval, officials couched the move as part of a long-term
effort to align the yuans value more closely with
market forces. Some outside analysts, noting
that the PBOC isnt independent, saw a more
political motive: to boost exports and thus bolster the Communist Partys credibility and hold
on power.
In many ways, China is more transparent than
it was a decade ago, and also no worse than some
other countries whose troubles have roiled world
markets, such as Mexico or Russia.
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The difference is size. Mexico accounted for 2%

of the worlds gross domestic product, in dollar
terms, when a peso devaluation in 1994 touched
off the tequila crisis. The five countries at the
center of the 1997 Asian crisis represented 4%.
Russia made up a mere 1% of world GDP in 1998
when it defaulted.
China represents 15% of world economic output. It is a major export market for industrialized countries such as Japan and Germany as well
as for commodity exporters like Brazil and Australia. Its economy contributes a sizable chunk of
the profit growth of many Western multinationals.
Japan accounted for a comparable share of
world GDP when its stock and property bubbles imploded in the early 1990s. But Japan
was a member of the Group of Seven advanced
economies, with democratically accountable and
stable institutions. China is far harder to read
than any member of the G-7.
With my G-7 and many G-20 counterparts
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there were frank, honest conversations, you were

on the phone pretty frequently, often weekly, recalls one former Treasury official who still deals
extensively with China for the financial industry.
With China, you dont know who to call. Its
hard to know where decision making occurs or
whos calling the shots.
In many ways, China has become less opaque
in recent decades, in part to meet the demands
of other countries and of institutions such as
the World Trade Organization and International
Monetary Fund. Many of Chinas rules and regulations are published online. The foreign press
has a significant presence and was allowed to attend a news conference by the PBOC after the
yuan announcement.
China expert Nick Lardy at the Peterson Institute for International Economics says suspicions
about Chinas statistics are overblown. Chinas
National Bureau of Statistics has made big efforts
to improve the data since 2008, he says, including
by running two immense censuses involving 10
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million survey takers. The agency has defended

the reliability of its data.
China will maintain a mid to high speed of
growth this year, a spokesman from the Chinese
embassy in Washington said, adding that China
maintains an open and transparent policy and
legal environment.
China also relies less than it used to on local
government statistics when calculating GDP and
more on its own surveys. Local officials were seen
as under more pressure to show positive results.
Adding up Chinas provincial GDP often yields a
much higher figure than what the National Bureau of Statistics reports.
Nonetheless, no major advanced countrys
statistics are viewed as skeptically as Chinas.
In 2007 Li Keqiang, now Chinas premier, told
the U.S. ambassador, according to a memo released by WikiLeaks, that GDP is man-made
and therefore unreliable.
Mr. Li, who was then Communist Party chief
of Liaoning province, said he looked at data on
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electricity, rail cargo and loans to get a better

gauge on economic activity. Several analysts have
since come up with indexes based on Mr. Lis
favorite stats.
In London, Capital Economics looks at freight
activity, electricity, property development, passenger travel and sea shipments, and concludes
Chinas economy expanded much more slowly in
the second quarter than China reported. Lombard Street Research, another London research
outfit, uses another approach, including a different measure of inflation, and comes up with just
a 3.7% growth rate.
Chinese statistics are spookily stable from
quarter to quarter, says Capital Economics analyst Mark Williams. For instance, Chinas unemployment rate registers 4.1% nearly every quarter.
Analysts have tried to work around the flaws
and gaps. Real-estate analysts will go to individual housing projects and count gas meters to
get an idea of how many apartments are occu1231
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pied. Steel traders will swap stories with their

competitors about the amount of steel backing
up in warehouses.
But the gaps become more problematic at
times like this when they can mask important
aspects of the economy. For example, China
publishes its foreign-currency reserves but not
whether some have been lent out and thus arent
readily available, notes Ted Truman, a former
Treasury official now at the Peterson Institute,
though China has pledged to start doing so by
year-end. Nor does China confidentially disclose
to the IMF the composition of its reserves, as
many countries do.
Central banks in most countries have become
more independent and transparent, publishing
detailed meeting minutes, forecasts and numerical goals. The PBOC has opened up a bit, but
its most important decisions must be approved
by the top body of either the government or the
Communist Party. If one of these overrules the
central bank, youll never get the minutes on
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that, notes one Wall Street executive.

Chinas leaders are heir to a tradition of secrecy. In 1971, when Mao Zedongs anointed successor died, the public wasnt told for nearly two
months. In the current corruption crackdown, it
can still be weeks or months after senior or retired leaders disappear before their detention is
announced.
For years, Chinas opacity delivered a Wizardof-Oz effect. Chinese leaders were perceived as
omnipotent and great managers who had a very
precise, top-down approach, said Diana Choyleva, chief economist at Lombard Street Research.
Beijing economic officials had many more levers
than their Western counterparts, such as ordering
state-owned banks to lend to targeted industries.
The absence of democracy was seen as enhancing
their freedom to act, as in 2008 and 2009 when
China ordered up a massive stimulus plan.
That opacity lately seems to have backfired.
Officials interventions on the stock market have
appeared ineffective, and on the exchange rate
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contradictory.That preoccupation with internal

stability is a factor the rest of the world will have
to weigh in watching Chinas actions. In 1998,
the Federal Reserve cut interest rates out of concern for the rest of the world, then roiled by the
Asian and Russian financial crises. Chinas decision to devalue, which props up its own exports
while damping growth and inflation in the rest of
the world, suggests that for now, the rest of the
world comes second.
Opinion on Chinas policy-making prowess
may have swung too far from omnipotent to impotent. China still retains leverage over the economy through its ownership of the banks and limits on cross-border capital flows.
Attempting to stimulate growth through
higher lending and investment risks aggravating
the dangerous debt buildup that followed the
first stimulus. Even so, an economic slowdown
could weaken support for President Xi Jinping in
Chinas rising middle class and embolden critics
reeling from his anticorruption drive, says Cheng
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Li of the Brookings Institution.

Write to Greg Ip at greg.ip@wsj.com and Bob
Davis at bob.davis@wsj.com
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Chapter
197
Asia Consumer
Spending Wont Come
to Rescue
SINGAPOREGlobal economies roiled by slipping growth and a market rout rippling out from
China arent about to be saved by a boost in
consumer spending from Asia, where household
consumption is rapidly slipping away as one of
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the regions last strong growth drivers.

As household debt rises and economic growth
slows in many countries, as it has done for well
over a year, consumption is also falling. Currencies have plummeted in value, tying the hands of
central banks that would otherwise be able to cut
interest rates to boost spending.
The fact is that until this point the domestic economies have been providing us with a bit
of a cushion and enabling the region to outperform other emerging markets, said Joseph Incalcaterra, Asia-Pacific economist at HSBC in Singapore. But now we are at the brink, where
there are very strong indications that that is
starting to fall away.
The timing couldnt be worse. Concerns about
the pace of global growth, fed by a slowing China
this week, prompted one of the biggest routs in
global markets since the 2007-2008 financial crisis.
In the background lies a gradual closing of wallets across most of the worlds most-populous re1237
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gion. Household spending on consumption fell

more than 4% year-over-year in the three months
ended June in Indonesia and Malaysia, two of
Southeast Asias linchpin economies, according
to statistics compiled by CEIC Data. In Thailand, growth in consumer spending slowed to
1.3% year-over-year in the second quarter from
4% in the first.
In South Korea, efforts to wean the economy
off reliance on exports to China through stimulus
spending and interest-rate cuts have been hampered by household debt constraining consumption. In China and Taiwan, aging populations
have led to a shrinking workforce, further suppressing demand.
Indications of slowing consumer spending are
everywhere: passenger-vehicle sales in China fell
6.6% year-over-year in July, the second consecutive month of declines in a market that has been
among the worlds fastest-growing. Consumer
confidence is around its lowest level in Indonesia since a period of market volatility at the end
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of 2013, the ANZ-Roy Morgan index shows. In

Thailand, confidence is at its lowest in more than
a year.
The end of the long Chinese-led commodity
boom has been playing through some countries
for a while. Indonesia, a major supplier of coal
and other commodities, saw post-financial-crisis
growth peak at around 6.2% in 2010. The realization that there wont be a quick turnaround
has sunk in.
Ine Noor, a director at a yoga company based
in Jakarta, said she had canceled a planned trip
to London and Paris later this year because of
the fall in the Indonesian rupiah. I also think
I should save money to brace for the economic
slowdown, Ms. Noor, 40, said.
Glenn Maguire, ANZ Research chief economist
for South Asia, Southeast Asia and the Pacific,
said he had expected global growth to be driven
by U.S. consumer-led demand this year. But U.S.
consumer demand remains lackluster and Chinese corporate demand continues to fall.
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What weve seen is the economic equivalent

of a relay baton drop, where China is slowing
and the U.S. consumer remains cautious, Mr.
Maguire said. You are just not seeing the U.S.
consumer fire.
Cheap credit has led to a buildup of household
debt in Asia, which has strangled spending as
consumers struggle to pay off previous loans.
High-frequency data show retail sales in Indonesia fell 5.3% year-over-year. Sales fell more
than 13% in Singapore, a typically volatile market, its fourth straight month of contraction.
Meanwhile, farmers in Asia have been particularly hard hit by falling commodities prices and
have less purchasing power as a result.
Rice farmers now are in trouble, said Chamnan Chingbutra, 68, a rice farmer in central Thailand. We have been forced to spend less. Prices
of other consumer goods have been increasing
while the price of rice and other crops are falling.
What weve seen is the economic equivalent of
a relay baton drop, where China is slowing and
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the U.S. consumer remains cautious.

Consumer spending accounts for 56% of gross
domestic product in Indonesia, 58% in Thailand
and 52% in Malaysia. Chinas rapid development
raised hopes the worlds second-largest economy
would transition toward consumption-led growth
from one driven by manufacturing and construction. But consumer spending accounts for only
38% of GDP, compared with 41% 10 years ago.
There are some bright spots. In India, where
private spending contributes around 57% of GDP,
consumers are expected to remain a sturdy pillar of growth as the government works to connect
more of the population with electricity, bank accounts and decent roads. Household and business spending grew 6.3% in the 12 months ended
March, statistics show.
Indeed, some say even China itself could provide a much-needed boost to consumer-focused
companies. Apple Inc.s second-quarter sales
topped $13.2 billion, more than double a year earlier, according to Chief Executive Tim Cook, who
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reassured investors this week that its China business is still healthy. Although economic growth
in China has slowed, the country is still growing
faster than many of its emerging-market peers,
boosting its middle class.
Yet concerns remain that many Asian
economies that had binged on cheap credit in the
past few years are becoming less likely to grow
themselves out of that debt, leading to a new
normal of slower trend growth. This dynamic is
being felt in the markets this week as earnings
disappoint and investors fearful of slower growth
sell assets across the region. In the year through
Mondays close, the MSCI Asia ex-Japan index
had fallen 17%, while several currenciesnotably
Malaysias ringgit and Indonesias rupiahhave
fallen to levels not seen since the Asian financial
crisis 17 years ago.
Raymond Zhong in New Delhi, Wilawan
Watcharasakwet in Bangkok and I-Made Sentana
in Jakarta contributed to this article.
Write
to
Jake
Maxwell
Watts
at
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Me
jake.watts@wsj.com
1243
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Chapter
198
China Shares Wipe

Out All Gains This
Year
Chinese stocks suffered their worst single-day loss
in more than eight years, spurring a fresh phase
of a global selloff that dragged the Dow Jones
Industrial Average to an 18-month low.
The plunge in China shines an unwelcome spot1244
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light on the countrys financial condition just as

its leaders are putting on two big events meant
to showcase Chinas global standing.
Chinese government media dubbed it Black
Monday, a surprisingly bleak description to
come from the Peoples Daily, which normally
tries to cushion bad news. The Shanghai Composite Indexs 8.5% loss was its biggest percentage decline since February 2007, leaving the market down 0.8% for the year and down 38% from
its mid-June peak. At that point, stocks were up
60% for the year, having doubled over the preceding 12 months.
Compared with the selloff in June and July,
when investors still harbored hope of government rescue measures, this time investors are
completely despairing, because the previous government stabilization measure have failed, said
Amy Lin, analyst at Capital Securities.
Coming on top of a global downturn on Friday, it spurred more selling across Asia, Europe
and the U.S. The Dow Industrials tumbled 588.40
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points, or 3.6%, to 15871.35, the lowest level

since February 2014. Minutes after the open
of U.S. trading, the blue-chip index plummeted
more than 1,000 points but later pared losses.
Driving the global selloff is the concern that the
once-highflying Chinese economy may be slowing
significantly, which has triggered steep losses in
global stock markets, commodities and emergingmarket currencies. Chinas surprise currency devaluation two weeks agowhich could make its
exports more competitiveand a string of weak
data signal the economy may be feebler than expected, despite a campaign to rev up growth that
has included interest-rate cuts and measures to
boost lending.
The smaller Shenzhen market fell 7.7% to
1882.46, putting it down 40% from its June peak.
Both indexes have fallen past bottoms hit in early
July. In the days leading up to that low point,
the government intervened to stem the selling.
Investors were poised for another pounding on
Tuesday, with New Zealands stock market open1246
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ing 2.3% lower and futures for Australian shares

also pointing down.
Mark Lu, 30 years old, said after the government started buying stocks to boost the market,
he followed suit. I have never thought of the
plunge, he said. It totally ran counter to the
governments intention.
Mr. Lu said he is planning to load up on more
stocks, as he believes the market is nearing the
bottom. I know it sounds like a gamble, he said.
But sometimes the Chinese market is indeed a
casino.
The decline comes at an embarrassing time for
Chinas leaders. The government already has
shut down parts of central Beijing in preparation for a Sept. 3 parade that will feature about
12,000 troops and nearly 200 aircraft. Marking
the 70th anniversary of the end of World War II,
it is meant to highlight how far the country has
come since then.
The other big event, the world track-and-field
championships, serves as a reminder of a recent
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high point in China. The competition is being

held in the stadium known as the Birds Nest,
built for the 2008 Olympics, when the country
was coming off three years of nearly 13% annual
growth.
Shanghais performance is increasingly a factor for investors in global markets, even though
Chinas mainland market isnt yet fully accessible
to foreigners.
Stock markets across the regionfrom Japan
to Australiaslid more than 4%, and a number
of currencies in the region fell to multiyear lows.
Traders are looking to Chinas next easing
move after The Wall Street Journal reported that
the central bank is preparing to flood the banking
system with liquidity to increase lending.
One measure analysts are expecting is a cut to
banks reserve-ratio requirements, the third such
cut in an easing cycle that began last November.
Such a move, allowing banks to keep a lower share
of their deposits on reserve at the central bank,
could potentially free up hundreds of billions of
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yuan in funds from banks to make loans.

Some 2,153 stocks trading in Shanghai and
Shenzhen fell by the 10% daily limit allowed
by regulators, according to Wind Information
Co. That means at least two-thirds of mainland shares were effectively untradablebargain
hunters have to wait until at least the next trading day. Among the hardest-hit stocks in China
were brokerages. Citic Securities Co., one of
Chinas biggest, was down by its 10% limit Monday and has fallen more than 50% this year.
The global stock rout hit India, which had been
one of the best-performing emerging markets in
the world. Indias S&P BSE Sensex fell 5.9%,
its largest one-day percentage drop since January
2009. For the year, the benchmark is down 6.4%,
at 25741.56its lowest point in 13 months.
Hong Kongs Hang Seng Index, which last week
slipped into bear-market territorydefined as a
drop of more than 20% from a recent highslid a
further 5.2% to 21251.57. A benchmark of Hong
Kong-listed Chinese companies fell below 10000
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for the first time in more than a year, finishing

off 5.8% at 9602.29.
Hong Kong Financial Secretary John Tsang
held a news conference in a bid to calm jitters.
Hong Kongs financial market is still operating
in an orderly manner and in a smooth fashion,
he said.
Japans Nikkei Stock Average was down 4.6%,
Australias S&P ASX 200 was off 4.1% and
South Koreas Kospi was down 2.5%. Taiwans
Taiex, Asias worst-performing stock index this
yeardown 20%fell 4.8%.
In currencies, losses accelerated as nervous investors pulled out cash. The Malaysian ringgit
led the way, falling to a fresh 17-year low, while
the Thai baht fell to a six-year low and the South
Korean won to a four-year low, all when measured
against the U.S. dollar. Indonesias rupiah weakened to a multiyear low, while the Philippine peso
fell to its weakest in almost five years.
The global tone towards emerging markets is
getting worse, and [investors] risk aversion is
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broadening, said Rajeev DeMello, head of Asian

fixed income in Singapore at Schroders, which
has $487.4 billion under management.
The ringgit spiraled down after Swiss authorities opened a criminal probe into the relationship
between suspicious transactions in the countrys banking sector and state investment fund
1Malaysia Development Bhd. The currency was
down 1.5% against the dollar and is down 21%
for the year.
Asian bond prices fell relatively modestly, with
heavier selling in high-yield corporate debt, including that of Chinese property businesses and
Indonesian companies. But if the rout continues,
investors could start turning to their more-liquid
assets to cover losses or meet margin callswhen
brokerages ask borrowers to add more money to
their trading accounts or to unwind their bets if
the market has fallen below certain thresholds.
If the stock rout continues, that will create
a systemic selloff, as investors will need to raise
cash to cover margin calls amid equity falls, said
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Ben Sy, Asia head of fixed income at J.P. Morgan

Private Bank in Hong Kong. Fixed income is the
only area for them to raise cash.
U.S. oil prices tumbled. Futures for West Texas
Intermediate fell by 2.8% to $39.33, after falling
below the $40 mark Friday for the first time since
2009. Brent, the international benchmark, fell
2.4% to $44.35. It is down 23% in 2015. Gold
was flat at $1,159.80 a troy ounce, after hitting
seven-week highs last week.
Rose Yu and Yifan Xie contributed to this
article.
and Anjani Trivedi at anjani.trivedi@wsj.com
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Chapter
199
Market Mess Throws

Deals Into Doubt
With Chinas turmoil causing disarray in global
markets, deal makers in Asia are bracing for a
rout.
Chinese stock losses this week exceed 15%, and
Japanese stocks Tuesday registered their biggest
drop in over two years. Falling stock markets hit
mergers several ways: reducing what investors
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will pay for targets in the same sector; hurting buyers stomach for risk; reducing the funds
lenders make available for takeovers; and encouraging bidders to renegotiate or back out of deals,
even at the cost of a breakup fee.
So far no deals have been scrapped, but a number could face hurdles, and investors are skeptical
some Chinese take-privates will be completed.
Two big deals have bids due this week: the
US$8.8 billion sale by one of Chinas top banks
of a Hong Kong unit, Nanyang Commercial Bank
Ltd., and Tesco TSCDY 1.51 % PLCs sale of its
South Korean unit, which could fetch the British
supermarket chain as much as $6 billion.
One potential Nanyang bidder decided Tuesdaydeadline daynot to bid because of deteriorating market conditions, according to a person
with knowledge of the matter. It isnt clear how
many bids seller BOC Hong Kong BHKLY 0.07
% received at its asking price, or from whom.
Controlled by Bank of China Ltd. BACHY 0.34 % , one of the countrys biggest banks, BOC
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Hong Kong operates a network of branches under

the Bank of China banner in the city, but also
owns and runs Nanyang under a separate brand.
A spokeswoman at BOC Hong Kong declined to
comment.
Tesco fielded offers from private-equity investors including KKR KKR 3.44 % & Co. and
MBK Partners LP on its Monday deadline. It
is unclear whether the market turmoil will affect
bidders ability to get funding.
They join a host of deals announced earlier this
year that have yet to close, part of a global buying
spree by companies using cheap funding to find
growth. M&A volume in Asia this year stands
at $857 billion, according to Dealogic, up 46%
from the same point last year, and the highestyear-to-date total in more than five years. Global
volume, at $3.1 trillion, is up 35% from the same
point in 2014, and also the highest in years.
Deals further along than Nanyang and Tesco
but still not across the finish line include two involving Hong Kong billionaire Li Ka-shings CK
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Hutchison Holdings Ltd. 0001 -1.96 % : a $15.5

billion offer for British cellphone operator O2,
announced in January, and a more recent $11.8
billion plan to merge its Italian mobile operations with rival Wind, owned by Russian telecom
firm VimpelCom Ltd. VIP 5.70 % Both deals
await regulatory approval, CK Hutchison said in
a statement to the Hong Kong stock exchange
Tuesday.
Also awaiting closure are a string of acquisitions by Japanese buyers of their U.S. counterparts and a series of delistings from the U.S. of
some Chinese companies with the aim of relisting
back home.
Japanese insurers have been on an acquisition
spree, cutting chunky deals for U.S. insurers that
could look less appetizing after the stock market
declines of recent days. Tokio Marine Holdings
Inc. TKOMY 4.77 % agreed to buy U.S.-based
HCC Insurance Holdings Inc. HCC -0.01 % for
$7.5 billion in June, saying at the time it expected
to complete the acquisition in the fourth quar1256
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ter. A Tokio Marine spokesman said the company doesnt plan to review the announced deal.
Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co. have also both struck recent multibillion-dollar deals to buy U.S. insurers
that await regulatory approval. A spokesman for
Meiji Yasuda said the company doesnt have a
plan to review the deal, while a spokesman for
Sumitomo Life declined to comment.
Among the take-private offers for U.S.-listed
Chinese companies, the largest is a $9 billion bid
for Qihoo360 Technology Co. QIHU -9.62 % ,
a maker of Internet-security software, by a consortium that includes the companys chairman,
Sequoia Capital China, and Citic Securities Co.
6030 -2.41 % In a sign of growing skepticism that
the nonbinding offer will be completed, investors
sent Qihoo360 shares down more than 9% Monday, to $50.82 a sharea discount of 34% to the
take-private offer price of $77.
Qihoo360 didnt reply to a request for comment.
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Yvonne Lee and Atsuko Fukase contributed

to this article.
Write to Rick Carew at rick.carew@wsj.com
1258
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Chapter
200
Chinese Entrepreneurs
Seek Investments
Abroad to Avoid Local
Obstacles
Chinas currency devaluation, economic slowdown and stock-market rout are spurring some of
the countrys business leaders and entrepreneurs
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to invest abroad instead of at home.

Cai Tong, the founder and chairman of
Shenzhen-listed ABA Chemicals Corp., said he
plans to go to Israel at the end of August to look
for clean-tech acquisitions. He is negotiating two
other deals now, and said he regretted that he
hadnt wrapped them up before the sudden 3%
yuan devaluation.
He has vowed to speed up deal making as he expects the yuan to fall an additional 10% in about
two to three years.
In recent years, Chinese investors went on a
global shopping spree partly because a strong
yuan had made overseas assets cheaper. Chinas
outbound foreign direct investment has been
growing at an annual rate of 16% from 2011, and
is expected to exceed inbound foreign direct investment for the first time in 2015, according to
Chinas Ministry of Commerce.
China was the worlds largest recipient of FDI
last year, drawing a record of $120 billion, while
ODI surged 14.1% to a new high of $102.9 billion.
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Chinese outbound acquisitions totaled $55.2

billion year to date, up 10% from the same time a
year ago, and has almost doubled from the same
period in 2010, according to Dealogic.
We still see a lot of Chinese companies interested in making overseas acquisitions driven by a
desire to diversify their markets or acquire technology, said John Kim, head of Asia ex-Japan
mergers and acquisitions at Goldman Sachs. GS
3.47 %
While Mr. Kim said it was too early to say
whether this trend will be affected by the market
downturn, he pointed to Japan, whose outbound
acquisition activities have increased substantially
over the past year despite a weakening yen.
Another investor looking overseas is Peakview
Capital, the two-year-old investment arm of
Shengjing Group, a large Chinese management
consulting firm. Next year, the company plans
to invest more than $1.5 billion, mostly in the
U.S., according to Peakview U.S. Managing Partner Erik Lassila.
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The firm has opened an office in Silicon Valley, is hiring a U.S.-based investment team and
has so far invested in at least three Silicon Valley venture-capital firmsMenlo Ventures, Institutional Venture Partners and 500 Startupsin
addition to venture firms in China and Israel.
The money is coming largely from wealthy Chinese founders and executives who are Shengjing
partners or clients.
We are at the forefront of a large and important long-term wave of investment from China,
said Mr. Lassila, who lived in China for seven
years and has worked as a venture capitalist there
and in the U.S.
The flood of outflows from China may accelerate after the Peoples Bank of China surprised
markets by pushing the yuan lower on Aug. 11 in
the nations biggest devaluation in two decades.
The offshore yuan market indicates a further 3%
decline in the next year. Goldman Sachs sees the
yuan, now at 6.41 against the dollar, weakening
to 6.50 in six months and to 6.70 by the end of
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2016.
The business deals are part of a large outflow of
cash from China. Capital flows totaled a record
of $340 billion in the past four quarters, according to J.P. Morgan. JPM 5.01 % In July, Chinas
foreign-exchange reserves fell for a third straight
month, indicating continuous outflows. Over the
next year, J.P. Morgan expects possible quarterly
capital outflows of $100 billion by Chinese companies and rich individuals.
The U.S., Germany and Israel are three popular destinations for Chinese outbound acquisitions. China became the biggest investor in Germany in 2014, according to Germany Trade &
Invest, the European nations official economic
promotion agency. Chinese e-commerce company
Alibaba Group Holding Ltd. BABA 0.13 % and
top search engine Baidu Inc. BIDU 3.95 % have
invested in Israel. In the first half of 2015, Chinese investors participated in U.S. venture deals
valued at $2.16 billion, more than double the
$934.71 million in deals in 2014, according to Dow
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Jones VentureSource.
As times get tougher at home, companies such
as Mr. Cais ABA, which exports chemicals used
to make medicine and pesticides, are eager to
reinvent themselves through acquisitions abroad.
Mr. Cai said he wants to buy cheap foreign assets
and inject them into its listed company to help
justify its hefty valuation. ABA shares, listed on
the Shenzhen growth enterprise board ChiNext,
still trade at 44 times last years earnings even
after losing 72% of their value since their June
15 high.
Mr. Cai said he was negotiating two acquisitions in Europe, each valued at about one billion
yuan ($155.8 million). He has been going to Israel once a year in the past few years, making
some small acquisitions. He said Beijing has been
supportive of private enterprises going abroad,
adding that China Development Bank, a major
policy lender, has helped make some introductions.
Although the recent yuan devaluation has
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made overseas targets more expensive, Mr. Cai

said his companys finances were improving because about 75% to 90% of his revenue is in U.S.
dollars. A 3% devaluation means its revenue increases roughly 3% when converted into yuan,
its reporting currency, and this should boost the
companys net profit by 10% to 30%, he said.
The Peoples Bank of China is really trying to
help us small exporters with the devaluation,
said Mr. Cai.
Write to Wei Gu at wei.gu@wsj.com and Deborah Gage at Deborah.Gage@dowjones.com
1265
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Chapter
201
Warner Bros. in Talks

to Make Movies in
China
Rather than wait for China to open its doors to
Hollywood, Warner Bros. is making a big play to
take up residency in China.
The Time Warner Inc. TWX 2.84 % -owned
studio is in talks with China Media Capital, a
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state-backed investment fund focused on the entertainment industry, to form a joint venture that
would produce local-language films, people with
knowledge of the potential partnership said.
The expected pact is a show of faith that the
worlds fastest-growing major film market will
continue to devour motion pictures, even as Wall
Street sweats about growth prospects for the
overall Chinese economy.
Hollywood studios have worked with partners
in China to produce movies there in the past, usually on a one-off basis. The Warner deal, which
is intended to make numerous films annually, appears to be the largest and most expansive of its
kind.
It wasnt immediately clear how many movies
the joint venture would produce or how much
money each partner would invest. Its also possible that the recent financial turmoil in the country could make closing the deal more challenging.
Despite Chinas recent economic slowdown, the
Chinese box office continues to expand at a rapid
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clip and local productions are taking a bigger

share.
Six of the top 10 movies this year in China
have been domestic Chinese productions. Top
grossing 2015 movie releases in China, through
Aug. 16, in millions of U.S. dollars. (Titles in
bold are Chinese productions.)
*Still in theaters Source: Artisan Gateway
While total box office in China is up 43% so far
in 2015 to $4.3 billion, ticket sales for Chinese
productions are far outpacing those for movies
coming out of Hollywood. Local-language movie
grosses have risen 63% to $2.6 billion and imported movies are up 21% to $1.7 billion, according to research firm Artisan Gateway.
Among the top 10 movies in China so far this
year, only four are Hollywood imports. The locally made Monster Hunt has grossed $346.2
million and is poised to surpass Furious 7, which
grossed $379.1 million, as the most successful
movie ever in the country.
That trend, combined with Chinas import
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Me
quota, makes a partnership to produce locally

critical for any American film company looking
to make more money in the country. The Chinese government allows only 34 movies to be imported per year on a revenue-sharing basisthe
only terms that major Hollywood studios will accept. The deal governing that quota runs until
2017.
Films made locally also qualify to keep a significantly higher percentage of box-office revenue
than imported ones, which are capped at 25%.
Time Warner invested $50 million into China
Media Capital two years ago, a partnership that
led to the current discussions by Warner Bros.
Chief Executive Kevin Tsujiharas team. The negotiations have been going on for many months,
said a person with knowledge of the matter, due
to the complications of forging deals and getting
government approvals in China.
China Media Capital also invested in a joint
venture through which DreamWorks Animation
SKG Inc. DWA 2.54 % is producing movies in
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Shanghai, including the coming Kung Fu Panda

3.
Legendary Pictures LLC recently wrapped production on The Great Wall starring Matt Damon, the first movie under a partnership it
formed with state-backed China Film Co.
Both of those deals are intended to make
movies primarily in English for global audiences,
in contrast to the arrangement Warner Bros. is
pursuing.
As with most joint ventures Western companies enter in China, including Walt Disney Co.
DIS 3.48 % s theme park under construction
in Shanghai, Warner Bros. would be a minority shareholder. However, its executives are expected to play important roles in getting film production off the ground, bringing their expertise as
China seeks to build its culture industry.
At a Time Warner investor day presentation
last year, Mr. Tsujihara said expanding locallanguage production in China would be a priority
for his film and television studio, known for the
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Me
Batman and Harry Potter franchises as well as

The Big Bang Theory.
Write to Ben Fritz at ben.fritz@wsj.com and
Shalini Ramachandran at shalini.ramachandran@wsj.
1271
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Chapter
202
Markets Rebound As
China Cuts Interest
Rates
Global stocks rallied Tuesday, as Beijing cut interest rates following another sharp drop in Chinese markets.
U.S. stocks climbed, echoing an earlier rally
in Europe. The Dow Jones Industrial Average
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was up 406 points, or 2.6%, at 16278 in morning

trade. The S&P 500 rose 50 points, or 2.7%, to
1944.
Markets in Europe had extended early gains
after Chinas central bank cut interest rates by
one-quarter of a percentage point, reassuring investors that Beijing is prepared to take fresh measures to boost the economy. The Peoples Bank
of China also reduced bank-reserve requirements
by half of a percentage point, effectively adding
678 billion yuan (about $106 billion) to the Chinese economy.
The moves came after stocks around the world
tumbled on Monday as concerns about a slowdown in Chinas economic growth rattled investors. The Dow Jones Industrial Average
plunged more than 1000 points at the open, before closing 3.6% lower.
Some investors said bargains were appearing
after the heavy selloff.
Is this the bottom? We dont know. But
risk assets are much better priced than they were
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Me
three weeks ago, said Colin Harte, a multiasset portfolio manager at BNP Paribas Investment
Partners, BNPQY 2.80 % which manages 532
billion ($611 billion). Mr. Harte said he has
bought global stocks and emerging-market bonds
after Mondays selloff.
Earlier Tuesday, there was no letup in the
selling in Chinese markets. Shares in Shanghai
slumped 7.6% as the index fell below 3000 for
the first time since December, following the worst
one-day loss in more than eight years on Monday.
Chinas stock plunge has wiped out more than $1
trillion in value from equities over the past four
days.
Japans Nikkei closed 4.0% lower after staging
a short-lived recovery.
But elsewhere, markets steadied.
European shares rebounded sharply from the
previous sessions slump. The Stoxx Europe 600
index closed 4.2% higher, its biggest one-day gain
since September 2011.
Germanys DAX rose 5.0%, Frances CAC 40
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climbed 4.1% and the U.K.s FTSE 100 closed

3.1% higher.
I suspect things will calm down in the short
term, said Guy Foster, head of research at
wealth manager Brewin Dolphin. BRW -1.85 %
The indiscriminate nature of Mondays selloff
displayed an air of irrationality, he added.
Oil prices also steadied, with Brent crude 2.3%
higher at $43.68 a barrel.
In currency markets, many of the previous
days big moves went into reverse. A host of
emerging-market currencies gained against the
dollar, including the South African rand and Russias ruble.
The euro and the yen weakened against the
dollar. When markets come under strain, investors have recently tended to exit popular negative bets on the euro or yen. That means the
two currencies rise when stocks fall sharply and
weaken when stocks recover. The euro was down
1.6% against the buck at $1.1411. The dollar
strengthened 1.1% against the yen to 119.975.
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In bond markets, U.S. 10-year Treasury yields

climbed 0.09 percentage point to 2.10%, having
dipped below 2% on Monday for the first time
since April. Yields rise as prices fall.
Investors are left grappling with the question
of whether the selloff is over.
Worries about China have stirred concerns that
the world economy faces the prospect of a rise
in U.S. interest rates in a relatively fragile state,
according to Scott Jamieson, head of multiasset
investing at Kames Capital, which manages 52
billion ($82 billion) of assets.
The Federal Reserve is still expected to lift
rates from record lows in the coming months.
The world economy isnt robust enough to
deal with that uncertainty. I dont think we are
out of the woods yet, said Mr. Jamieson.
Write
to
Tommy
Stubbington
at
tommy.stubbington@wsj.com
1276
1282
Chapter
203
China Stocks Tumble

Chinas stock-market crash has wiped out more
than $1 trillion in value from equities and sent
its main stock index down 22% over the past four
days.
Markets elsewhere in Asia, meanwhile, started
to move past Chinas troubles, with shares in
Australia, South Korea and Taiwan logging gains.
While Japans shares ended 4% lower its main index rose as much as 1.6% earlier in the day.
Overseas, markets are steadying a day after
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staggering losses, with European stocks opening

higher and U.S. stock futures rising.
After markets closed Tuesday, Chinas central
bank cut interest rates by a quarter of a percentage point and the amount of reserves banks are
required to hold by half a percentage point. It
was the second time since late June that China
had taken the rare easing step of cutting both
interest rates and the reserve-requirement ratio
on the same day. The last time was during the
height of the global financial crisis.
Analysts had been calling for Beijing to take
bolder steps to address its stalling economy, and
some attribute the latest bout of losses to disappointment that officials hadnt done more sooner.
This rate cut is Chinas fifth since late last year.
On Tuesday, the Shanghai Composite Index
closed down 7.6% to 2964.97, below the 3000 level
for the first time since December 2014. The steep
losses follow a drop of 8.5% on Monday, the worst
single-day loss in more than eight years. The index is down 8.3% for the year and has fallen 43%
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since its June peak.

The smaller Shenzhen market, down 7.1%
Tuesday, is now off 44% from its June peak, although it is still holding on to gains of nearly 24%
for the year.
Combined, the two markets have lost $1.2 trillion in market capitalization over the past four
days.
Officials have been notably absent from the
market in recent days, including earlier Tuesday,
a sharp change from weeks ago when Beijing was
suspected of intervening on a fairly regular basis. While investors had been expecting additional monetary easing, few said they thought the
government would start buying again.
An editorial earlier Tuesday in the state-run
Economic Daily Information urged the government to reel back its market rescue, even if prices
continue to fall, saying that the goal of government intervention is to prevent financial risks, not
to prop up stock index.
Last month, Chinese officials rolled out a
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steady stream of measures to prop up the stock

market, from establishing an emergency fund to
buy shares to allowing firms to suspend trading
in a bid to prevent further losses.
Chinas central bank did take a step to counter
intensifying capital outflows from a weakening
economy and a tumbling stock market during
the day Tuesday by injecting more cash into
the financial system. It offered 150 billion yuan
($23.40 billion) of seven-day reverse repurchase
agreements, a form of short-term loan to commercial lenders, as part of a routine money market operation. The bank injected a net 150 billion yuan into the financial system last week, its
biggest pump-priming exercise since early February.
A large swath of the domestic market still cant
be traded. On Tuesday, some 1,968 shares on
the mainland fell by the 10% daily limit set by
regulators, comparable to Mondays level, which
represented more than half of total number of
shares.
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Some markets managed to hold on to their

gains after a rebound in the morning.
Australias S&P ASX 200 rose 2.7%, Hong
Kong gained 0.7% and South Koreas Kospi was
up 0.9%. Singapores FTSE Strait Times was up
1.6% and Taiwans Taiex bounced back by 3.6%.
The Stoxx Europe 600 benchmark was up 3.5%
and the U.S. stock futures indicated opening
gains of around 3% for the Dow Jones Industrial Average and the S&P 500. Still, the scale
of the gains was small compared with Mondays
wild swings in the market. Changes in futures
arent necessarily reflected in market moves after
the opening bell.
Selling in currencies abated after worries about
Chinas slowdown weighed on commodity exporting countries. The Malaysian ringgit hit a fresh
17-year low for a fourth-straight day, at 4.2665
against the U.S. dollar. But it was last roughly
flat compared with late trading Monday in Asia.
The Korean won was last down 0.3% at
1,193.76 against the U.S. dollar compared with
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late yesterday in Asia. Still it is slightly stronger

than its bottom Monday, when it hit a fresh fouryear low of 1,207.37 against the U.S. dollar.
The Australian dollar was 0.6% stronger at
$0.7192 from the previous days close, having also
hit its lowest since 2009 yesterday of $0.7051
Meanwhile, the slight change in tide in earlier
trading pushed the Japanese yen weaker, after
the currency hit its strongest level since March
amid Mondays jitters. The currency was 0.7%
down against the dollar at 119.18. The yen,
which traded as high as 116.46 against the U.S.
dollar on Monday, is considered a haven during
times of volatility.
Gold is down 0.4% at $1,149.60 an ounce in
Asia trade but remains near a six-week high.
Brent, the global oil benchmark, was up 3.6%
at $44.30 a barrel in Asia trade, having fallen
below $45 a barrel on Monday for the first time
in six years.
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