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What’s
News
Business & Finance
B HP Billiton recorded
an annual loss of $6.39
billion, the biggest in its
history, as big charges ex-
acerbated a deep slump in
commodity prices. A1
 Investors are tuning out
Fed officials’ warnings
that another increase in
U.S. rates is imminent. A1
 China is opening the doors
to its Shenzhen exchange
and scrapping limits on
foreign stockholdings in a
bid to entice more global
investors to its markets. A1
 Germany’s Linde and
U.S. rival Praxair said they
were in preliminary talks
for a merger deal. B1
 Damaging outflows
continue to sting the
hedge-fund industry. B1
 The U.S. dollar fell be-
low ¥100 for the first time
since immediately after the
U.K. vote to leave the EU. B6
 U.K. government bonds
have become the most ac-
tively traded bonds in Eu-
rope since the June vote. B7
 Soros’s fund increased
its bet against the S&P 500
and cut its position in gold. B6
World-Wide
 Russia said it launched
airstrikes against targets
in Syria from a base in
western Iran, marking
new military coordina-
tion between Tehran and
Moscow. A1
 German authorities are
worried that guidance
from Turkey’s state reli-
gious body is aimed at solic-
iting support for Erdogan
among Germany’s Turkish
minority. A3
 Europe’s top air-safety
agency proposed stronger
medical oversight to ad-
dress shortfalls highlighted
by last year’s crash of a
Germanwings jetliner. A3
 One of the U.K.’s most
controversial radical Is-
lamic preachers has been
convicted of inviting sup-
port for Islamic State. A4
 A dual citizen who had
been in contact with British
intelligence services was
arrested, Tehran said. A3
 The U.S. transferred 15
Guantanamo Bay detainees,
the largest movement in
Obama’s push to remove
prisoners before January. A7
 Trump will get a classi-
fied intelligence briefing
Wednesday in New York. A7
Inside
OPINION A11
Keeping an
International
Eye on Ukraine
CONTENTS
Arts & Ent............... A9
Business & Fin.. B1-5
Crossword................. A9
Finance & Mkts..... B6-10
Heard on Street. B10
Markets Digest..... B8
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THE JOB INTERVIEW
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MANAGEMENT | B5
PERSONAL JOURNAL | A8
WEDNESDAY, AUGUST 17, 2016 ~ VOL. XXXIV NO. 139 WSJ.com EUROPE EDITION
NASDAQ 5227.11 g 0.66% NIKKEI 16596.51 g 1.62% STOXX 600 343.32 g 0.79% BRENT 49.23 À 1.82% GOLD 1350.50 À 0.76% EURO 1.1281 À 0.86%
Louisiana Prepares for Further Flooding
Dollar’s
Fall Hints
At Doubts
Over Fed
BY CHELSEY DULANEY
AND DAVID HARRISON
Investors appear to be tun-
ing out Federal Reserve offi-
cials’ warnings that another
BRENDAN SMIALOWSKI/AGENCE FRANCE-PRESSE/GETTY IMAGES
increase in U.S. short-term in-
terest rates is imminent, un-
derscoring the central bank’s
struggle to maintain credibil-
ity at a time of rising skepti-
cism about the U.S. economy’s
health.
The dollar dropped to its
lowest level Tuesday since late
June against a basket of cur-
rencies, even after two Fed of-
ficials signaled that the cen-
tral bank is still leaning
toward an interest-rate in-
crease before the end of the
year. The dollar tends to rise
UNDER WATER: Flooding in southern Louisiana has resulted in eight deaths since heavy storms submerged the area over the weekend. against other currencies when
At least 40,000 homes have been damaged, the governor said. Above, Lester Duplessis walked down a flooded street in Gonzales, La. A7 investors anticipate a U.S. rate
increase, reflecting the expec-
tation that bond yields and in-
BHP Tumbles to Big Loss
vestment returns will rise.
Federal Reserve Bank of
New York President William
Dudley said Tuesday that the
economy should strengthen in
the second half of the year and
Charges worsen hit acerbated a deep slump in com- The loss deepens the gloom iron-ore mine in Brazil and that the presidential election
modity prices. in the global mining sector, weak oil and natural-gas mar- won’t factor into the Fed’s de-
from a steep slump BHP, based in Melbourne, which has responded to global kets. Those enormous charges cision to raise interest rates.
in commodity prices Australia, posted a net loss of economic uncertainty and low were largely against the Brazil- Atlanta Fed President Dennis
$6.39 billion for the 12 months prices for commodities such as ian venture and U.S. onshore en- Lockhart said he could envi-
BY RHIANNON HOYLE through June, compared with a copper and iron ore by closing ergy assets, totaling a respec- sion a rate increase by the end
year-earlier net profit of $1.91 mines, laying off workers and tive $2.2 billion and $4.9 billion. of the year.
SYDNEY—BHP Billiton, the billion. Underlying profit, strip- slashing returns for investors. BHP’s petroleum business, in- The muted reaction sends a
world’s No. 1 mining company ping out one-time charges, BHP’s earnings also took hits tended to help it through bad powerful signal that investors
by market value, recorded the slumped 81% to $1.22 billion. from problems not shared by times in metals markets, in- believe soft economic growth
worst annual loss in its history As recently as 2011, annual many of the company’s mining curred a $7.72 billion loss after around the world will limit the
as US$7.7 billion in charges ex- profit exceeded $20 billion. peers: a deadly disaster at an Please see BHP page A6 Please see DOLLAR page A2
OIL GIANTS TRY FRACKING AGAIN
U.K. Cleric Convicted
For ISIS Stance
BP and others hope hydraulic fracturing will allow them to coax enough oil out of U.S. wells
BY BRADLEY OLSON specialize in—giant offshore oil rigs and
AND SARAH KENT Shale Boom gas-export projects—are often prohibi-
LNP/REX SHUTTERSTOCK/ZUMA PRESS
U.S. shale oil-and-gas production tively expensive in a world of $40-a-bar-
PERRYTON, Texas—The oil-and-gas well rel oil. U.S. wells are a tempting option,
BP PLC is drilling here in the Texas Panhan- 15 million barrels per day but major oil companies have yet to
dle looks ordinary enough from the surface. prove they can master the techniques pi-
Yet a mile-and-a-half underground, horizon- 12.3 oneered by shale drillers, whose innova-
tal pipes shoot off for at least a mile in tions fueled a rebirth in U.S. energy pro-
10
three directions, like a chicken’s foot. duction.
The idea, part of an experiment by BP If BP, Exxon Mobil Corp. and others
executive David Lawler, is to make three can figure out how to coax enough oil
wells from one. It also is designed to help 5 out of fracked wells cheaply enough to
turn the London-based energy giant into a make it profitable, it could help them POLARIZING FIGURE: Anjem
shale-oil innovator that can better compete maintain production levels. Failure could Choudary, a provocative U.K.
with the entrepreneurial outfits that pio- make it harder to replace the oil from Islamic preacher, has been
0
neered the business of hydraulic fracturing, declining older megaprojects, and leave convicted of inviting support
or fracking. 2011 ’12 ’13 ’14 ’15 them further behind on innovations for Islamic State. A4
Big oil companies like BP are in need of Source: Wood Mackenzie transforming the industry.
a jolt. The multibillion-dollar projects they THE WALL STREET JOURNAL. Please see SHALE page A6
Beijing Approves Russia Uses
Iranian Base UNDER ARMOUR
New Stock Link To Bomb IS LIVE.
BY GREGOR STUART HUNTER
AND CHAO DENG
years, a step which could see
billions of dollars pour into
Syria Targets SAP HANA® helps Under Armour
instantly predict and fulfill the needs
Chinese shares. MSCI declined and expectations of over 200 million
SHANGHAI—China is open- to comment. BY NATHAN HODGE connected athletes worldwide.
ing the doors to its tech-heavy Chinese stock markets—and Under Armour runs live.
Shenzhen exchange and scrap-
ping important limits on how
particularly Shenzhen—retain
a reputation for casino-like
MOSCOW—Russia’s military
said Tuesday it had launched
Under Armour runs simple.
sap.com/underarmourlive
much foreigners can invest in
the country’s stocks, in a bid
behavior. And not all curbs are
being lifted. Daily trading in-
airstrikes against targets in
Syria from an air base in west-
to entice more global players
into its markets.
flows into both Shenzhen and
Shanghai, China’s other main
ern Iran, marking new military
coordination between Tehran
Opinion.............. A10-11 The moves are a major market, will remain capped at and Moscow in support of the
Personal Journal.. A8 milestone in the decadeslong 13 billion yuan ($1.96 billion) a government of Syrian Presi-
Property Report... B9 opening up of China’s financial day, and many Shenzhen- dent Bashar al-Assad.
Rio 2016.................. A12
U.S. News.................. A7
markets, and could mark a re- listed companies will remain Tu-22M3 long-range bomb-
Weather..................... A9 turn to liberalization after a off-limits. ers and Su-34 tactical bombers
World News........ A2-5 year in which regulators have Chinese regulators have took off from an air base in
tried to clamp down on the shown a tendency to reverse Hamedan, Iran, to carry out a
country’s notoriously volatile course on market revisions “concentrated airstrike” against
stock trading. and crack down on free trad- Islamic State militants and the
They also could help attract ing when stocks plunge. The group formerly known as Nusra
foreign investors, who have moves to encourage money Front, Russia’s Defense Minis-
avoided Chinese stocks amid a into Chinese stocks come as try said.
surge in emerging-market in- authorities there have been The bombers, escorted by
vestment this year. And they grappling with heavy capital Russian Su-30SM and Su-35S
could persuade MSCI Inc. to outflows. fighters based in Syria, tar-
finally add China to its key But the $3.2 trillion Shen- geted ammunition depots and
emerging-market indexes, af- zhen market, already the command-and-control centers
ter snubs in the past three Please see MARKET page A2 Please see RUSSIA page A4
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A2 | Wednesday, August 17, 2016
The Specter of an Accidental China-U.S. War
CHINA’S WORLD
ANDREW BROWNE
SHANGHAI—The last time
America and China went to
war—in Korea in 1950—they
fought each other to a stand-
still.
Later that decade, as the
Cold War ramped up, they
came close to blows again;
the Eisenhower administra-
tion repeatedly threatened
“Red China” with nuclear
devastation as tensions bub-
bled over Taiwan.
Today,
given the as-
tronomical
stakes at
play, many
assume that
armed con-
flict between the two giants
is out of the question. They
are each other’s largest trad-
ing partner. Military con-
frontation wouldn’t only
threaten these huge flows,
but also student exchanges,
scientific collaboration, joint
technical projects and the
myriad other ways in which
the fates and fortunes of the
world’s two largest econo-
mies and their peoples are
inextricably linked.
Yet, as China flexes its
muscles in the South China
Sea and East China Sea, the
MARKET
Continued from Page One
world’s seventh largest, could
prove attractive to foreign in-
vestors because it is where
fast-growing Chinese compa-
nies that operate in sectors
such as technology, pharma-
ceuticals and clean energy of-
ten list. By contrast, Shanghai,
which foreign investors al-
ready can access via a trading
link with Hong Kong, is domi-
nated by less-vibrant state-
owned banks and oil compa-
nies.
“Shenzhen is widely re-
garded as being a bit like the
Nasdaq in its characteristics,”
said Mark Tinker, head of as-
set manager AXA Framlington
Asia. “People looking to par-
ticipate in the growth of China
are looking more keenly to
Shenzhen, and if this gives
easier access to participate in
that market, then it’s going to
be regarded as another posi-
tive step in the integration of
China with the rest of the
world.”
The start date for the so-
called Shenzhen-Hong Kong
Connect still is unclear, al-
though the statement an-
nouncing the launch said it
should now come by the end
of this year.
“Preparation work for the
Shenzhen-Hong Kong Connect
is basically done,” China’s
State Council, the country’s
DOLLAR
Continued from Page One
Fed’s capacity to tighten pol-
icy as promised. If borne out,
the trend for now could help
support this year’s rallies in
the Dow industrials, which hit
a high Monday before declin-
ing 84.03 points on Tuesday,
and government bonds, whose
yields have tumbled to lows.
Minutes of the Fed’s latest
meeting, due for release on
Wednesday, could send a fresh
signal of the central bank’s
willingness to raise rates.
When the year began, many
Fed watchers were bracing for
the central bank to raise rates
as many as four times. But a
wide range of economic mea-
sures, ranging from gross do-
mestic product to productivity
to inflation, have fallen short
of expectations this year, re-
straining policy makers’ from
pushing up U.S. rates and bol-
stering returns in riskier as-
sets.
Lately, some members of
the Fed have even shown signs
of coming around to the
“lower-for-longer” view that
has been evident in interest-
rate markets in recent months.
San Francisco Fed President
John Williams on Monday sug-
gested studying the possibility
of raising the Fed’s inflation
risks of an inadvertent clash
on the water or in the air are
growing by the day.
A new RAND Corp study
says that a Sino-U. S. war as
a result of such a crisis “can-
not be considered implausi-
ble.”
Violence could ignite
quickly, the report warns.
That is because each side has
deployed precision-guided
munitions, as well as cyber
and space technologies, able
to inflict devastating damage
on the other’s military as-
sets, including Chinese land-
based missile batteries and
American aircraft carriers.
Thus they have a strong in-
centive to launch massive
strikes first as part of a “use
it or lose it” calculation.
O
nce out of control,
fighting could be pro-
longed, although it is
unlikely to go nuclear, ac-
cording to the RAND study
sponsored by the U.S. Army.
Both nations possess the mil-
itary, industrial and demo-
graphic resources to absorb
heavy losses and slog on. As
in Korea, there would likely
be no clear victor.
Washington and Beijing
“need to contemplate the
possibility of a severe,
lengthy, uncontrollable and
devastating, yet indecisive,
conflict,” the paper asserts.
This is the troubling con-
text in which to view China’s
defiant response to last
month’s ruling by a panel of
jurists in The Hague, who
struck down Beijing’s claims
top policy-making body, said
Tuesday.
The move will place some
880 Shenzhen-listed stocks,
representing more than $1
trillion in market capitaliza-
tion, onto the menu of global
investors. The ChiNext, a list-
ing board focused on fast-
growing startups, also will be
opened up, though limited to
professional institutional in-
vestors.
Regulators also said there
would no longer be an upper
limit on the total amount of
Chinese shares foreigners can
hold. Currently, global inves-
tors can buy up to 300 billion
yuan worth of shares in more
than 500 Shanghai companies.
Still, foreign investors used
to trading mostly on major
Western markets will find
plenty of oddities trading in
Chinese stocks, including rules
that prohibit day-trading of
stocks, market holidays that
fall on different days on each
side of the border, and regula-
tory restrictions that make it
virtually impossible to short
stocks.
“I don’t think it’s crucial for
people to be invested in Shen-
zhen at this point, but longer
term there will be opportuni-
ties,” said Ilya Feygin, manag-
ing director at brokerage Wal-
lachBeth Capital. “For me,
Shenzhen is like the Nasdaq
was in the ’90s and ’80s—it
had a few bubbles but risk
also represents opportunity.”
When the Shanghai-Hong
target above 2% or moving
away from an inflation target
and targeting prices or eco-
nomic growth instead.
“There’s been a huge gulf
between the Fed and the mar-
ket’s expectations,” said
Paresh Upadhyaya, director of
currency strategy at Boston-
based Pioneer Investments.
“The Williams paper…is finally
now providing the justification
Some members of the Fed, above, have shown signs of embracing the ‘lower-for-longer’ rate view.
WORLD NEWS
A U.S. destroyer was welcomed by a military band at the Chinese port of Qingdao on Aug. 8.
to almost the entire South
China Sea and rebuked it for
dredging artificial islands
topped by military-capable
runways that have intimi-
dated other claimants, in-
cluding Vietnam and the
Philippines.
Instead of backing off,
China has doubled down on
its assertive strategy, flying
a bomber over the Scarbor-
ough Shoal, which it has ef-
fectively seized from the
Philippines, announcing war
games with Russia and send-
ing militia fleets swarming
into waters contested with
Japan.
The Center for Strategic
and International Studies, a
Washington think tank, has
published satellite photos
showing aircraft hangars
China 2.0
Many investors see the Shenzhen Stock Exchange, mostly composed
of fast-growing stocks geared to China’s economic rebalancing, as a
more attractive proposition than the state-owned banks and
rust-belt industries traded in Shanghai.
Sector breakdown of the Shenzhen market compared
with Shanghai
Shenzhen
22.4%
18.7
17.8
12.6
8.8
8.1
7.2
2.2
1.9
0.4
Trading volume across global exchanges, July 2016
NYSE
Shenzhen Stock Exchange
BATS Global Markets - US
Nasdaq - US
Shanghai Stock Exchange
Japan Exchange Group
BATS Chi-x Europe
LSE Group
Korea Exchange
Euronext
Sources: Thomson Reuters (sectors);
World Federation of Exchanges (volume)
Kong Stock Exchange opened
in late 2014, it led to predic-
tions that billions of dollars
would flow into shares of
for the Fed to come more in
line with where the markets
have been all along.”
The WSJ Dollar Index,
which measures the U.S. cur-
rency against 16 others, on
Tuesday fell to its lowest level
since the U.K.’s June 23 refer-
endum to leave the European
Union sent markets reeling.
A Labor Department report
showing U.S. consumer prices
springing up on the fake is-
lands, reinforced apparently
to withstand air attack.
S
o far there are no signs
that the People’s Liber-
ation Army has sta-
tioned military aircraft on
the midsea platforms. Then
again, some Western experts
think China may be biding its
time so as not to spoil a
Group of 20 summit of lead-
ing economies it is hosting
for the first time next
month. Watch out for even
more aggressive moves be-
tween then and the U.S.
presidential election in No-
vember, they say.
Washington’s response to
The Hague ruling has been
conspicuously restrained.
U.S. officials seem to hope
Shanghai
Industrials 15.8%
Technology 4.0
Consumer cyclicals 8.7
Basic materials 8.2
Financials
Health care 3.6
Consumer non-cyclicals 4.9
Energy 10.5
Utilities 4.1
Telecoms 0.4
$1.27 trillion
1.20
0.96
0.77
0.71
0.50
0.21
0.19
0.16
0.13
THE WALL STREET JOURNAL.
companies in China, where
growth, while faltering, re-
mains far higher than in most
major economies.
remained flat in July added
fuel to the dollar’s decline. The
Fed has cited weak inflation as
a reason to remain cautious on
rate increases.
Federal-funds futures, used
to place bets on central-bank
policy, are showing a 55%
chance that the Fed raises
rates by its December meeting,
according to CME Group Inc.
data. At the start of the year,
THE WALL STREET JOURNAL.
ened now. Their man-made
islands are a fait accompli;
the tribunal has no power to
enforce its judgment. South-
east Asia has been silent. So
has a struggling Europe, as
ever, most concerned with
ginning up Chinese invest-
ment.
“Nobody is pushing back,”
says Jennifer Lind, an East
Asia specialist at Dartmouth
College. She thinks the Chi-
nese strategy has been suc-
BORG WONG/ASSOCIATED PRESS
cessful. “They control more
territory; they have more in-
fluence than ever before,”
she says.
W
orryingly, the RAND
report notes an in-
creasing confidence
among Chinese military
strategists that they could
that avoiding provocative conduct a short, sharp and
words and actions, such as victorious war.
sending warships steaming Among the report’s rec-
close by the island fortresses ommendations: America
in “freedom of navigation” should make clear it doesn’t
missions, will make it easier favor pre-emptive strikes
for Beijing to find a graceful against China and must “ex-
way to comply with the rul- pand communications with
ing over time. China in times of peace, cri-
For the U.S., striking the sis, and war.”
right balance between dis- On that latter objective,
plays of conciliation and re- history isn’t encouraging. In
solve is critical. As the RAND 2001, when a Chinese fighter
report argues, war is much ran into an American spy
more likely to arise as a re- plane, killing the Chinese pi-
sult of China misjudging lot and forcing the crippled
America’s willingness to de- U.S. plane to make an emer-
fend its East Asian allies, gency landing on Hainan Is-
and pushing them too far, land, then U.S. President
than from a premeditated at- George W. Bush tried to
tack. reach his Chinese counter-
Indeed, Chinese leaders— part, Jiang Zemin, on a
arch-realists on foreign pol- hotline. Mr. Jiang wouldn’t
icy—may even feel embold- take the call.
But the launch was marred
by regulatory and tax issues,
and foreign interest was fur-
ther chilled by the collapse in
peak to trough from last June
to September, compared with
the 45.1% slump in Shanghai
stocks during roughly the
Shanghai stocks last summer same period. Both markets are
that shook global markets. down about 12% year to date.
Beijing’s attempts to stem the Investors have been antici-
slide included introducing a pating the opening of the
circuit-breaker mechanism at Shenzhen-Hong Kong Connect
the start of this year. The new for nearly two years, since the
system was scrapped after earlier Shanghai-Hong Kong
just four trading days when link started. Traders say the
shares continued to slump. announcement has been de-
The head of China’s market layed because Beijing’s prior-
regulator resigned in Febru- ity has been to stabilize do-
39.9 ary. mestic stock markets.
Such missteps have deep- “Considering the number of
ened skepticism about Bei- fires they’ve had to put out
jing’s desire to develop truly this year, it makes sense for
free markets. Recently, the ex- authorities to try to do this in
isting Shanghai-Hong Kong a methodical way,” said Bill
trading link has been used Bowler, an equities trader at
more heavily by Chinese in- Hong Kong-based Forsyth Barr
vestors wanting to buy shares Asia Ltd.
in Hong Kong. Among the well-known
“Last year’s stock market companies listed in Shenzhen
rout and bungled policy re- are telecom-equipment manu-
sponse have hurt overseas de- facturer ZTE Corp.; China
mand for mainland stocks— Vanke, the country’s biggest
foreigners have been net residential-real-estate devel-
sellers of Chinese equities in oper; and TCL Corp., a con-
recent months,” Julian Evans- sumer-electronics company
Pritchard, China economist at that bought the Palm brand
Capital Economics in London, from Hewlett-Packard Co. in
said in a note. 2015.
The Shenzhen market —Yifan Xie and
opened in 1990, when the city Dominique Fong contributed
was spearheading some of the to this article.
country’s most far-reaching
economic overhauls.
Today, trading remains vol-
atile, driven by retail investors
CORRECTIONS 
and subject to heavy govern-
ment intervention. Shenzhen
AMPLIFICATIONS
lost 50.2% of its value from
California is the U.S.’s most
populous state. The Aug. 2
investors had seen a 94%
chance of a rate increase by
the end of the year.
Mr. Williams isn’t alone at
Capital Journal column called
it the largest state, without
specifying that it was largest
by population, not area.
the Fed in suggesting that it is
Readers can alert The Wall Street
reassessing the economy’s Journal to any errors in news articles
long-term growth prospects. by emailing wsjcontact@wsj.com.
Federal Reserve Bank of St.
Louis President James Bullard, THE WALL STREET JOURNAL.
who has been one of the Fed Europe Edition ISSN 0921-99
leaders most reluctant to raise The News Building, 1 London Bridge Street,
London, SE1 9GF
rates, in June forecast a
slower path for raising U.S. Thorold Barker, Editor, Europe
Bruce Orwall, Senior Editor, Europe
rates as productivity and eco- Cicely K. Dyson, News Editor, Europe
nomic growth remain slow. He Margaret de Streel, International Editions Editor
Darren Everson, Deputy International Editor
called for officials to rethink
how to forecast and communi- Joseph C. Sternberg, Editorial Page Editor
cate policies. Anna Foot, Advertising Sales
Fed Chairwoman Janet Yel- Jacky Lo, Circulation Sales
Andrew Robinson, Communications
len called it “the new normal” Stuart Wood, Operations
in a June news conference. Jonathan Wright, Commercial Partnerships
The two views aren’t con- Katie Vanneck-Smith,
tradictory. Even the hawks Global Managing Director & Publisher
generally haven’t talked about
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 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Wednesday, August 17, 2016 | A3

WORLD NEWS
Berlin Says Turkish Mosques Play Politics
Politicians accuse Germany Arrests
religious group of Man Suspected
seeking to build
support for Erdogan Of Selling Gun to
Munich Shooter
BY MARCUS WALKER
AND RUTH BENDER BERLIN—German customs
officers arrested a 31-year-old
BERLIN—For years, Ger- German man suspected of sell-
many encouraged Tur- ing a gun to a teenager who
key’s state-run religious insti- went on a shooting spree in
tution to provide Munich last month.
Islamic preachers and teachers Officers from Germany’s
for the large Turkish minority Customs Investigation Bureau
here. made the arrest in Marburg af-
But Turkey’s upheaval since ter posing as buyers willing to
July’s coup attempt has Ger- purchase €8,000 ($9,024)
MARTIN MEISSNER/ASSOCIATED PRESS

man authorities worried that worth of guns and cartridges

the guidance on offer isn’t from the alleged arms dealer,
only spiritual—but also aimed according to prosecutors in
at drumming up support for Frankfurt. Communication with
Turkish President Recep the man took place over an en-
Tayyip Erdogan. crypted messaging service, ac-
In late July, as Mr. Erdogan cording to prosecutor Alexan-
launched a sweeping crack- der Badle.
down on alleged coup support- Germany has some of the
ers, the association of Turkish strictest gun laws in the world,
mosques in Germany pub- Turkish supporters of President Erdogan demonstrated in late July in the German city of Cologne against the failed coup. making anonymous corners of
lished a sermon praising “our the internet the place of choice
noble nation” for rising up Greens. and media have criticized the Turkey’s government to influ- politics” onto it. for criminals to procure weap-
against “a wretched network” The sermon and other inci- scope of Turkey’s arrests and ence them are worrying, Ditib’s imams are supplied ons. The Munich rampage left
that had sown “seeds of sedi- dents are fueling angst in Ger- its suspension of tens of thou- Volker Kauder, parliamentary by Ankara, and scholars of Is- 10 dead, including the shooter.
tion, rebellion and hostility.” many that Turkey’s internal sands of suspected Gulen sym- leader of Germany’s ruling lam in Germany say it has al- Chat records and bus tickets
The tough rhetoric was allud- politics are spilling over into pathizers. Many in Europe ac- Christian Democrats and a ways had limited autonomy. found in the home of shooter
ing to the followers of U.S.- German cities, inciting sup- cuse Mr. Erdogan of using close ally of Chancellor Angela German politicians used to Ali David Sonboly, an 18-year-
based Turkish imam Fethullah porters of Mr. Erdogan against popular patriotic fervor to Merkel, said in early August. welcome that, viewing Ditib old German-Iranian dual citizen,
Gulen, whom Turkey’s gov- his opponents, and sowing di- pursue autocratic ambitions Mr. Kauder singled out the and its state sponsor as useful showed that he had met the
ernment accuses of master- visions between Germany and and stifle dissent. association of Turkish partners in promoting a mod- man twice in Marburg, Bavar-
minding the coup plot. its three million residents of Mr. Erdogan and his gov- mosques, known by its Turkish erate form of Islam, in con- ian officials said on Tuesday.
The sermon came from the Turkish descent. ernment, and a majority of acronym Ditib, which manages trast to Salafi and other radi- On a first visit on May 20,
Ankara-based Presidency of The criticisms are part of Turks, reject that perception some 900 mosques in Ger- cal versions preached at some he bought the Glock 17 semi-
Religious Affairs—which re- the deepening acrimony be- and accuse the West of ignor- many, calling it a mouthpiece Arabic mosques in Germany. automatic pistol used in the at-
ports to the prime minister’s tween the European Union’s ing the failed putsch, which of Mr. Erdogan. Some of Ger- “Ditib does a lot of good tack, and on a second trip on
office—and was supplied to most powerful country and killed at least 271 people, many’s states have in recent work. It’s not just the long July 18, just days before the
Turkish mosques at home and the biggest applicant to join many of them civilians. Ankara weeks frozen cooperation with arm of the Turkish govern- shooting, he returned to Mar-
abroad. Therein lies the rub, the bloc. argues its response has been Ditib on providing religious ment,” said Kristina Dohrn, an burg to buy 350 rounds of am-
say many German politicians Turkey’s government has measured. education in schools, citing ethnologist at Berlin’s Free munition for the weapon, ac-
across the spectrum: Turkey’s accused Germany and the In Germany, Mr. Erdogan’s concerns that it isn’t suffi- University. And to some ex- cording to a joint statement
government, in their eyes, is West of failing to condemn the sometimes provocative rheto- ciently independent from An- tent, Turkey’s internal ruc- from the Munich attorney gen-
conducting its internal poli- coup attempt strongly or to ric—he once called European kara. tions would ripple through the eral and Bavaria’s state crimi-
tics on German soil. show solidarity with Turks, a pressure on Turkish immi- Ditib rejected the charges Turkish diaspora anyway, she nal investigation office.
“That was not a religious large majority of whom sup- grants to assimilate “a crime of political agitation as “ten- said. Investigators found the sus-
text. It was a declaration of port their government’s effort against humanity”—has dentious” and “prejudiced,” “But the political connec- pected dealer by following
obedience to Mr. Erdogan and to root out Mr. Gulen’s net- stirred insecurity about where saying that it has always been tion and the sermons may leads from investigating two
his measures since the coup work. Mr. Gulen denies any ethnic Turks’ loyalties lie. nonpartisan and neutral and have the effect of the sharpen- other men in Germany who are
attempt,” said Volker Beck, a role in the violent July 15 coup Turkish-Germans should be that some Germans may be ing the conflict” between Er- suspected of buying guns from
lawmaker in Germany’s parlia- attempt. loyal to Germany first and projecting “a deep antipathy dogan supporters and their the same source.
ment for the center-left Many European politicians foremost, and attempts by towards Turkey and Turkish foes, Ms. Dohrn said. —Zeke Turner

Europe Plans to Boost Four Years Later, in South Africa

Pilots’ Medical Checks

BY ROBERT WALL undergo drug and alcohol
checks.
LONDON—Europe’s top air- The European Cockpit Asso-
safety body proposed a new ciation, a Brussels-based pilot
set of medical checks for pi- lobby group, said it welcomed
lots and stronger medical the proposals including early
oversight to address shortfalls drug and alcohol testing.
highlighted by last year’s “The earlier those aspects
crash of a Germanwings jet- are checked the better, both
liner at the hands of its sui- from a safety perspective and
cidal co-pilot. to prevent that young people
The Cologne, Germany- eager to become a pilot, don’t
based European Aviation Safety start costly training and pile
Agency said Tuesday that pi- up big financial debts, to then
lots should undergo more thor- find out that they are not fit
ough initial and recurring med- for this type of profession,”
THEMBA HADEBE/ASSOCIATED PRESS

ical checks, including those for said the group’s Secretary-

their mental health. General Philip von Schöppen-
When psychiatric condi- thau.
tions are documented, EASA is Pilots still have reserva-
urging better follow-up of tions about later random drug
such cases. and alcohol tests.
Germanwings Flight 9525 The European safety regula-
crashed on March 24, 2015, tor also called for training and
killing all 150 people onboard oversight of aeromedical ex-
on a flight from Barcelona to aminations, the checks pilots REMEMBRANCE: Workers sang before joining a commemoration on Tuesday in Rustenburg, South Africa, of the death on Aug. 16,
Düsseldorf when the 27-year- have to undergo. Physicians 2012, of 34 striking miners for the Lonmin platinum company who were shot and killed by police trying to disperse them.
old co-pilot Andreas Lubitz in- also would have to report any
tentionally flew the plane into incomplete medical checks to
the French Alps. Lubitz had a authorities.

Iran Arrests Dual Citizen for Spying

history of depression. He hid EASA’s proposal now goes
the condition from airline offi- to the European Commission,
cials and regulators for fear it which will draft legislation
would end his career, investi- based on the safety body’s rec-
gators concluded. ommendations. The regulator BY ASA FITCH U.S. freed seven Iranians. The Iran denies that it ever and Iran’s powerful Revolution-
The crash spurred a num- said it expected a legislative U.S. paid Iran $400 million as sought to develop a nuclear ary Guards—a hard-line force
ber of safety recommenda- proposal to be ready by year- DUBAI—Tehran’s top prose- the U.S. prisoners were re- weapon. charged with protecting Iran’s
tions, including from the end. cutor said authorities arrested leased as part of a settlement The country has long held Islamic system, Mr. Rosen said.
French prosecutor probing the The BEA suggested regula- a dual citizen who had been in of a failed 1979 arms deal be- foreign nationals to further its Mr. Rouhani’s outreach to
case and the France air acci- tors consider weakening doc- contact with British intelli- tween the countries but denies political aims. In 2009, it ar- the world through the nuclear
dent investigation office, the tor-patient confidentiality gence services, the latest in a the money was a ransom pay- rested three American hikers deal and his encouragement of
BEA, which was formally rules in the case of pilots if string of such detentions in ment. who had strayed into its terri- foreign investment are seen by
charged with the crash probe. safety is at stake. EASA didn’t Iran this year. Recent arrests in Iran in- tory from neighboring Iraqi the Revolutionary Guards and
EASA also led a task force in address the issue though indi- The person faces espionage clude Nazanin Zaghari-Ratc- Kurdistan. They were released their allies as a potential threat
the aftermath of the crash to cated it would provide the charges after being taken into liffe, a British-Iranian employee in 2010 and 2011 after Oman to their political and economic
explore changes. commission with its view on custody, prosecutor general of the Thomson Reuters Foun- intervened and facilitated talks power, he said, and the for-
EASA said its latest pro- how to balance medical confi- Abbas Jafari Dowlatabadi told dation, the charitable arm of between the U.S. and Iran. eigners’ arrests as a way of
posal also calls for pilots to dentiality and public safety. the official Islamic Republic media giant Thomson Reuters, striking back as Iran opens to
News Agency on Tuesday. He who was picked up in April and the world.
didn’t disclose the person’s later accused of being a spy.
The detainee is The Revolutionary Guards
name or second nationality, or Others include two Iranian- accused of having said in June that Ms. Zaghari-
elaborate further on the case. American businessmen and an Ratcliffe was working for Brit-
The U.K. said it was seeking in- Iranian-Canadian professor.
been in contact with ish media involved in anti-Ira-
formation following the re- Iran doesn’t recognize dual British intelligence. nian propaganda and carried
FOTO-TEAM-MUELLER/EUROPEAN PRESSPHOTO AGENCY

ported detention of a dual Ira-
nian-British national in Iran.
At least six other Iranian
dual nationals have been ar-
rested this year, many of whom
stand accused of spying or at-
tempting to undermine the Ira-
nian system.
The pickup in arrests fol-
lows a rare prisoner swap
agreed to in January under
which Iran released four prom-
inent American prisoners—in-
cluding Washington Post re-
Andreas Lubitz, co-pilot of Germanwings Flight 9525, in 2009. porter Jason Rezaian—and the
nationality, and treats the dual
citizens it arrests solely as Ira-
nians. The arrests come as Iran
tries to mend ties with the
world under President Hassan
Rouhani. His government nego-
tiated a nuclear deal last year
with the U.S. and five other
world powers that gave Iran
sanctions relief in exchange for
placing new curbs on its nu-
clear program.
The deal went into effect in
January, around the time of the
Iran-U. S. prisoner swap.
“The regime sees hostage-
taking as part and parcel of its
foreign policy,” said Barry
Rosen, senior adviser with
United Against Nuclear Iran,
which advocates against Iran
obtaining nuclear weapons. He
was also one of 52 Americans
held by Iran for 444 days dur-
ing the 1979 hostage crisis.
The recent spate of arrests
were likely part of an internal
standoff between Mr. Rouhani
out espionage “for several
years,” according to IRNA.
Ms. Zaghari-Ratcliffe’s work
was “being used as a boogey-
man in Iranian domestic poli-
tics, and her passport makes
her a bargaining chip for inter-
national negotiations,” her hus-
band, Richard Ratcliffe, said in
July. “It is precisely because
she is a British dual national
that she has been taken as col-
lateral by Iran.”
—Jenny Gross in London
contributed to this article.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A4 | Wednesday, August 17, 2016
U.S.-Backed Forces Aim at Syrian Town
Group plans to push
farther in border area
after taking Manbij
from Islamic State
BY RAJA ABDULRAHIM
After expelling Islamic
State militants from the Syrian
city of Manbij, U.S.-backed
forces are turning to another
town in an area along the
Turkish border that the ex-
tremist group has used to fun-
nel fighters in and out of the
country.
As the Syrian Democratic
Forces prepared to defend
their hold on Manbij, they an-
nounced the formation of a
military council for Al-Bab,
signaling that this was the
next target in their campaign.
Al-Bab is about 30 miles to the
west of Manbij.
Taking the town of Al-Bab
from Islamic State would be an
important step toward cutting
off the group’s access to a 60-
mile corridor along the border.
The focus on Al-Bab also sig-
nals that it could be some time
before an assault begins on
Raqqa, Islamic State’s de facto
capital in Syria.
“The Americans and the in-
ternational coalition would
like to advance on Raqqa, and
this was their position even
before the Manbij offensive,”
said Ahmad Hisso Araj, a
spokesman for the Syrian
Democratic Forces. “The opin-
ion of the [SDF] is that Al-Bab
is more of a priority than
Raqqa.”
The SDF is a U.S.-backed
RUSSIA
Continued from Page One
in the provinces of Aleppo,
Deir Ezzour and Idlib, the min-
istry said.
Syria’s state news agency
SANA reported Moscow’s an-
nouncement and carried re-
marks by Russian and Iranian
officials.
“We will put our facilities
at Russia’s disposal in its war
against terrorism,” said Iran’s
Supreme National Security
Council, according to SANA.
Moscow has provided air
power to back Mr. Assad’s mil-
itary in the Syrian conflict,
while Iran and the Lebanese
Shiite Muslim group Hezbollah
have sent advisers and fighters
to support government forces.
An array of groups are
fighting the Assad regime, in-
cluding extremist groups such
as Islamic State and Nusra
Front, which recently changed
its name to the Syria Conquest
Front after it said it severed
ties to al Qaeda, and more
moderate rebels supported by
the U.S. and its allies.
Iran, a Shiite theocracy, has
long been wary of military in-
tervention abroad, but the
strikes come against a back-
drop of warming ties between
Moscow and Tehran. Russia
was among six world powers
that reached an agreement
with Iran in July 2015 under
which Tehran agreed to curbs
on its nuclear program in ex-
change for an easing of inter-
World
Watch
THAILAND
Muslim Separatists
Probed in Bombings
Thai authorities investigating
a wave of bombings that killed
four people and injured dozens
last week in popular tourist spots
are now looking at the possible
involvement of Muslim separat-
ists in the country’s south.
Thailand’s deputy national po-
lice chief, Gen. Srivara Ransibrah-
manakul, told reporters on Tues-
day that he was seeking an
arrest warrant to detain a man
suspected of bombing a busy
area of Patong beach in Phuket
last week. He said evidence from
the scene of the blast had been
compared with police DNA re-
cords and matched that of a
suspected militant involved in
antigovernment protests in
2004, in which 85 people died in
a police crackdown.
A conflict characterized by
bombings and shootings has
simmered in Thailand’s three
Muslim-majority provinces, claim-
Forces attended a gathering in Manbij, Syria, on Sunday to mark the founding of a military council for Al-Bab, a nearby town.
coalition that includes Kurdish
and Arab fighters and is domi-
nated by a Syrian Kurdish mi-
litia. The militia, known as the
YPG, and its political wing
have used the continuing bat-
tle against Islamic State in
Syria to expand its control of
land it considers to be histori-
cally Kurdish. Al-Bab is part of
that land. Raqqa isn’t.
For months, Kurdish politi-
cal and military leaders have
been clear that their priority
A Russian long-range bomber flew above the Aleppo region of Syria on Tuesday.
national economic sanctions.
As negotiations on the deal
neared an end, Russia opened
the door to better ties with
Iran by lifting a five-year-old
ban on the delivery of its pow-
erful S-300 surface-to-air mis-
sile defense system. The ban
in 2010 followed tighter
United Nations sanctions over
suspicions Iran was seeking to
develop nuclear weapons.
Iranian officials have said
since then that significant
components of the missile sys-
tem have been delivered.
Russia launched an air cam-
paign in support of Mr. Assad
nearly a year ago using war-
planes based in Syria. The
Russian navy also fired cruise
missiles from warships in the
Caspian Sea.
In March, the Kremlin said
it would withdraw its main
ing more than 6,000 lives since
the insurgency arose in 2004.
In recent days, top leaders of
the ruling junta have eased back
on initial claims that the blasts
were the work of individuals op-
posing a new, military-backed
constitution.
—James Hookway
and Wilawan
Watcharasakwet
FLYING HIGH OVER THE HOLY LAND: Israeli troops participated in a military parachuting exercise
near the Palmachim air base south of the Israeli coastal city of Tel Aviv, on Tuesday.
HK JP KO ML SI
WORLD NEWS
is to continue advancing west-
ward to link two separate
Kurdish cantons in northern
Syria—part of an autonomous
region they call Rojava—
rather than to launch an offen-
sive for Raqqa.
Manbij, which fell on Fri-
day, was the latest in a string
of Islamic State losses across
the Middle East.
In Libya, government-
backed militias have nearly ex-
pelled Islamic State from the
forces from Syria, but its mili-
tary presence has continued.
Russian President Vladimir
Putin last week asked Russia’s
parliament to ratify a deal
that would allow Russia to sta-
tion warplanes at a Syrian
base indefinitely.
Ruslan Pukhov, director of
the Moscow-based think tank
CAST, said an agreement had
likely been reached between
Moscow and Tehran on the
use of Iranian airfields for
bombing runs in Syria.
“There were extensive con-
sultations,” he said. “The Ira-
nians were asking for some
arms deliveries and a good
price, and we [the Russians]
had our own demands, likely
including the request to use
the Iranian air base.”
Ali Shamkhani, the secre-
tary of Iran’s Supreme Na-
BRAZIL
Suspended President
Vows to Fight Ouster
Suspended President Dilma
Rousseff promised to keep de-
fending herself against accusa-
tions of fiscal crimes that may
cost her job.
A little more than a week be-
fore the beginning of her final
IN UK FR MN PR THE WALL STREET JOURNAL.
in the important city of Man-
bij, which will set the stage for
the eventual attack to seize
Raqqa, and that will mark the
beginning of the end for [Is-
lamic State] in Syria,” Gen.
MacFarland said.
The SDF announced the for-
mation of the Al-Bab military
council on Sunday. The council
will receive weapons and am-
munition from the SDF, which
gets its supplies from the U.S.
coalition.
In the lead-up to the battle
for the Arab-majority city of
Manbij, the U.S. and Turkey
negotiated over the ethnic
makeup of the fighting force
and the future rule of the city.
Turkey is concerned that au-
tonomous Kurdish areas in
Syria could be used to bolster
Kurdish separatists in Turkey.
Opposition activists and
monitoring groups have said
the majority of SDF fighters in
Manbij are Kurds. Only about
RODI SAID/REUTERS
15% were Arabs, according to
Aleppo 24, an opposition mon-
itoring network.
The people of Manbij are
afraid it will be turned into a
Kurdish city after the YPG was
accused of preventing Arabs
coastal city of Sirte. And in the battle against Islamic and others from returning to
Iraq, forces are gearing up for State, said last week. their homes in other recap-
an offensive against the In May, the SDF appeared tured areas, Aleppo 24 said.
group’s stronghold in that to be advancing against Is- YPG has denied those claims
country, Mosul. lamic State militants around in some cases and said others
Islamic State has lost about Raqqa. But the offensive were due to security reasons.
10,000 total square miles, ac- stalled as focus instead shifted Kurdish leaders with the
counting for nearly 50% of to Manbij. By taking Manbij, Rojava administration have
what the militants once con- the SDF severed Islamic previously claimed that the
trolled in Iraq and 20% of State’s vital supply route be- Arab-majority towns of Man-
what they held in Syria, Lt. tween the Turkish border and bij, Al-Bab and Azaz are all
Gen. Sean MacFarland, Ameri- Raqqa, leaving the militants in historically part of Rojava.
can commander of the interna- Raqqa in a weakened state. —Noam Raydan
tional task force overseeing “Soon we’ll finish the fight contributed to this article.
Tuesday his government re-
ceived no official request from
Moscow for aircraft to transit
Islamic
Iraqi airspace, but he said he
Preacher
RUSSIAN DEFENSE MINISTRY PRESS SERVICE/ASSOCIATED PRESS
supported the airstrikes.
Mr. Abadi said his govern-
ment had previously given
Russian forces overflight per-
mission as long as they re-
Guilty in
mained in certain flight corri-
dors that bypass major cities,
so today’s sorties are nothing
U.K. Case
new. Mr. Abadi said he feels a BY ALEXIS FLYNN
duty to assist military strikes AND JENNY GROSS
on Islamic State in Syria,
though to remain mindful of LONDON—A U.K. jury found
civilian populations. Anjem Choudary, a prominent
Col. Chris Garver, spokes- radical Islamic preacher, guilty
man for the U.S.-led coalition of inviting support for Islamic
in Iraq, said Tuesday that Rus- State, underscoring efforts by
sian forces notified American authorities to stem the spread
military officials before of violent extremism.
tional Security Council, said launching their airstrikes in Authorities accused Mr.
Tuesday that Iran and Russia accordance with a memoran- Choudary, a trained lawyer, of
were cooperating in the fight dum of understanding be- praising the extremist group in
against terrorism in Syria and tween the two countries. The a series of online comments.
were sharing their facilities strikes presented no flight- Mr. Choudary, 49 years old,
for that purpose, according to safety issues for coalition air- was found guilty of a single
the official Islamic Republic craft, he added. count of inviting support for a
News Agency. The bombing comes amid banned organization. The jury
Mr. Shamkhani didn’t indi- intense combat around the reached its verdict July 28,
cate how many sorties Russia northern Syrian city of but a court-imposed restric-
was carrying out from Iran, Aleppo. The violence has raged tion meant it could only be re-
what the cooperation con- for more than a week after op- ported on Tuesday.
sisted of or how long it would position rebels broke through Mr. Choudary’s close associ-
continue. a siege imposed by the Syrian ate, 33-year-old Mohammed
Iran shares no border with government on its opposition- Mizanur Rahman, was also
Syria, and the route the Rus- held eastern neighborhoods. found guilty of the same
sian warplanes took during Since then, rebel factions charge. The two men are due to
their raid wasn’t immediately including the Syria Conquest be sentenced on Sept. 6 at Lon-
clear. Russian long-range Front have continued their of- don’s Central Criminal Court.
bombers previously have fensive on government-held Authorities in the U.K. and
flown sorties from Russian neighborhoods in a bid to other Western countries have
territory, farther from the re- seize more territory. long expressed frustration about
gion. —Thomas Grove how to deal with fundamentalist
Haider al-Abadi, prime min- and Ben Kesling Islamic leaders who they allege
ister of neighboring Iraq, said contributed to this article. use laws ensuring freedom of
speech and religion as a shield
to espouse controversial views.
trial in the country’s Senate, a accusing her enemies of violat- For years, British authori-
defiant Ms. Rousseff said in a
speech that the attempt to oust
ing the constitution.
After witness hearings and
ties tried to curb what they
say is Mr. Choudary’s malign
her amounts to a coup d’état.
On Aug. 25, Brazil’s Senate
lawyers’ final arguments, a mini-
mum of 54 out of 81 senators
influence on British Muslims.
Security officials say his
will start the final trial of an im- would need to vote against her shadow falls across a number
peachment process launched in for Ms. Rousseff to be ousted, of Syria-related cases, from
December accusing Ms. Rousseff confirming her former ally-turned- cheerleaders arrested for pros-
of using accounting trickery to foe interim President Michel Te- elytizing on Islamic State’s be-
hide a widening budget gap. She mer at the helm. Anything less half to former associates who
has denied the charges, while than that and she would be rein- surfaced in Syria and Iraq.
stated, with Mr. Temer going Mr. Choudary had been a
back to the vice presidency. mainstay on British airwaves
—Paulo Trevisani and other media channels whose
provocative rhetoric often tested
UNITED KINGDOM the boundaries of free speech,
lawyers said. He has said he
Import-Price Rise doesn’t support violence. He
Fastest in Five Years also has boasted an exhaustive
Import prices rose in July at knowledge of the minutiae of
the fastest annual pace for five British legal codes.
years, after voters’ decision to Before his September 2014
MENAHEM KAHANA/AGENCE FRANCE-PRESSE/GETTY IMAGES
leave the European Union trig- arrest in this case, police had
gered a sharp fall in the pound. arrested Mr. Choudary on mul-
The Office for National Statis- tiple occasions but never
tics said the prices companies charged him.
pay for metals, oil, food and other “These men have stayed just
materials bought from abroad within the law for many years,
rose 6.5% on the year in July, the but there is no one within the
fastest rate of growth since 2011. counterterrorism world that has
That pushed up companies’ over- any doubts of the influence that
all raw-material costs by 4.3%, they have had, the hate they
the quickest increase since 2013. have spread and the people that
Driving the pickup has been they have encouraged to join
the falling pound. Sterling has terrorist organizations,” said
declined 13% against the dollar Dean Haydon, head of the Coun-
since the referendum. ter Terrorism Command and
—Jason Douglas London’s Metropolitan Police
and David Hodari Service.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Olympians Didn’t Report Robbery in Rio
Medalist Lochte at first
denied incident; police
started probe only
after media reports
BY PATRICIA KOWSMANN
RIO DE JANEIRO—Local po-
lice investigating the armed
robbery of four U.S. Olympic
swimmers, including star Ryan
Lochte, learned about the
high-profile crime from media
reports the same time the rest
of the world did.
A police official said Mon-
day that the crime, which al-
legedly occurred about 4 a.m.
Sunday, wasn’t reported to po-
lice here by Mr. Lochte, the
other victims or U.S. Olympic
officials.
Upon seeing the media re-
ports later in the day, police
immediately launched an in-
vestigation, the officer said.
The official said it was ex-
pected that the victims would
notify the Brazilian authorities
immediately, particularly since
they are high-profile figures.
Why the crime wasn’t re-
ported is one of several ques-
tions police here are seeking
to answer in a case involving
one of the U.S.’s most well-
known Olympians.
When media outlets began
reporting the incident late
Sunday morning, there was
confusion initially because an
International Olympic Com-
mittee spokesman denied the
incident had taken place.
The IOC apparently made
that statement because Mr.
Lochte initially denied the in-
cident had happened when he
was contacted by the United
States Olympic Committee as
media reports of the incident
spread.
“All I can tell you is from
USOC,” IOC spokesman Mark
Adams said late Sunday morn-
U.K.’s May Says
Ties With Beijing
Remain Strong
British Prime Minister The-
resa May sought to reassure
the Chinese leadership that
London is committed to
strengthening relations with
Beijing, after delaying a final
decision on a major deal in
July strained relations be-
tween the two countries.
By Jenny Gross
in London and Chun
Han Wong in Beijing
The postponement of a de-
cision on building a nuclear
plant raised questions about
whether the new prime minis-
ter would seek to reset Sino-
British relations. The U.K. said
it needed until autumn to re-
view the controversial £18 bil-
lion ($23.3 billion) project,
funded by the Chinese and
French, which had been
agreed by former Prime Minis-
ter David Cameron.
In a letter to Chinese Presi-
dent Xi Jinping and Premier Li
Keqiang, Mrs. May said she
was “looking forward” to at-
tending the Group of 20 sum-
mit of advanced and develop-
ing economics in Hangzhou in
September, as well as
“strengthening cooperation
with China on economic, trade
and global issues,” China’s for-
eign ministry said on Monday.
She also conveyed Britain’s
support for China’s hosting of
the summit, the ministry said.
The U.K. government de-
DARREN STAPLES/REUTERS
The U.K. delayed a decision on a deal with China to build the Hinkley
Point C nuclear-power station site near Bridgwater in Britain.
U.S. swimmer Ryan Lochte was robbed of $400, Rio police say, but didn’t come to them about it.
ing as the situation unfolded.
“I messaged USOC and they
said they spoke to Lochte and
he said it wasn’t true.”
In early afternoon, however,
the USOC issued a statement
saying the swimmers had been
robbed at gunpoint.
Police got testimony from
Mr. Lochte and teammate
Jimmy Feigen on Sunday and
were scheduled to hear the
other two Monday.
Another officer said Mr.
Lochte and Mr. Feigen told po-
lice they were under the influ-
ence of alcohol during the in-
cident.
Mr. Lochte, a veteran of
four Olympics, and the three
others said they were robbed
when their taxi was “stopped
by individuals posing as armed
police officers who demanded
the athletes’ money and other
clined to comment on the con-
tent of the letter but said that
Britain’s Asia minister, Alok
Sharma, during a three-day
visit to China hand-delivered
the letter from Mrs. May, a
spokeswoman for the U.K. for-
eign office said.
In a meeting on Mon-
day between Mr. Sharma and
Chinese Foreign Minister
Wang Yi, Mr. Wang said he ap-
preciated the British official’s
visit, and that he believes Brit-
ain would continue with its
proactive and open policies to-
ward China, the ministry said.
Mr. Sharma also met with oth-
ers in China to discuss devel-
oping trade and investment
between the two countries.
While the delay prompted
criticism from China, Mrs. May
has insisted that China would
remain an important partner for
the U.K. Britain’s treasury chief
Philip Hammond visited China
in July as part of a series of
trips aimed at bolstering Brit-
ain’s economic ties, after its
vote to leave the EU. Mr. Ham-
mond’s predecessor, George Os-
borne, had talked of creating a
“golden decade” of relations be-
tween London and Beijing.
In the wake of Britain’s de-
cision to leave the European
Union in June, politicians and
analysts are looking to Mrs.
May’s early approach to for-
eign relations for clues on the
U.K.’s approach to foreign
trade outside the bloc.
WORLD NEWS
personal belongings,” the
USOC said Sunday.
The athletes were on their
way to the Athletes’ Village
from a party at France House
early Sunday and were un-
harmed in the incident, the
statement said.
Police are now scouring
camera footage along the
route from the party to the
neighborhood of Barra da Ti-
juca, where the Athletes’ Vil-
lage is located. That may also
help them locate the taxi
driver, whose identity isn’t
known.
A police official said camera
footage has been secured
showing the swimmers return-
ing to the Athletes’ Village
early Sunday.
An officer said one of the
swimmers said they took a
second cab home after the
A Thaad interceptor during a test launch. China worries the system’s deployment in South Korea could weaken its nuclear deterrent.
U.S. Assures China on Missile Defense
BY GORDON LUBOLD
BEIJING—The U.S. Army’s
top general, on a swing
through Asia this week,
stopped here to meet his
counterpart and assure the
Chinese military that a de-
ployment of a controversial
missile-defense system in
South Korea didn’t amount to
a threat to China.
Gen. Mark Milley, the U.S.
Army chief of staff, told Gen.
Li Zuocheng, who heads the
ground forces of the People’s
Liberation Army, that the
coming deployment of a Ter-
minal High Altitude Area De-
fense system to South Korea
is only meant to defend South
Korea and the U.S. against
North Korean ballistic mis-
siles.
Gen. Milley was expected
to brief Gen. Li and his staff
on the system, an Army pro-
gram typically known as
Thaad, during a roughly two-
Wednesday, August 17, 2016 | A5
Police Gunfire Rings Out Near
Olympic Venues; 3 Are Killed
RIO DE JANEIRO—Confron-
tations between police and
armed gangs claimed more
lives amid continuing violence
in the host city for the Olym-
pic Games.
Three people were killed
and three arrested in a police
operation Tuesday aimed at
detaining suspects in last
week’s fatal shooting of a po-
lice officer in the Complexo da
Maré, a large group of slum
areas known as favelas.
Another person was killed
on Monday in an unrelated
shootout with police near
Rio’s principal tourist neigh-
MATT HAZLETT/GETTY IMAGES
borhoods of Ipanema and Co-
pacabana.
Meanwhile, shootouts were
reported in neighborhoods
across the city, often bringing
daily life to a standstill for
thousands of locals unable to
leave their homes for work or
school out of fear of being
caught in the crossfire.
robbery, and that another of Law-enforcement authori-
them said he didn’t remember ties said none of the dead or
doing so. arrested in Tuesday’s opera-
A police officer said $400 tion was directly related to
was taken from Mr. Lochte and last week’s police killing,
$300 from Mr. Feigen. Police which occurred when a group
are puzzling over why the of officers was ambushed af-
swimmers’ mobile phones and ter taking a wrong turn into
Olympic credentials weren’t Complexo da Maré, which is
stolen. known to have a heavy pres-
According to a copy of Mr. ence of armed drug-trafficking
Feigen’s statement to police, gangs. The suspects in that
he was sleeping in the taxi killing remain at large, accord-
when he realized the vehicle ing to the Ministry of Justice.
was being stopped. A man or- In Tuesday’s raid, the police
dered them to get out of the “came, killed people and left,”
taxi, according to the state- said a member of Maré Vive,
ment. a local community organiza-
Mr. Feigen described the tion, who said he saw the
person, but said he couldn’t dead.
describe the taxi driver or At a news conference, Bra-
where they were when the in- zilian Justice Minister Alexan-
cident occurred. dre de Moraes said the opera-
—Rachel Bachman tion marked an advancement
contributed to this article. in local and national efforts to
hour meeting at the Bayi announced Feb. 7 that they
building, the headquarters for were in formal discussions
the PLA here. about the deployment of the
Beijing has expressed deep Thaad system, just hours af-
concerns that the missile-de- ter the North conducted an-
fense system, which monitors other missile launch, and
North Korea, also covers concluded those talks with an
parts of China and could thus agreement this summer to
weaken Beijing’s nuclear de- deploy the system.
terrent. The Chinese govern-
ment so far hasn’t indicated a
willingness to accept Wash-
Beijing is concerned
ington’s view that the system that the system
isn’t designed to threaten
China.
could weaken its
North Korea has launched nuclear deterrent.
more than 30 ballistic mis-
siles since North Korean
leader Kim Jong Un took The announcement of the
power in 2011. Most launches deployment of the missile
are tests of old missiles that system comes amid enduring
travel short distances and tensions between the U.S. and
land in the sea far from other China over the disputes over
countries. But in June, Pyong- islands in the South China
yang successfully tested a Sea. It was unclear if the
new midrange missile that is talks between Gen. Milley and
considered a threat to U.S. Gen. Li would include discus-
bases in Guam and Japan. sion on those disputes,
The U.S. and South Korea though it was likely in light
combat crime.
“The civil police quickly
identified the [suspects], got
arrest warrants, and put to-
gether the operation,” said Mr.
Moraes, adding that the minis-
try “will give all financial, lo-
gistical and operational help
to increase the fight against
narco-trafficking and weapons
trafficking.”
Interim President Michel
Temer declared a national day
of mourning Friday for Hélio
Vieira Andrade, the officer
killed last week in Maré. Hail-
ing from Roraima, a sparsely
populated Amazonian state,
Mr. Andrade was in Rio as
part of the Força Nacional, a
reserve contingent of police
and firefighters from across
the country deployed to in-
crease security during the
Games.
Mr. Temer described the
death as a “regrettable acci-
dent.”
Mr. Andrade was buried on
Monday. While the suspects in
his killing remain at large, the
government’s reaction to his
killing has left at least four
dead in Maré, one last week
and three on Tuesday.
The latest crime statistics
in Rio de Janeiro state show
police killings have doubled
so far this year compared
with the period last year, ac-
cording to Rio’s Public Secu-
rity Institute. Forty-nine peo-
ple were killed by police in
June amid a broader increase
in crime.
Despite deploying around
85,000 security agents to Rio
for the Olympics, the largest
ever for the city, violence has
spilled over from the city’s
poor neighborhoods and even
touched star athletes.
—Benjamin Parkin
US DEPARTMENT OF DEFENSE/REUTERS
of a ruling against China on
the disputes by a tribunal in
The Hague July 12.
Gen. Milley’s visit to China
follows a visit this summer
by Adm. John Richardson, the
U.S. chief of naval operations,
as well as White House na-
tional-security adviser Susan
Rice.
Gen. Milley’s trip to the re-
gion includes stops in Seoul
and Tokyo as well as at U.S.
Pacific Command, Hawaii.
The trip, which was planned
months ago, was meant to as-
sure the PLA but also to es-
tablish stronger ties between
the two generals.
“On behalf of the entire
American Army and my dele-
gation, thanks so much for
the warm welcome. I look
forward to the visit,” Gen.
Milley told Gen. Li as the
meeting got under way. “Con-
gratulations again on being
selected as commander of the
PLA.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A6 | Wednesday, August 17, 2016
SHALE
Continued from Page One
Six years after the Deep-
water Horizon accident in
the Gulf of Mexico caused
the worst offshore spill in
U.S. history, BP is turning
again to America. Mr. Lawler,
a former college football
linebacker turned engineer,
is in charge of the push into
shale oil and gas. If the Per-
ryton well succeeds, Mr.
Lawler could try the same
thing with drilling leases BP
has in Oklahoma, Texas and
beyond, potentially yielding
oil and gas on a large scale.
He isn’t the only Lawler in
the fracking business. His
older brother, Robert, known
as Doug, is chief executive of
Chesapeake Energy Corp.,
the trailblazer founded by
fracking pioneer Aubrey Mc-
Clendon, who died in a car
crash in March.
The Lawler brothers are
part of the second wave of
the fracking revolution: a
move away from debt-fueled
drilling mania to what they
hope will be a more finan-
cially sustainable future.
Doug’s challenge is to take
debt-laden Chesapeake and
its attractive drilling leases
and turn it into a profitable
business. David’s mission is
to crack the code of shale
drilling for BP, something
that the world’s biggest en-
ergy companies haven’t been
good at.
Processes designed for
huge offshore platforms are
a poor fit for fracking, which
requires endless tinkering to
be successful. Frackers must
also develop a substantial
tolerance for failure. They
often must drill dozens of
wells to figure out the best
techniques for particular lo-
cations.
Oil firms have yet to
prove they can master
techniques pioneered
by shale drillers.
So far, big oil companies
have compiled a poor record
in U.S. fracking. Their
fracked wells don’t produce
as much as those of industry
leaders because they haven’t
mastered the technology.
They have taken more than
$20 billion in write-downs,
some stemming from top-of-
the-market acquisitions of
fracking companies, and the
plunge in crude prices has
Playing Catch-Up
Big oil companies are lagging behind the fracking pioneers
in shale-oil production.
Top 10 producers of U.S. shale oil and shale gas in 2015…
COMPANY THOUSANDS OF BARRELS PER DAY
Chesapeake Energy
Devon Energy
EOG Resources
Southwestern Energy
ExxonMobil
Anadarko
BHP Billiton
Cabot
EQT
ConocoPhillips
…and shale production among major oil companies
ExxonMobil
Statoil
Chevron 117
BP 89
Shell 81
Total 59
Source: Wood Mackenzie
BHP
Continued from Page One
its write-downs.
The annual loss was the first
at BHP Billiton’s group level
since the company was formed
in 2001 through a merger of
Australia’s BHP Ltd. and U.K.-
based Billiton PLC. Before that,
BHP last posted a full-year loss
in 1999, also a time of weak
prices.
“We are clearly very disap-
pointed with this result. How-
ever, the underlying perfor-
mance of our business…remains
and is getting stronger,” said
Chief Executive Andrew Mack-
enzie.
The company, which in Feb-
ruary abandoned a policy of sta-
ble or rising capital returns, cut
its final dividend by 77%. Still,
at 14 U.S. cents a share, it was
higher than the eight-cent mini-
mum required under its policy,
which BHP said reflected confi-
BP executive David Lawler, right, at the site of a horizontal oil well being drilled in Perryton in the Texas Panhandle. The London-based company is moving into shale-oil
drilling with wells such as the King Harry 1H in the Texas Panhandle, below, which descends 8,000 feet before splitting into three shafts.
made things worse. Exxon
has lost money in its U.S.
drilling business for six
straight quarters.
In 2014 and 2015, shale
wells drilled by BP, Royal
Dutch Shell PLC, Exxon and
Chevron Corp. were one-
third less productive, on av-
erage, than the top 10 opera-
tors, according to data from
analytics firm NavPort. Their
wells have improved each
year, but so have those of the
top operators. Many big
companies—often called “in-
tegrated” firms because they
have production and refining
operations—say they are get-
ting better and have drilled
some profitable wells.
“You have to be quick, you
have to be nimble, you have
to be flexi-
ble,” says shale pioneer Mark
Papa, former chief executive
of EOG Resources Inc. “The
track records of the integrat-
eds is really not very pretty.”
David Lawler, 48 years
old, acknowledges the chal-
lenges BP faces trying to go
small. Exxon, Shell and Total
SA all notched losses or
write-downs from
their shale businesses, even
before oil prices began fall-
ing two years ago.
Yet Mr. Lawler says he is
optimistic that BP can
make shale profitable at to-
day’s prices, even if it isn’t
607
478
462
443
424
398
335
261
254
249
424
174
THE WALL STREET JOURNAL.
dence in the health of its bal-
ance sheet.
BHP didn’t signal a recovery
in commodity prices was immi-
nent, instead saying that abun-
dant supplies of crude oil and
metals such as copper are likely
to persist. Also, it views the
economy of China—the top con-
sumer of most of BHP’s com-
modities, including iron ore—as
merely stabilizing, rather than
rebounding.
In response, BHP said it con-
tinues to seek $2.2 billion in
savings over the two years end-
ing next June by making its op-
erations more productive, while
cautiously advancing new proj-
ects such as a U.S. Gulf of Mex-
ico deep-water oil field that
could boost revenue.
“We are starting to open up
at long last a decent margin and
therefore strong cash-generat-
ing capacity,” Mr. Mackenzie
said. The company’s London-
listed shares rose 0.67% on
Tuesday, helped by forecasts
that BHP could double free cash
FROM PAGE ONE
blessed with what others in
the industry see as good
rock—land in the country’s
most prized oil-and-gas ba-
sins. “It’s about how fast we
can change,” he says.
If he succeeds, it would
bolster the view that
the shale age could last de-
cades as the drilling bonanza
extends to new areas, not
just in the U.S. but around
the world.
So far, BP has managed to
slash its shale production
costs, and it believes it can
produce as much as 7.5 bil-
lion barrels economically.
While some analysts see only
about half that as viable at
today’s prices, it still
amounts to enough drilling
locations to last 30 years.
Some of its Colorado wells
each have produced enough
natural gas to power 9,000
U.S. homes for a year. A well
in a Wyoming field that no
one had tapped in eight
years yielded the equivalent
of almost 50,000 barrels of
oil in its first month. An ear-
lier test in Texas, he says,
suggested BP’s land could
hold the equivalent of 400
million barrels of oil.
Currently, most of BP’s
planned growth is coming
from nonshale production in
places such as Azerbaijan,
Oman and Egypt. The U.S.
shale business is responsible
for only about 13% of its pro-
duction.
“The point for us is that
it’s an optionality,” said Ber-
flow in the year ahead if com-
modity prices remained stable.
Last year, BHP shifted assets
in several niche commodities
such as manganese and alumina
into a new company called
South32 Ltd. that was listed in
Australia, London and South Af-
rica. Mr. Mackenzie has justified
the overhaul as a way to boost
BHP’s profit by focusing only on
the company’s biggest assets.
The strategy hasn’t paid off
yet: While South32 shares are
up roughly 25% over the past
year, BHP’s are off 20%. Mr.
Mackenzie insists BHP would be
worse off if it hadn’t restruc-
tured, and calls the company’s
portfolio “pretty close to what I
would say is ideal for BHP Billi-
ton right now.”
Credit Suisse said the 2016
financial year is likely to be the
low point in the cycle for BHP’s
earnings, despite global uncer-
tainty that in part reflects
China’s economic slowdown and
the U.K.’s vote on June 23 to
leave the European Union. Other
nard Looney, BP’s head of ex-
ploration and production,
adding that shale has “the
potential to be a material
source of growth.”
BP initially was unsure
about the prospects of shale.
As smaller competitors be-
gan demonstrating the mag-
nitude of the oil and gas
trapped in shale rocks, other
big companies piled in with
costly acquisitions, such as
Exxon’s $31 billion purchase
of XTO Energy in 2010. BP
signed smaller transactions
to jointly develop wells with
Chesapeake—deals not
struck by the Lawlers.
When the Deepwater Hori-
zon accident took place in
April 2010, BP’s shale ambi-
tions took a hit. The com-
pany needed cash to pay tens
of billions of dollars in
cleanup costs and legal pen-
alties. It sold off holdings in
West Texas, home to the
Permian basin, which some
analysts and executives see
re-emerging as one of the
most important oil forma-
tions in the world.
The company underwent a
major restructuring after the
spill. Executives were di-
vided over how to improve
the U.S. shale unit’s middling
record. In the end, they de-
cided to give the business
freedom to run almost as an
independent.
“We’ve chosen a model to
separate the business, and
it’s working,” said Mr. Loo-
ney, who was involved in the
analysts say BHP might need to
set aside more money because
of last year’s deadly dam failure
at the Brazilian iron-ore mine it
jointly owns with Vale SA.
BHP isn’t alone in grappling
with tough commodity markets.
In July, Anglo American PLC re-
ported a first-half loss of $813
million as it recorded a $1.2 bil-
lion impairment for some Aus-
tralian coal assets.
However, BHP’s purchase of
energy assets near the peak of
oil and gas prices have com-
pounded its mining woes. The
company plowed $20 billion
into U.S. shale assets in 2011,
becoming one of the biggest pe-
troleum producers outside of
large integrated oil companies
such as Exxon Mobil Corp.
The oil-price slump has made
that unit “a problem child,”
Credit Suisse said in an Aug. 9
note. Still, Mr. Mackenzie on
Wednesday stood by the energy
business for what he called its
damping effect on long-range
volatility.
THE WALL STREET JOURNAL.
discussions. “Not just sort of
working, but really working.”
Mr. Looney attributes
much of the success to Mr.
Lawler, who took over
BP’s shale operations in
2014.
Mr. Lawler’s brother Doug,
who became Chesapeake’s
chief executive in 2012 and
has slashed that company’s
near-term liabilities roughly
by half, says David “attacked”
the opportunity with zeal.
Doug Lawler predicts that
his brother will help extend
the life of the shale revolution
at BP as engineers expand the
areas that can be considered
prime drilling turf. “There are
definite sweet spots,” he
says. “But through technology,
ingenuity, innovation, those
can be expanded.”
Part of David Lawler’s chal-
lenge upon taking over was
teaching BP employees that
some failures were acceptable.
At major oil companies such
as BP, executives are used to
tackling multibillion-dollar
projects. In deep-water explo-
ration, a dry hole can cost
$100 million or more. In shale,
it is just $5 million in many
areas.
“If we drill a well and it
doesn’t work, no one is
blamed,” Mr. Lawler says. “We
had to fight back against an
unwillingness to try new
things.”
Mr. Lawler outsourced less
work to contractors so BP
could gain from any advan-
tage gleaned from experi-
Rock Bottom
BHP Billiton has been struggling with weak prices and large
write-downs, underperforming the business it spun off last year.
BHP net profit and loss, since the merger with Billiton PLC
$30 billion
20
10
0
–10
FY2001 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16
Share performances, since the spinoff of South32 in May 2015
20%
0 South32
–20
–40
–60
2015
Note: Fiscal year ends June 30.
Sources: the company (profit and loss); Thomson Reuters (share)
DAVID BOWSER FOR THE WALL STREET JOURNAL (2)
mentation, and he gave indi-
vidual managers control of
how they drilled wells in dif-
ferent areas—a common ap-
proach among success-
ful shale producers.
BP says it has seen im-
provement. In Oklahoma and
Texas, it has reduced well
costs by almost two-thirds,
and is now drilling wells in
37 days on average, com-
pared with 67 in 2012. The
wells are on track to produce
44% more natural gas than
those drilled three years ago.
Although the wells of big
companies have lagged be-
hind those of top shale oper-
ators, the big companies are
getting better. Exxon, Chev-
ron, Statoil ASA, ConocoPhil-
lips and Occidental Petro-
leum Corp. are among the
top 20 in terms of U.S. well
performance so far in 2016,
according to NavPort.
BP has high hopes for its
“multilateral” wells—the
“chicken-foot” type—which
involve drilling horizontally
in more than one direction
from one vertical well bore.
Doing so would allow the
company to tap more than
one layer at about half the
cost of drilling multiple
wells.
After a test proved the
concept with two horizon-
tals, Mr. Lawler decided to
go for three in the Texas
Panhandle on the King Harry
lease, and to do it six
times—18 horizontal wells
from six vertical well bores,
draining 3 square miles. The
wells are expected to begin
flowing this month.
A two-lateral well drilled
late last year produced the
equivalent of 1,040 barrels a
day, mostly natural gas. That
is much less than some of
the biggest natural-gas wells
in Ohio and Pennsylvania,
but it is more than three
times the average in the ba-
sin, an area that most other
operators have abandoned.
At the current price of
$2.59 per million British
Thermal Units, about half
that of two years ago, the
wells have a rate of return
between 10% to 20% over
their productive
lives, Mr. Lawler says. The
results, he says, point to the
viability of 500 potential
new wells across the area.
“We had to create a way
to make money,” he says,
“and we’re doing it.”
Loss: $6.39 billion
BHP
’16
THE WALL STREET JOURNAL.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
U.S. to Offer Aid for Alternative Training
Program will give
students $17 million
in loans and grants for
nontraditional training
BY JOSH MITCHELL
WASHINGTON—The Obama
administration will inject mil-
lions of dollars into a group of
nontraditional education pro-
viders to address a vexing
problem: Many Americans are
leaving college without skills
the economy needs.
The administration is turn-
ing to the private sector for
help. In a novel experiment,
the Education Department an-
nounced Tuesday up to $17
million in loans and grants for
students to undergo training
at eight entities that aren’t
traditional colleges. Most are
for-profit companies. They in-
clude coding academies such
as New York startup Flatiron
School and Portland, Ore.-
based Epicodus, as well as
websites such as Study.com
and StraighterLine that pro-
vide online courses.
The one that stands out
from the group is corporate
giant General Electric Co.,
which won’t receive funds di-
rectly but will provide training
at one of its jet-engine plants
under the program.
The program, called Educa-
tional Quality through Innova-
tive Partnerships, or Equip, is
designed to enable low-income
Americans to learn skills in ar-
eas where colleges often fall
short, such as learning how to
More Guantanamo Louisiana Braces for More Flooding
Detainees Relocated
BY JESS BRAVIN
AND CAROL E. LEE
WASHINGTON—The U.S. has
transferred 15 Guantanamo Bay
detainees to the United Arab
Emirates, the largest such
movement yet in President Ba-
rack Obama’s push to remove
most prisoners from the off-
shore prison before he leaves
office in January.
The transfer of 12 Yemenis
and three Afghans from the
Cuba facility to the U.A.E.
leaves 61 detainees, a signifi-
cant drop from the 242 men
imprisoned there in 2009 when
Mr. Obama took office but
short of the president’s long-
time goal of closing the lockup.
The Obama administration
has faced persistent resistance
from Congress and the Penta-
gon to closing the prison. Since
its opening after the Sept. 11,
2001, terrorist attacks, the
prison has held nearly 800
men. The Obama administra-
tion has released about 200
detainees, while 532 were re-
leased during the George W.
Bush administration.
In recent months, the trans-
fers have increasingly involved
Mr. Obama, Secretary of State
John Kerry and Vice President
Joe Biden, who at times have
worked to “close the deal”
with foreign leaders on reset-
BEN FOX/ASSOCIATED PRESS
The United Arab Emirates accepted 15 men from Guantanamo
Bay, part of President Obama’s effort to remove most prisoners.
U.S.
Watch
PENNSYLVANIA
Attorney General
Quits After Conviction
Attorney General Kathleen
Kane resigned Tuesday, a day af-
ter she was convicted of perjury
and obstruction stemming from
Students in a class at the Flatiron School, a New York coding academy that is one of the eight entities approved for the new federal aid.
write computer code, or using
new software to operate high-
tech manufacturing equip-
ment.
Ted Mitchell, the Education
Department’s undersecretary,
said the program is part of a
broader trend, accelerated
since the recession, of colleges
turning to employers to learn
what skills to teach. “It’s a
must for us to build these
tling detainees, officials said.
The U.S. usually pays for-
eign governments to monitor
transferred detainees and un-
derwrites resettlement costs—
for language instruction, voca-
tional courses and the like—up
to $100,000 each, a senior ad-
ministration official said.
Officials wouldn’t discuss
specific security arrangements,
but people familiar with the
matter said the U.S. typically
conducts electronic surveil-
lance of former detainees,
while local authorities keep
physical tabs on them.
One technique the U.S. uses
to find homes for detainees in-
volves leveraging rivalries to
get countries to compete over
resettling the men. Foreign
governments are realizing that
“if you want to get attention in
the Obama administration, one
way to do it is to take Guan-
tanamo detainees,” a senior
administration official said.
In the U.A.E., the 15 newly
transferred men will enter a
rehabilitation facility that
seeks to “deradicalize” former
detainees, a senior administra-
tion official said. The men will
be held until authorities decide
they can be released at a mini-
mum of risk, the official said.
The U.A.E. won’t receive the
typical resettlement subsidy,
the official added.
her leak of grand-jury materials
to a Philadelphia newspaper to
discredit a political adversary.
On Monday, a jury convicted
Ms. Kane on all nine counts she
faced, including two for felony
perjury, which each carry poten-
tial seven-year prison terms. Kane
lawyer Gerald Shargel vowed to
appeal. Ms. Kane is scheduled to
be sentenced within 90 days.
Ms. Kane, who took office in
January 2013, was the first
woman and first Democrat elected
attorney general in the state since
the office became elective in 1980.
—Kris Maher
U.S. NEWS
kinds of partnerships,” Mr.
Mitchell said. “Our economy
depends on it.”
Until now, the student-aid
program has been restricted to
students at community col-
leges, universities and trade
schools that must first win ap-
proval from a regional accredi-
tor composed of fellow college
leaders. The Education Depart-
ment said that peer-review
BY CAMERON MCWHIRTER
AND TAWNELL HOBBS
DENHAM SPRINGS, La.—
Even as thousands of southern
Louisiana residents returned to
their homes to assess damage
from historic flooding here,
thousands more braced for new
flooding as the deluge surged
into communities southeast of
Baton Rouge on Tuesday.
Eight people have died in
the floods since pounding
rains submerged the region
over the weekend, according
to Mike Steele, spokesman for
the Louisiana Governor’s Of-
fice of Homeland Security &
Emergency Preparedness.
At least 40,000 homes have
been damaged, Gov. John Bel
Edwards said Tuesday. As
of Tuesday morning, about
40,000 people in the area had
registered with the Federal
Emergency Management
Agency seeking help, he said.
President Barack Obama on
Tuesday declared eight addi-
tional parishes part of the di-
saster area, up from four par-
ishes in his Sunday declaration.
FEMA Administrator Craig Fu-
gate visited the area Tuesday.
The flooding, which has
transformed miles of the state
into a vast, muddy lake,
was caused by heavy storms
that dumped more than 2 feet
of rain in some areas. The ma-
jor storms have moved away,
but the slow-moving water was
expected to take days to fully
recede. The water was flowing
southeast toward Lake Maure-
pas, north of New Orleans.
Roads across the region, in-
cluding major highways, have
been closed, and about 2,000
National Guard troops have
Trump to Get Intelligence Briefing
BY DEVLIN BARRETT
WASHINGTON—Republi-
can presidential candidate
Donald Trump will get a classi-
fied intelligence briefing on
Wednesday in New York, ac-
cording to officials familiar
with the plans.
Mr. Trump is scheduled to
get the briefing at the New
York field office of the Federal
Bureau of Investigation, these
officials said.
It has long been the prac-
tice—once it becomes clear
who the two main parties’
nominees for president will
be—for intelligence officials
to provide a wide-ranging
briefing on matters of con-
cern around the world. Typi-
cally, the briefing isn’t meant
as a deep dive into U.S. opera-
tions or capabilities. Instead,
it is designed as a discussion
system has allowed colleges to
become complacent in shaping
curricula to keep up with tech-
nological advances, and that
alternative providers can bring
competition into higher educa-
tion.
The program will let up to
1,500 students in the coming
academic year enroll in a se-
lect group of traditional col-
leges while undergoing much
Residents surveying floodwaters at Bayou Manchac in Prairieville, La., on Tuesday.
been mobilized.
Louisiana is no stranger to
heavy rains or major storms.
But Tim Destri, a meteorologist
with the National Weather Ser-
vice in Slidell, La., said the rain
that fell during a 48-hour pe-
riod late last week was extraor-
dinary. The weather service es-
timated that, in any given year,
that volume of rain—more than
20 inches in many places—has
only a 0.2% chance of hitting
the region, he said.
The resulting flooding has
been unprecedented for this
part of Louisiana, requiring
more than 20,000 people to be
rescued, he said. In addition to
the people rescued, about
1,000 pets had been saved, Mr.
Edwards said Tuesday. Mr. Ed-
wards said search crews were
Donald Trump has made controversial comments about Russia.
of the main issues that the in-
telligence agencies are con-
fronting and expect to con-
front, according to people
familiar with the practice.
Such briefings usually
Wednesday, August 17, 2016 | A7
certain for-profit schools it
says use deceptive marketing
while getting billions in fed-
eral student aid as a group.
Some academic experts say
that by opening up federal aid
to the new providers, the
Equip program risks inviting
the same abuses.
Mr. Mitchell said the agency
will closely monitor how the
funds are spent, with a “laser-
like focus” on whether stu-
dents find decent-paying jobs
afterward. It has arranged for
outside groups to collect data
on graduates’ career outcomes,
including their earnings.
Officials point to an eco-
nomic imperative for change.
College enrollment soared 20%
NATALIE KEYSSAR FOR THE WALL STREET JOURNAL
between 2005 and 2010, the
biggest increase since the
1970s. Meanwhile, nearly half
of recent college graduates—
about 44.5%—were underem-
ployed as of March, meaning
they work in jobs that don’t
require their degree, according
to the Federal Reserve Bank of
New York.
The Equip program is de-
signed to address those issues.
Graduates at coding academies
like Flatiron have learned
skills in high demand among
of their training at one of the employers, and they are
eight nontraditional providers, quickly finding high-paying
ultimately leading to degrees. jobs after graduation.
As with educational loans for Besides GE, training provid-
traditional colleges, the grants ers in the Equip program in-
will be made to students who clude four coding academies
will then pay the provider. and several companies that
The program marks a shift provide online courses at costs
in the Obama administration’s far lower than at traditional
approach to higher education. schools. Academics say lower
The Education Department has costs increase the likelihood of
taken a hostile stance toward a student graduating.
MAX BECHERER/ASSOCIATED PRESS
looking for more survivors and his town had fled to shelters,
victims of the floods in houses but he estimated that 75% of
and abandoned cars. Ascension Parish had been hit
The flood was still very by the flooding.
much under way Tuesday in Mr. Lambert said the town
Ascension Parish, southeast of weathered the heavy rains over
Baton Rouge, where the Amite the weekend but all the rain
River, other rivers and bayous that fell northwest of them has
have overflowed and spread become the problem. “It all
across much of the parish. Of- came down my way,” he said.
ficials have declared a dusk-to- Closer to Baton Rouge, peo-
dawn curfew and are distrib- ple had begun cleaning up the
uting sandbags for people to wreckage. Most of Denham
pile up around their houses. Springs, a city of about 10,000
All schools are closed. east of Baton Rouge, was dam-
In Sorrento, a town of aged in the floods. By Tues-
about 1,500 people between day morning, much of the wa-
Baton Rouge and New Orleans, ter had receded, leaving
Mayor Mike Lambert said that behind mud-smeared, aban-
by late Tuesday morning 25% doned cars. People across the
to 30% of the homes were in- city piled furniture, carpeting
undated with water. He wasn’t and other ruined household
sure how many people from items along the street.
handling government secrets.
Mr. Trump has been criti-
cized by former intelligence
officials for, among other
things, suggesting Russia
might be able to find previ-
ously deleted Clinton emails.
Democrats have said that
amounts to inviting a foreign
GERALD HERBERT/ASSOCIATED PRESS
power to conduct cyber-espio-
nage against the U.S.
Mrs. Clinton has come un-
der prolonged criticism for her
use of a private email server to
handle business while she was
secretary of state. An FBI in-
vestigation found 110 emails
on the server contained classi-
fied information. The agency
ultimately decided Mrs. Clin-
aren’t an important part of ton’s and her staff’s conduct
the public election debate, but was careless but not criminal.
this year, both Mr. Trump and Mrs. Clinton has called the
Democratic candidate Hillary email arrangement a mistake
Clinton have faced accusa- and said she never sent or re-
tions they aren’t suited to ceived data marked classified.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A8 | Wednesday, August 17, 2016 THE WALL STREET JOURNAL.

PERSONAL JOURNAL.
Samsung Galaxy Note 7: Best New Android Phone
Samsung cements its
winning formula with the
latest phablet and its new
stylus and security tricks
BY JOANNA STERN
Somewhere around minute 25
of hearing a Samsung executive
wax on about the new Galaxy Note
7 stylus—sorry, “S Pen”—I decided
I would scribble the entirety of this
column in little notes with the
toothpick-shaped pointer. I con-
verted it to text in the new Sam-
ADYA BEASLEY/THE WALL STREET JOURNAL (2)

sung Notes app. Of course, I went

back over it on a real keyboard,
because I’m not a complete psy-
cho.
While at periods I considered
icing my hand, it
didn’t prevent me
from realizing the
Note 7 is the best
Android phone I’ve
ever tested. Samsung
continues to lead the way in turn-
ing our phones into pocket com-
puters with serious multitasking advantageous than poking a finger “Great news for mermaids!” was The stylus works underwater. Reviewer Joanna Stern shot an entire video
power. at a screen: my first thought when I heard the underwater, and it is possible to shoot stunning photos submerged. The pen is
All phones are big now—so big 1) Taking notes or sketching. stylus would work underwater. most useful for taking notes or sketching, editing a spreadsheet, snapping
that the latest Galaxy Note, de- The new Samsung Notes app has a Then I tested it for myself, shoot- photos underwater, and making GIFs, or animated photos.
scendant of the original “phablet” selection of different pens, mark- ing my entire Note 7 review video
once said to have been designed ers, pencils, etc. The finer, pres- while submerged. While the Galaxy translator) I’ve most used a fea- that is if you are in good lighting
for basketball great Shaquille sure-sensitive tip gets you closer S7 and S7 Edge can also get wet, ture that lets you select a portion and not moving around and/or
O’Neal’s hands, now feels just right than ever to the ballpoint-pen feel. their touch screens go on the fritz. of a playing video and convert it wearing glasses. While its accu-
in my hand. Plus, in meetings, people assume On the Note 7, the magnetic com- into an animated photo. It’s a ton racy and speed are better than
Samsung’s gotten better at fit- you’re paying attention to them, munication between the pen and of fun, but I still don’t see why the what I’ve experienced with facial
ting big screens into smaller pack- not texting more interesting peo- screen fixes that. Grab your gog- phone needs a stylus to do it. scanning on Windows 10 laptops,
ages. ple. I did notice a delay as I wrote, gles, tap the stylus to the shutter While touring an apartment the fingerprint sensor is more con-
I love how this phone feels. I however, especially compared with button and get some pretty stun- that I’m considering renting, I venient and reliable.
love the curved edges of the using the iPad Pro’s Pencil. ning shots. chose to snap photos and video of My dog grabbed the S Pen off
screen and how it makes the foot- 2) Editing a spreadsheet. You 4) Making GIFs. Of all of Sam- the space with the Note 7 instead the couch and put it in his bed.
print of the phone smaller. It can easily select a cell or multiple sung’s new “Air Command” hover- of my iPhone 6s. Like the S7 and Why isn’t there a locator on these
makes the wide bezel surrounding cells and enter text inside them. ing-stylus tricks (which also in- S7 Edge, the low-light photos are things? How about a finder option
the 5.5-inch screen on the iPhone 3) Snapping underwater photos. clude a magnifying glass and text sharper and clearer than Apple’s. that makes the pen beep? Of
6s Plus look like a paper picture Even shots taken outdoors or in course, then the stylus would re-
frame from Six Flags. The slipperi- well-lit environments are more ex- quire its own battery. Samsung
ness of the Gorilla Glass back (not
to mention its growing fingerprint
Can You Spot the Differences? citing to review on the Note be-
cause of the crisper display. And
couldn’t confirm how much an S
Pen replacement would cost; previ-
collection) bothers me, but not Picking your next Samsung phone means weighing your screen, storage and there are no storage fears here. ous models have been around $30.
enough to pen another sentence to stylus needs. The Note 7 comes with 64GB of lo- It’s 6 p.m. I’ve been using this
complain about it. cal storage—and has a MicroSD phone heavily since 8 a.m. and I
Finally, Samsung’s software de- slot that will support cards up to have about 20% battery remaining.
sign matches the caliber of its re- 256GB. That’s similar in endurance to the
cent hardware designs. The car- Usain Bolt looks really small Galaxy S7 Edge, which has a very
toonish, bright-colored icons you’ll when you’re actually sitting near slightly larger battery. In my lab
find on other Samsung phones the track in Rio, next to the starter stress test, which cycles through a
have been replaced with simpler pistol. Oh sorry, I just took a break series of websites at uniform
icons with white borders. The to watch the Olympics…in virtual screen brightness, the Note 7
crazy tabbed settings menu has reality. One of the biggest reasons lasted nearly seven hours—an
been swapped with a cleaner list. to get a Samsung phone these hour longer than the previous
Samsung wouldn’t say if—or days is for the $100 Gear VR, a Note 5 but 35 minutes short of the
when—it would bring the software headset that is powered by the S7 Edge. The Note 7 is the first
redesign to other phones. (It’s a Galaxy S7 Galaxy S7 Edge Galaxy Note 7 phone. Samsung phone to use the new
shame, though, that the Note 7 This note is stored in my Se- USB Type C charging port. And
still comes with carrier-added Starting price* $650 $750 $850 cure Folder. The only way to read while there’s also a wireless charg-
junkware and can’t be purchased Screen size 5.1-inch screen 5.5-inch screen 5.7-inch screen it (on the phone, that is) is for me ing option, sold separately, a fill-
unlocked.) to unlock it…with my irises. The up takes three full hours, rather
Writing this review by hand on Shared • AMOLED QHD screen • Great 12MP camera encrypted folder adds a layer of than 90 minutes.
the screen took me twice as long features • Water-resistant body • Expandable MicroSD storage protection to documents, files or The Note 7 is a great phone. It’s
as typing it would have, even us- • Quad-core processor • 4GB RAM apps you don’t even want to be ac- in keeping with Samsung’s winning
ing the Note’s software keyboard. cessible when the phone is un- 2016 formula: Do more—in more
But the new S Pen’s finer tip and Base storage 32GB 32GB 64GB locked. places—with bigger screens, better
software tricks add precision Differentiating Smaller body, Longest battery Stylus, iris The iris scanning, which relies cameras and more storage. But if
where our God-given styluses fall features shorter battery life life, comfortable scanner, works on the front-facing IR camera, can you don't think you will use this
short. be used in place of a password or stylus, don't buy the Note 7. Get
curved edges better underwater
I’ve found popping out the pen fingerprint to unlock the phone, the Galaxy S7 or Galaxy S7 Edge
in the following scenarios more * Pricing may vary by carrier. too. You’ll feel very James Bond— instead.

Hotels Boost Exclusivity with More Guest-Only Spaces

BY ANDREA PETERSEN property’s condominium owners. pez.” really hard to get a table,” says the space becomes reserved for
“You can sit and hang out and see The couple often dines at the Mr. Matzkin, a film producer. hotel guests: Visitors need a room
These days, some hotel guests the beach and ocean,” says Ms. beach-front Costa Grill, one of the Hotels employ all sorts of mea- keycard to enter. Acqualina has
just want a common space of their Schroeder-Matzkin, a film pro- resort’s three restaurants and the sures to prevent interlopers from guests wear special wristbands.
own. ducer and actress who lives in only one reserved for overnight crashing guest-only spots. The Jef- Faena decided not to lock off
In the last several years, many Beverly Hills, Calif. and Tampa, guests and condo owners. “If it ferson in Washington, D.C. locks the Library but employees are ad-
luxury hotels have aggressively Fla. “It feels like you’re in San Tro- was open to the public, it would be its “Book Room” at 5 p.m., when vised not to ask visitors for room
courted locals and travelers stay- numbers to keep more of a resi-
ing elsewhere to visit their buzzy dential feel, says Nicole Sinclair,
restaurants and bars, lavish spas the hotel’s general manager. They
and WiFi-enabled lobbies. That are trained to ask leading ques-
made revenue jump, but so has tions to assess whether or not
traffic and noise. Now, some lux- someone is supposed to be there:
ury properties are carving out new “We would ask them how their
areas for overnight guests only. stay has been so far and where are
Someone paying hundreds— they dining,” says Ms. Sinclair. If
even thousands—of dollars a night they are found not to be overnight
for a room doesn’t necessarily guests, employees gently offer to
CLOCKWISE FROM TOP LEFT: BENJAMIN EDELSTEIN/ACQUALINA RESORT & SPA; TRINETTE REED; GREENWICH HOTEL; THE JEFFERSON

want to have to fight for space escort them to one of the public
with a local spending $5 for a cup areas.
of coffee. Auberge du Soleil is a 50-room
Earlier this year, the new Faena luxury hotel with extensive grounds
Hotel Miami Beach unveiled the Li- and far-reaching Napa Valley views:
brary, a room done up in golds and Room rates average about $1,200 a
reds tucked beyond the reception night. The resort also has two res-
desk where overnight guests can taurants that are popular with lo-
have drinks and meet with con- cals and tourists staying elsewhere.
cierges. In the winter of 2015, Cli- They serve anywhere from 300 to
veden House near London, where 1,000 people a day.
rooms in the high season start at But this popularity has come
about $640 a night, added a bar with a price. The check in area for
and lounge for overnight guests Clockwise from top left, Acqualina Resort & Spa in Florida keeps adding red sofas to its beachfront lawn for guests and overnight guests, which was adja-
only. condo owners. A sculpture in the Napa Valley Auberge du Soleil’s garden for guests. Guests can eat in New York’s cent to the entrance of one of the
The hotel’s common spaces Greenwich Hotel’s Drawing Room. The Book Room at the Jefferson in Washington, D.C., is guests-only after 5 p.m. restaurants, was mobbed with peo-
were getting “busier and busier,” ple. Pieces in the hotel’s sculpture
says general manager Sue Wil- garden were occasionally vandal-
liams. “Because our guests are ized: One of the more portable
paying a premium to stay with us pieces even vanished. “We are in
they ought to be guaranteed to wine country. People are typically,
have a space to sit with a coffee or you know, happy and exuberant at
read a book.” About 40% of diners times,” says George Goeggel, the
at the 48-room hotel’s two restau- hotel’s managing director.
rants are locals, she says. At the Hotel Café Royal in Lon-
Steve Matzkin and Sarah don, the clientele of its restaurants
Schroeder-Matzkin are frequent and bars is about 80% locals by
overnight visitors to Acqualina Re- design. In 2014, the hotel opened
sort & Spa in Sunny Isles Beach, the Club, a private club with a
Fla. Ms. Schroeder-Matzkin’s fa- membership of 1,000. Overnight
vorite spot is on one of the 52 hotel guests get access, too.
plush red couches set out on the “There’s an element of exclusivity,”
resort’s seaside lawn that are re- says managing director Thomas
served for hotel guests and the Kochs.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Wednesday, August 17, 2016 | A9

ARTS & ENTERTAINMENT

Blowing Up the Boys’ Club

REVIEW Joan Mitchell’s ‘Hudson River Day
Line’ (1955).
KAREN WILKIN
staining with floods of thin, lumi-
nous color; De Kooning and Harti-
Women of Abstract gan both worked largely with figu-
Expressionism rative imagery, albeit freely. (That
Denver Art Museum Frankenthaler would have shunned
Through Sept. 25 any show that labeled her a
“woman” anything is another mat-
ter. Like many others in the exhibi-
Denver tion, she always insisted that she
THE DENVER ART MUSEUM’S was a painter, without qualifiers.)
“Women of Abstract Expression- Surprises? For the most part,
ism,” the first show to focus on the selections remind us why the
the topic, was probably inevitable, best known of the included artists
given today’s hypersensitivity to are the best known. The less fa-
matters of gender. But given the miliar Gechtoff’s murky, energeti-
not-unfounded perception that the cally scrawled canvases, done be-
New York art world of the 1950s fore she left San Francisco for
was dominated by hard-drinking, New York, are unexpected, but
chest-beating males, who over- those done afterward are fairly
shadowed and condescended to generic. Fine’s scribbled black-
their female colleagues, it’s impor- and-white canvases are extremely
tant to be reminded that women accomplished and clearly impas-
played a role in the era’s radical sioned, but there’s a flavor of
rethinking of aesthetic possibili- Philip Guston’s drawings. It’s re-
ties. So why did I emerge from a markable that DeFeo’s enormous,
leisurely visit to the show with its encrusted slab of matte gray oil
passionately enthusiastic instiga- paint, punctuated by dangling
tor Gwen F. Chanzit, curator of strings, is in the show—it resem-
modern art at DAM, feeling not ex- bles a rock face and probably is
hilarated and excited, as I’d hoped as easy to transport—but it posits
to be, but mildly disappointed? ideas about materiality and physi-
My expectations had been cality very different from those
raised by the exhibition’s ambi- associated with Ab Ex.
tious catalog, which includes es- The show raises provocative
ESTATE OF JOAN MITCHELL

says by Ms. Chanzit and the art questions, such as “does women’s
historians Robert Hobbs, Ellen G. abstraction of the 1950s differ
Landau, Susan Landauer and Joan from men’s?” The curators suggest
Marter (editor of the Woman’s Art that women were more willing to
Journal), plus an interview with allow references to specific experi-
the distinguished critic Irving ence into their work and cite titles
Sandler, a friend to and welcome as evidence, even though they
studio visitor for many of the ex- were usually attached after the
hibited artists. There’s a good thy (or particularly original), but ent. On the plus side, we get infor- lection of Mitchells is exemplary, fact. Maybe. Frankenthaler’s “Ja-
chronology, informative documen- it’s difficult to fault the desire to mative views of other artists’ work emphasizing the not-always-appar- cob’s Ladder” was a response to
tary photographs, illustrations of enrich the history of recent Ameri- from each individual section. ent variety with which she could the structure of the completed pic-
most exhibited works, and brief bi- can art as written to date. Also on the plus side, “Women compose her webs of paint. ture. An accompanying film, with
ographies of 42 female painters— The exhibition is necessarily far of Abstract Expressionism” in- These painters all shared their clips of all 12 artists, provides in-
many obscure; most from the East more modest, concentrating on cludes some first-rate paintings: male colleagues’ convictions that teresting observations, contradic-
Coast, some from the West; only work by 12 painters—Mary Abbott, “Abstraction,” a small, tough 1947 the source of art was the uncon- tions and other ideas. The big
one, Alma Thomas, African-Ameri- Jay DeFeo, Elaine de Kooning, De Kooning, all vigorous strokes scious and that the artist’s role question, of course, is why the 12
can—each with one work repro- Perle Fine, Helen Frankenthaler, and high contrast; Frankenthaler’s was to reveal the unseen, not to women included in the show were
duced. The criterion appears to Sonia Gechtoff, Judith Godwin, radiant “Jacob’s Ladder” (1957), depict the known. But were they chosen, rather than any of the oth-
have been that at some point in Grace Hartigan, Lee Krasner, Joan with its delicious greens and rusty Abstract Expressionists or even, in ers in the catalog. We all have al-
the 1950s, each of them made Mitchell, Deborah Remington and pinks; Krasner’s bold “Stretched some instances, abstract painters? ternative lists. Mine is headed by
paintings that responded to Ab- Ethel Schwabacher. The Daniel Yellow” (1955), an homage to Ma- Frankenthaler rejected Ab Ex’s Alma Thomas, not strictly an Ab-
stract Expressionist ideas; that Libeskind-designed wing of DAM, tisse, striking for clear color and contingent, wet-into-wet ges- stract Expressionist, perhaps, but
several of them are known for with its perverse slanted walls, has emphatic collaged-on floating, dark tures—which just about everyone a hell of an abstract painter.
quite other kinds of work does not been improved by vertical inser- shapes; Hartigan’s robust, deep- else in “Women of Abstract Ex-
seem to have been an issue. Not tions, but the resulting spaces are red, economically constructed inte- pressionism” embraced—inventing, Ms. Wilkin is an independent
everything is particularly notewor- still cranky and somewhat incoher- rior, “The Creeks” (1957). The se- instead, an influential method of curator and critic.

Weather The WSJ Daily Crossword | Edited by Mike Shenk

Shown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.
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Solve this puzzle online and discuss it at WSJ.com/Puzzles.
s

Frankfurt 26 12 s 25 14 t Orlando 32 23 t 32 24 t Zurich 25 13 t 23 13 t S A S H D E B S S E E T O

STATE
10,000 athletes. 200 countries. One source.
This summer in Rio, go beyond the medal count
with interactive graphics, predictions and analysis
©2016 Dow Jones & Co. Inc. All rights reserved. 6DJ4144

OF PLAY
from The Wall Street Journal.
Read now at WSJ.com/Rio2016
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A10 | Wednesday, August 17, 2016 THE WALL STREET JOURNAL.

OPINION
REVIEW & OUTLOOK
The Meaning of an
Trump’s Anti-Terror Strategy Olympic Snub
D
onald Trump made another pivot back but then so were Mr. Obama and Mrs. Clinton
to the issues on Monday, this time lay- in 2009. Mr. Trump hasn’t seemed to notice An Israeli heavyweight linquished the Sinai to Anwar Sadat.
judoka named Or Sas- Among Palestinians, anti-Semitism be-
ing out his strategy to fight radical Is- that Mr. Obama recently agreed to share intelli-
son defeated an Egyp- came markedly worse during the years
lam. As usual it included some gence with Russia in Syria tian opponent named of the Oslo peace process.
good ideas and some bad, but This is a debate the over the vociferous objections Islam El Shehaby Friday In his essay, Mr. Johnson called anti-
if we’re lucky he’ll stick with American public of the Pentagon. The Republi- in a first-round match Semitism a “highly infectious” disease
the subject long enough to can nominee would have to at the Rio Olympics. capable of becoming “endemic in certain
force Hillary Clinton to debate deserves to hear. learn the hard way that Mr. GLOBAL
The Egyptian refused to localities and societies,” and “by no
VIEW
something other than his tem- Putin is a hard man who only By Bret
shake his opponent’s means confined to weak, feeble or com-
perament. responds to the logic of hard extended hand, earning monplace intellects.” Anti-Semitism may
Stephens
The polls show Mr. Trump still has a slight geopolitical facts. boos from the crowd. be irrational, but its potency, he noted,
edge over the Democrat in fighting terror, More welcome is Mr. Trump’s promise to con- Mr. Sasson went on to lies in transforming a personal and in-
thanks in large part to President Obama’s eight- duct “ideological warfare” against Islamic State, win a bronze medal. stinctive irrationalism into a political
If you want the short answer for why and systematic one. For the Jew-hater,
year record. Islamic State incubated in the vac- making the analogy to the way Ronald Reagan
the Arab world is sliding into the abyss, every crime has the same culprit and ev-
uum left by American retreat in Iraq and Syria, told the truth about “the evil empire” during the look no further than this little incident. ery problem has the same solution.
and its poison has spread throughout the world. Cold War. He said this will mean speaking out It did itself in chiefly through its long- Anti-Semitism makes the world seem
Mrs. Clinton is promising to continue Mr. “against the oppression of women, gays and peo- abiding and all-consuming hatred of Is- easy. In doing so, it condemns the anti-
Obama’s strategy, which gives the Republican ple of different faith” in the Muslim world. rael, and of Jews. Semite to a permanent darkness.
an opening. Perhaps most encouraging was his pledge That’s not a point you will find in a
“The failure to establish a new Status of that “our Administration will be a friend to all long article about the Arab crackup by
Forces Agreement in Iraq, and the election- moderate Muslim reformers in the Middle East, Scott Anderson in last weekend’s New The Arab world has
driven timetable for withdrawal, surrendered and will amplify their voices.” This may seem York Times Magazine, where hatred of a problem of the mind, and
our gains in that country and led directly to the obvious, but Mr. Obama has preferred to play Israel is treated like sand in Arabia—a
rise of ISIS,” Mr. Trump said as he read from down divisions in the Islamic world lest he of- given of the landscape. Nor is it much its name is anti-Semitism.
mentioned in the wide literature about
a prepared text in Youngstown, Ohio. That’s ex- fend the Muslim leaders he has courted in Tur- the legacy of colonialism in the Middle
actly right, though he should have added Mr. key and Iran. Islamic State must be defeated on East, or the oil curse, governance gap, Today there is no great university in
Obama’s decision to let the Syrian civil war rage the battlefield, but it’s good to see Mr. Trump democracy deficit, youth bulge, sectar- the Arab world, no serious indigenous
out of control. recognize that the West needs to win the battle ian divide, legitimacy crisis and every scientific base, a stunted literary cul-
Then again, Mr. Trump has sometimes said of ideas too. other explanation for Arab decline. ture. In 2015 the U.S. Patent Office re-
the U.S. should stay out of Syria’s civil war be- Yet on this point he contradicts his strategy Yet the fact remains that over the ported 3,804 patents from Israel, as
cause it amounts to the “nation-building” that by proposing a total ban on immigration from past 70 years the Arab world got rid of compared with 364 from Saudi Arabia,
Mr. Trump again promised to end. That’s a good countries “that have a history of exporting ter- its Jews, some 900,000 people, while 56 from the United Arab Emirates, and
applause line on the right and left these days, rorism.” Mr. Trump calls it a “temporary” sus- holding on to its hatred of them. Over 30 from Egypt. The mistreatment and
but setting up safe zones in Syria so millions pension until new screening procedures can be time the result proved fatal: a combina- expulsion of Jews has served as a tem-
tion of lost human capital, ruinously ex- plate for the persecution and displace-
of refugees won’t flood Turkey, Jordan and Eu- established. But he isn’t clear when or how the
pensive wars, misdirected ideological ment of other religious minorities:
rope is a long way from nation-building. The ban would be lifted. No screening is fool-proof, obsessions, and an intellectual life per- Christians, Yazidis, the Baha’i.
U.S. did that for the Kurds after the first Gulf and pledges of loyalty or other ideological tests verted by conspiracy theory and the per- Hatred of Israel and Jews has also de-
War, and the Kurdish territory of Iraq is a rare can be gamed. petual search for scapegoats. The Arab prived the Arab world of both the re-
American success in the Middle East. The sweeping immigration ban might be world’s problems are a problem of the sources and the example of its neighbor.
If Mr. Obama had kept 10,000 U.S. troops in read as anti-Muslim by the same allies Mr. Arab mind, and the name for that prob- Israel quietly supplies water to Jordan,
Iraq after 2011, the critics might have called Trump says we need to defeat Islamic State. Its lem is anti-Semitism. helping to ease the burden of Syrian ref-
that nation-building too. But it would have breadth would also presumably apply to Coptic As a historical phenomenon, this is ugees, and quietly provides surveillance
blocked the march of Islamic State and spared Christians in Egypt or Syria, Iraqi translators not unique. In a 2005 essay in Commen- and reconnaissance capabilities to Egypt
us from having to refight the war in Iraq today. who helped U.S. troops, and perhaps even Israe- tary, historian Paul Johnson noted that to fight ISIS in the Sinai. But this is
Mr. Trump’s caricature of nation-building is lis since some Israeli Arabs practice terrorism. wherever anti-Semitism took hold, social largely unknown among Arabs, for
and political decline almost inevitably whom the only permissible image of Is-
closer to Barack Obama’s view than he would Mr. Trump is right that Mr. Obama fails to stig-
followed. rael is an Israeli soldier in riot gear,
like to admit. matize radical Islam, but then the Republican Spain expelled its Jews with the Al- abusing a Palestinian.
The better news is that Mr. Trump seems to shouldn’t stigmatize all refugees as potential hambra Decree of 1492. The effect, Mr. Successful nations make a point of
be warming to the idea that the U.S. needs co- security risks. Johnson noted, “was to deprive Spain trying to learn from their neighbors. The
alitions to defeat radical Islam. Most notably, The best message of the speech is that it (and its colonies) of a class already nota- Arab world has been taught over genera-
he reversed course on NATO in his speech, means we might get a national-security debate ble for the astute handling of finance.” tions only to hate theirs.
praising its role in fighting terrorism. He also this election year. The Clinton campaign is hop- In czarist Russia, anti-Semitic laws led This may be starting to change. In the
called for “an international conference” on ing to disqualify Mr. Trump as a potential Presi- to mass Jewish emigration as well as an past five years the Arab world has been
fighting radical Islam and he cited Israel, Egypt dent without having to confront the issues or “immense increase in administrative forced to face up to its own failings in
and Jordan as particular allies in the fight. her record as Secretary of State. Mr. Trump has corruption produced by the system of ways it cannot easily blame on Israel. The
restrictions.” Germany might well have change can be seen in the budding rap-
Mr. Trump still seems naive in expecting trouble sticking to a message, but this is a de-
won the race for an atomic bomb if Hit- prochement between Jerusalem and
Vladimir Putin’s Russia to assist in this effort, bate the American public needs to hear. ler hadn’t sent Albert Einstein, Leo Szi- Cairo, Riyadh and Abu Dhabi, which might
lard, Enrico Fermi and Edward Teller yet yield tactical and strategic advantages

Trust in Business vs. Government into exile in the U.S.

These patterns were replicated in the
on both sides, particularly against com-
mon enemies such as ISIS and Iran.

T
Arab world. Contrary to myth, the cause That’s not enough. So long as an Arab
he public mood isn’t especially buoy- The exceptions are the five industries that was not the creation of the state of Is- athlete can’t pay his Israeli opposite the
ant, and neither is confidence in U.S. in- Gallup found are viewed more negatively than rael. There were bloody anti-Jewish po- courtesy of a handshake, the disease of
stitutions, though there is one notable positively on net: oil and gas (minus-7), law- groms in Palestine in 1929, Iraq in 1941, the Arab mind and the misfortunes of its
exception: American business. yers (minus-8), health care and Lebanon in 1945. Nor is it accurate world will continue. For Israel, this is a
On Monday Gallup published The public likes the (minus-20) and pharmaceuti- to blame Jerusalem for fueling anti- pity. For the Arabs, it’s a calamity. The
Semitism by refusing to trade land for hater always suffers more than the ob-
its annual poll of public views private economy more cals (minus-23). Public opin-
peace. Among Egyptians, hatred of Israel ject of his hatred.
on various industries, and ion for health care has barely abated after Menachem Begin re- Write bstephens@wsj.com.
most continue to have posi- than the politicians do. plunged to a five-year low,
tive and durable reputations which also corresponds to its
despite election-year attacks rough annexation by the fed- LETTERS TO THE EDITOR
from Hillary Clinton and Donald Trump. eral government under ObamaCare.
Across the 25 areas that Gallup surveyed, Speaking of which, the worst performer in
the restaurant and computer industries were the Gallup survey? None other than the fed-
Uneasy Is the Head With the Crown of Dollars
the most popular by far, and maybe it’s no coin- eral government, with merely 28% expressing Ruchir Sharma’s argument that the pends on how intensively banks use
cidence that these are among the most compet- a positive view and 55% a negative one for a world economy will be traumatized those reserves. Mr. Sharma’s analysis
itive U.S. markets. Only 7% viewed the food and net rating of minus-27 points. The pollster re- by an increase in the federal-funds is a good example of why the Fed has
rate (FFR) is highly questionable been derelict in making progress to-
beverage business unfavorably, 66% favorably, ports that “trust in the government’s ability
(“The Dollar—and the Fed—Still ward its stated goal of normalizing
for a net rating of +59 points, while tech was to handle domestic problems has never been Rule,” op-ed, Aug. 1). interest rates. The conventional wis-
close behind at +53. Another seven industries, lower in Gallup’s trends, which stretch back Since the Fed finally increased the dom has placed an extreme emphasis
like groceries, retail and farming, had net rat- to the 1970s.” FFR target last December by 1/4%, on the potential negative effects of a
ings above +20 or +30. Trust in government tends to expand and the value of the dollar initially rose rate increase while failing to ac-
Another 10 industries have images that are contract in inverse proportion to Washington’s slightly after the December increase, knowledge, much less analyze, the
solid or near neutral, including some favorite ambition, so one of President Obama’s legacies but since January broad dollar in- severe distortions and costs associ-
political targets like banking and finance (+2) will be to erode faith in the central planning dexes have given up that increase and ated with over seven years of a near-
and electric and gas utilities (+9). Even airlines, he so reveres. The Gallup report shows that slipped back to slightly lower levels. zero FFR.
in this summer of security limbo, congestion Americans are more invested in the resilient This contradicts Mr. Sharma’s conten- EM. PROF. ROBERT F. STAUFFER
tion that a higher FFR will cause Roanoke College
and delays, shook out at +15. So did telecom. private economy than in their public leaders.
global markets to “seize up.” Is there Salem, Va.
any evidence that the December rate

The Money Fund Mistake increase caused any major problems?

Long-term interest rates have
The Fed has maintained U.S. dollar
strength in relation to many foreign

T
come down sharply since December; currencies over an extended period.
he taxpayer safety net is about to get a about the right time to flee. only the rates on one-month and This is displayed in 25% to 30% de-
little smaller thanks to a sensible re- We warned regulators that the threat of such three-month Treasurys have in- valuations in Canadian and Australian
form from the Securities and Exchange penalties would likely inflame a crisis rather than creased, while all longer maturities dollars, Chilean and Mexican pesos,
Commission. Too bad regula- dampen it. They didn’t listen. have decreased. So the overall level and the South African rand, among
tors also enacted changes to Borrowing costs rise Now institutional investors like of interest rates has fallen despite an others, in relation to the U.S. dollar.
money-fund rules that are dis- corporate treasurers are asking FFR increase and the Fed’s stated in- The negative results are amply dem-
couraging investment and
thanks to a looming how they can rely on an ac- tention to normalize rates. Mr. onstrated in the current status of the
Sharma doesn’t seem to recognize U.S. mining and metals industry.
could exacerbate the next fi- SEC regulation. count that may not be available that his all-powerful Fed cannot con- While all commodity producers have
nancial crisis. when they most need it. trol long-term interest rates. been impacted by slowing demand,
The good news is that a Institutional prime money- Money supply growth has acceler- the mining sectors in Canada, Austra-
2014 SEC rule that will become effective October market funds that invest in short-term corpo- ated this year. This contradicts Mr. lia, Chile, South Africa, etc., have re-
14 requires some institutional money-market rate debt have seen their assets dwindle to $612 Sharma’s assertion that Fed tighten- tained relative health due to appreci-
funds to report more accurate prices to inves- billion from more than $800 billion in late ing will reduce the M2 growth rate. ation of U.S. dollar prices in local
tors. By allowing their net asset values to float, March as investors have shifted to other invest- All the Fed can do is raise the rate currency terms.
rather than reporting a fixed value per share, ment options. Also affected are institutional paid on the huge level of excess re- This same dynamic can be ex-
these funds will make clear that they are invest- tax-exempt money funds that finance state and serves it has pumped into the bank- tended to the oil, gas and agricultural
ment vehicles, not guaranteed bank deposits. By local governments. Their assets have slid to $41 ing system. Monetary growth de- sectors of our economy. Is it any
wonder that many citizens in this
clarifying that investors really can lose money, billion from more than $57 billion over the
country are saying, “enough is
fund managers can help avoid another 2008- same period. With October 14 on the horizon, No Surprise: Negative Rates enough.” The Fed’s actions at playing
style panic and taxpayer rescue in the event that institutional investors are considering other the global financial stabilizer is cost-
some funds “break the buck”—i.e., their values places to park their cash. Mean Less Income, Spending ing jobs in the basic (usually rural)
fall below $1 per share. The result is less liquidity for the commercial That middle-class Europeans sav- industries of our economy. This is the
Now for the bad news. Along with this sensi- paper and municipal debt markets. This is trans- ing for retirement would respond to Trump vote and it is why people are
ble reform, the SEC also enacted rules encour- lating into sharply higher short-term borrowing negative interest rates by consuming angry.
aging new fees and redemption limits in times costs for companies, banks and municipalities. less and saving more is intuitively ob- JAMES HESKETH
of stress. These limits are often called “gates” Given how low interest rates remain for all cate- vious (“Vexing Results on Negative Golden, Colo.
because they would temporarily lock investors gories of borrowers, these issuers are still enjoy- Rates,” page one, Aug. 9). Central
bankers didn’t take into consideration
into a fund even when they wish to sell. ing historically cheap financing. And the re- Letters intended for publication should
that middle-class people don’t have be addressed to: The Editor, 1211 Avenue
Whereas the first reform creates a more moval of the implied taxpayer safety net should large financial cushions, aren’t think- of the Americas, New York, NY 10036,
transparent market and conditions investors to push rates at least somewhat higher. ing about macroeconomics and can- or emailed to wsj.ltrs@wsj.com. Please
accept slight declines without panic, the second But the threatened gates and fees are driving not afford to gamble in a casino they include your city and state. All letters
does the opposite. Uncertain investors wonder- sharp rate increases while providing only uncer- don’t understand. are subject to editing, and unpublished
ing if the fees and gates are about to come tainty for the credit markets. The SEC should LOUISE VOGEL letters can be neither acknowledged nor
returned.
crashing down on them will start guessing scrap these expensive creators of systemic risk. Upton, Mass.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Wednesday, August 17, 2016 | A11

OPINION

Evading the Constitution to Ban Nuclear Tests

By Jon Kyl Then-Secretary of terpretations could lem of nuclear proliferation that it
And Douglas J. Feith Defense Robert conduct [low-yield] was created to help solve.

B
Gates noted in a tests . . . . Appar- These concerns led the Senate in
arack Obama has done 2008 speech that ently Russia and 1999 to reject the CTBT. The rejec-
more than any predeces- U.S. nuclear weap- possibly China are tion was not close. Instead of re-
sor to increase presiden- ons “were designed conducting low- ceiving the necessary two-thirds
tial power and diminish on the assumption yield tests.” majority (67 votes) for approval, the
Congress’s constitutional of a limited shelf Senators also CTBT won 48 votes, while 51 sena-
role. He gave the Senate virtually no life.” Because “sen- complained that the tors voted against it.
voice in the Iran nuclear deal and he sitive parts do not CTBT isn’t verifiable Despite this, President Obama
now plans to undercut the Senate’s last forever,” he or enforceable: The wants to make U.S. nuclear tests il-
treaty-making authority even fur- said, the U.S. re-en- Russians, Chinese or legal, and an unprecedented maneu-
ther. The subject this time is the gineers them to ex- others could violate ver in the U.N. would allow him to
Comprehensive Test Ban Treaty, a tend their lifespan, it and the U.S. would shut the Senate out. Mr. Obama
1996 agreement to ban explosive but “with every ad- not necessarily be plans to propose a U.N. Security
testing of nuclear weapons. justment we move able to detect, let Council resolution declaring that
The Senate has already consid- further away from alone prove, the vio- any nuclear test would be an action
ered and rejected the CTBT. To cir- the original design lation. Taking effec- inconsistent with the CTBT’s “object
cumvent Congress, Mr. Obama that was success- tive action to com- and purpose.” Under international
wants the United Nations to declare fully tested when pel compliance law, this would make the ban appli-
nuclear tests illegal. This is an the weapon was would be difficult or cable to countries that are merely
affront to the Constitution and bad first fielded.” At even impossible. treaty signatories—that is, those
nuclear policy. some point, he Allies and part- that have signed but not ratified.
warned, it will ners around the The U.S. remains in that category
become “impossible world have posi- even though the Senate voted the
The safety and reliability to keep extending tioned themselves treaty down.
the life of our arse- for decades under Mr. Obama wants to attach the
of U.S. nuclear weapons nal, especially in America’s so-called label “illegal” to nuclear testing
LOS ALAMOS NATIONAL LABORATORY

cannot be ensured
forever without tests.
The United States has not done
an explosive nuclear test since
1992. U.S. officials rely on computer
simulations to ensure nuclear-
weapon safety and reliability. The
no-test policy was adopted as a nu-
clear nonproliferation gesture, in
hopes of persuading other countries
to similarly restrain themselves. Yet
experts worry that the safety and
reliability of U.S. nuclear weapons
cannot be ensured forever without
tests, for there are uncertainties in
the relevant chemistry and physics.
At some point computer simula-
tions may not provide enough con-
fidence.
light of our testing nuclear umbrella. without the Senate’s advice and
moratorium.” Rather than create consent. This is the way progressive
Because the U.S. - their own nuclear transnational lawyers use courts
no-test policy is a arsenals, they rely and multilateral organizations to
unilateral measure, on America for circumvent legislatures.
any president can their security. This A future U.S. president could, in
change it in the fu- makes America— effect, unsign the CTBT, but that
ture. If America be- and the world— doesn’t make it proper for Mr.
came a CTBT party, safer than if there Obama to abuse international legal
however, that policy Hoisting the rack for the U.S.’s last full-scale nuclear test, 1992. were numerous nu- mechanisms to inflate his executive
would harden into a clear states. power at the expense of the Senate.
permanent international legal obli- hibits. The bipartisan 2009 Perry- Imagine, however, the following In this particular presidential elec-
gation to refrain from testing. Schlesinger commission report scenario: Technical problems de- tion season, it’s especially impor-
Negotiated in the 1990s, the summarized the opponents’ case: velop in U.S. warheads and respon- tant to show respect, not contempt,
CTBT won approval from the U.N. “The treaty remarkably does not sible scientists say that tests are for the Constitution.
General Assembly in 1996 and Presi- define a nuclear test. In practice needed to confirm reliability. If
dent Bill Clinton promptly signed it. this allows different interpretations America were legally bound not to Mr. Kyl served three terms as a
He then asked the Senate to ratify. of its prohibitions and asymmetri- test, that would undermine faith in U.S. senator from Arizona. Mr.
Senate opponents of the CTBT cal restrictions. The strict U.S. its nuclear umbrella and other coun- Feith, a senior fellow at Hudson In-
highlighted a number of flaws. interpretation precludes tests that tries might decide they need their stitute, was undersecretary of de-
Among the gravest was lack of produce nuclear yield. However, own nuclear weapons. The CTBT fense for policy in the George W.
agreement on what the treaty pro- other countries with different in- could thus aggravate the very prob- Bush administration.

Keeping an International Eye on Ukraine

By Daniel Baer ization for Security and Coopera- struction, threats and violence to ists cut their power—in an apparent supplies into eastern Ukraine calls

F
or the third year in a row, Au-
gust is proving a particularly
deadly month in eastern
Ukraine. Russian fighters, funds,
weapons and equipment have kept
the conflict burning—a conflict that
has devastated buildings, roads and
public works, led to massive popu-
lation displacement and widespread
human-rights abuses, and claimed
the lives of nearly 10,000 people,
with tens of thousands more in-
jured.
New Russian military equipment
has been spotted in recent weeks,
and Ukrainian soldiers have now be-
come accustomed to being on the
receiving end of coordinated Rus-
sian and separatist artillery strikes,
often fired from residential areas,
with the targeting assistance of
Russian unmanned aerial vehicles,
or UAVs. International observers
confirm that the majority of the
fighting in eastern Ukraine is being
initiated by the Russian-separatist
side.
Washington has not and will not
abandon diplomatic efforts to jump-
start a cease-fire and the full imple-
mentation of the Minsk Agree-
ments—several agreements Russia
and Ukraine signed, with the Organ-
tion in Europe (OSCE) as witness, in
2014 and 2015. Unfortunately, these
efforts have so far not borne fruit.
The latest effort is to secure dis-
engagement—essentially a pullback
of soldiers and weapons—in several
hot spots along the line of contact.
The hope is that once these hot
spots are calmed, a cease-fire and
weapons pullback along the entire
line of contact will follow, and the
additional steps—such as free and
fair local elections, as well as the
return of the international border
to Ukrainian control—could take
place.
But cease-fire and weapons pull-
backs need verification to build
confidence. If they are to stick and
be sustainable, actors on the
ground need to know they are
working.
Which is why it’s especially wor-
rying that the OSCE’s Special Moni-
toring Mission to Ukraine is being
blocked, threatened, shot at and ha-
rassed by Russian-separatist forces.
The OSCE mission has nearly 700
civilian monitors from more than
40 countries, most of whom are de-
ployed in and around the conflict
zone.
Combined Russian-separatist
forces have consistently used ob-
stop the OSCE monitors from seeing
what they don’t want them to see.
Between April and July, OSCE pa-
trols were blocked more than 120
times, overwhelmingly by combined
Russian-separatist forces. The sepa-
ratists have also held monitors at
Leaders should insist that
Russian separatists in the
east not obstruct cease-
fire monitoring missions.
gunpoint, and have shot at patrols
and organized mobs to burn their
vehicles. The OSCE mission is rou-
tinely denied access to border areas
outside of government control.
These are the actions of someone
with something to hide.
Given that cease-fire violations
often provoke a defensive response,
it’s important to try to document
who shot first so that accountabil-
ity for violations can be assigned.
To this end, the OSCE mission set
up 24-hour monitoring cameras at
two important hot spots two
months ago. Shortly after they be-
came operational, Russian separat-
effort to stop the cameras from
documenting their attacks. It took
weeks to bring them back online.
The OSCE Mission uses un-
manned aerial vehicles to comple-
ment the work of monitors on the
ground. The UAVs have played a
crucial role in supporting patrol
planning and in identifying prohib-
ited weapons on the battlefield.
Again, combined Russian-separatist
forces have mounted an apparently
systematic effort to bring them
down—OSCE UAVs have spotted so-
phisticated Russian military zhytel
jammers; later UAVs have crashed
after being jammed by Russian or
pro-Russian forces.
The last image one UAV sent be-
fore it was apparently shot out of
the sky was of a Russian Strela-10
antiaircraft system—with its barrel
aimed at the UAV. After three
crashes or shootdowns in less than
three months, the OSCE has no
long-range UAVs left. As the secre-
tary-general of the OSCE said re-
cently to assembled ambassadors in
Vienna, “This appears to be an ef-
fort to blind us completely.”
Moscow’s failure to support un-
fettered and safe access for the
OSCE while pouring sophisticated
weapons and ammunition and other
into question the sincerity of Mos-
cow’s claims to support a cease-fire.
There have been occasional inci-
dents involving Ukrainian military
forces. Though much less frequent
than in Russian-separatist con-
trolled areas, these moves are unac-
ceptable. And Kiev’s political and
military leaders have made that
clear themselves. Unlike the other
side, Ukraine has taken such inci-
dents seriously, reiterating instruc-
tions to troops to allow the OSCE
safe and free access, and following
up to identify and discipline those
responsible for incidents when they
happen.
The conflict in eastern Ukraine
remains a chosen tragedy: an un-
necessary war with horrific human
costs inflicted by Russian interven-
tion. The road map to end this trag-
edy—the full implementation of the
Minsk Agreements—starts with a
complete, sustainable cease-fire,
followed by additional security and
political steps. The OSCE Special
Monitoring Mission can do its job
only if it has safe, unfettered access
on the ground.
Mr. Baer is the U.S. ambassador
to the Organization for Security and
Cooperation in Europe.

About Those Loser ‘Trumpkins’

In the land of Nev-
erTrump, it turns
out one American is
more reviled than
Donald Trump. This
would be the Don-
ald Trump voter.
MAIN
Lincoln famously
STREET
described govern-
By William
ment as of, by, and
McGurn
for the people. Even
so, the people are
now getting a hard lesson about
what happens when they reject the
advice of their betters and go with
a nominee of their own choosing.
What happens is an outpouring of
condescension and contempt.
PUBLISHED SINCE 1889 BY DOW JONES & COMPANY
Rupert Murdoch
Executive Chairman, News Corp
Gerard Baker
Editor in Chief
Rebecca Blumenstein, Matthew J. Murray
Deputy Editors in Chief
DEPUTY MANAGING EDITORS:
Michael W. Miller, Senior Deputy;
Thorold Barker, Europe; Paul Beckett, Asia;
Christine Glancey, Operations; Jennifer J. Hicks,
Digital; Neal Lipschutz, Standards; Alex Martin,
News; Ann Podd, Initiatives; Andrew Regal, Video;
Matthew Rose, Enterprise; Stephen Wisnefski,
Professional News; Jessica Yu, Visuals
Paul A. Gigot, Editor of the Editorial Page;
Daniel Henninger, Deputy Editor, Editorial Page
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Trevor Fellows, Head of Global Sales;
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Suzi Watford, Marketing and Circulation;
Joseph B. Vincent, Operations;
Larry L. Hoffman, Production
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1211 Avenue of the Americas, New York, N.Y., 10036
Telephone 1-800-DOWJONES
This contempt is most naked on
the left. No surprise here, for two
reasons. First, since at least Wood-
row Wilson progressives have al-
ways preferred rule by a techno-
cratic elite over democracy. Second,
today’s Democratic Party routinely
portrays its Republican Party rivals
as an assortment of nasty ists (rac-
ists, sexists, nativists, etc.) making
war on minorities, women, foreign-
ers and innocent goatherds who
somehow end up in Guantanamo.
Thus Mr. Trump confirms to
many on the left what they have al-
ways told themselves about the
GOP. A New York Times writer put
it this way: “Donald Trump’s sup-
Robert Thomson
Chief Executive Officer, News Corp
William Lewis
Chief Executive Officer and Publisher
DOW JONES MANAGEMENT:
Ashley Huston, Chief Communications Officer;
Paul Meller, Chief Technology Officer;
Mark Musgrave, Chief People Officer;
Edward Roussel, Chief Innovation Officer;
Anna Sedgley, Chief Financial Officer;
Katie Vanneck-Smith, Chief Customer Officer
OPERATING EXECUTIVES:
Jason P. Conti, General Counsel;
Nancy McNeill, Corporate Sales;
Steve Grycuk, Customer Service;
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Almar Latour, Publisher; Kenneth Breen,
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Professional Information Business:
Christopher Lloyd, Head;
Ingrid Verschuren, Deputy Head
porters know exactly what he
stands for: hatred of immigrants,
racial superiority, a sneering disre-
gard of the basic civility that binds
a society.”
Still, the contempt for the great
Republican unwashed does not em-
anate exclusively from liberals or
Democrats. Thanks to Mr. Trump’s
run for office, it is now ascendant
in conservative and Republican
quarters as well.
Start with the fondness for the
word “Trumpkin,” meant at once to
describe and demean his support-
ers. Or consider an article from Na-
tional Review, which describes a
“vicious, selfish culture whose main
products are misery and used her-
oin needles” and whose members
find that “Donald Trump’s speeches
make them feel good. So does Oxy-
Contin.” Scarcely a day goes by
without a fresh tweet or article tak-
ing the same tone, an echo of the
old Washington Post slur against
evangelicals as “largely poor,
uneducated and easy to command.”
We get it: Trump voters are stu-
pid whites who are embittered be-
cause they are losing out in the
global economy.
But a new Gallup paper suggests
this is may be a caricature that
misses the fuller picture. The analy-
sis is by Gallup senior economist
Jonathan Rothwell, who looked not
only at Trump voters but where
they lived:
“The results show mixed evi-
dence that economic distress has
motivated Trump support,” writes
Mr. Rothwell. “His supporters are
less educated and more likely to
work in blue collar occupations, but
they earn relative high household
incomes, and living in areas more
exposed to trade or immigration
does not increase Trump support.”
In fact, in areas where people
were more affected by immigration
and competition from Chinese im-
ports, support for Mr. Trump de-
clined. By contrast, his support was
What is it that
the much-vilified Trump
voters are trying to tell us?
stronger in areas low in intergener-
ational mobility. Could it be that
what motivates Trump voters is not
a purely selfish concern for how
they themselves are faring but how
well their children and their com-
munities will do?
There are those, this columnist
included, who would argue that the
under 2% average growth rate of
the past decade has done more to
constrict income and opportunity
for ordinary Americans than buga-
boos such as the North American
Free Trade Agreement or currency
manipulation by China. In the same
vein, there’s a strong case to be
made that Paul Ryan’s “A Better
Way” is the path to the Trump
voter’s goal of “Making America
Great Again.”
The people are not always
right—even schoolboys know about
the tyranny of the majority—but a
self-governing society ought to wel-
come the engagement of its citi-
zens. In this light, a more fruitful
approach might start by taking note
of the surprise popularity in these
year’s primaries of an outsider
businessman in the GOP and a so-
cialist over in the Democratic Party.
The result? A conversation that
opened not with a taunt but a ques-
tion: “What are the American peo-
ple trying to tell us?” Unfortu-
nately, it’s hard to get there when
ordinary people with concerns
about the future for themselves and
their families are hectored and lec-
tured about how loathsome they
are.
It all calls to mind a witticism
from Bertolt Brecht from 1953, after
East German workers who revolted
over measures requiring more work
for less pay were met with Soviet
tanks. In a poem that was not pub-
lished until years later, Brecht, a
playwright who had publicly sup-
ported the crackdown, wryly de-
fined the problem as a regime los-
ing confidence in its people rather
than the other way around.
“Would it not be easier in that
case,” he quipped, “for the govern-
ment to dissolve the people and
elect another?”
On TV, through Twitter and in
person Mr. Trump has long made
clear that his epithet of choice for
those who disagree with him is
“loser.” How ironic that the same
people most loudly complaining
about what a vulgarian Donald
Trump is are now using the same
insult to dismiss the ordinary Re-
publican voters who happen to dis-
agree with them.
Write to mcgurn@wsj.com.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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A12 | Wednesday, August 17, 2016
The Perfect Team That Has People Worried
Rio de Janeiro
Is it time to freak out about the
U.S. men’s Olympic basketball team?
Look: “Freak out” is probably not
the appropriate term here. The U.S.
men have taken some narrow victo-
ries here in Rio, but they have not
lost once. Back home, there is not a
nationwide panic about their state.
You probably feel the same way
about the U.S. men’s basketball
team at the Olympics
as you do about that
spider plant you left
on the windowsill be-
fore you went on va-
cation.
JASON It’s OK. The spider
GAY plant, and the U.S.
men, will be fine.
But maybe not!
The upset loss of the U.S. women’s
national soccer team was a cold
dish to anyone who thinks there’s
such a thing as a gold medal lock.
The men’s team is entitled to noth-
ing, and after three-point victories
over Serbia and France and letting
Australia hang around, they’re not
going to terrify opponents off the
court. Their draw to win gold here
is a beast: To do it they will have to
get through Argentina, the winner
of Spain-France and then perhaps
Croatia or Australia in the final. As
always, beating the U.S. is every
other nation’s fantasy, not the
equivalent of winning a gold medal,
but pretty close.
Let’s take a look at some of the
issues here:
This is not our best team. Well,
everyone knew this going in. Men’s
Team USA is missing the two best
basketball players in the world: Le-
Bron James and Steph Curry, who
between them have won four of the
last five NBA MVPs. Both James and
Curry passed on a Rio adventure af-
ter exhausting seasons in which
The British (Cycling) Empire Lives
BY JOSHUA ROBINSON
Rio de Janeiro
In 1996, Great Britain took 300
athletes to the Olympic Games in At-
lanta. It came home with just one
gold medal, a 36th-place finish in the
overall table—sandwiched between
Ethiopia and Belarus—and with its
Olympic program in crisis.
How to return Team GB to promi-
nence wasn’t tough to figure out. In
the years that followed, Britain
turned around its national sports
programs thanks to a flood of cash
from the U.K. lottery. But one ques-
tion did require careful consider-
ation: Which sport should the coun-
try build around?
The answer was a small, rela-
tively obscure sport in which Brit-
ain had precious little Olympic his-
tory: track cycling.
Now, two decades on, track cy-
cling has become the bedrock of Brit-
ain’s rise into a powerhouse at the
Summer Games. As of Tuesday after-
noon, Britain was second in the gold
medal table with 17, trailing only the
U.S. Of those 17 golds, four had come
in the velodrome.
This is no fluke. In 2008 and
2012, British riders took 14 out of 20
possible gold medals in track cy-
Brazil’s Latest Disaster:
Women’s Soccer Falls
The Brazil women’s soccer team’s
visions of Olympic gold evaporated
on Tuesday afternoon with an up-
set semifinal loss to Sweden on
penalties.
After 120 scoreless minutes, goal-
keeper Hedvig Lindahl saved two of
Brazil’s five tries in the shootout to
book a place in Friday’s gold-medal
match against Germany or Canada.
As for Brazil, the hunt for a first
gold medal in soccer will come down
to the men’s national team, which
plays in the semifinals against Hon-
duras on Wednesday.
Having lost 5-1 to Brazil in the
group stage, Sweden happily surren-
dered to pragmatism and packed its
players into defense to frustrate the
creative Brazilians. It was the same
approach that Sweden had used in its
quarterfinal against the U.S., which
prompted American goalkeeper Hope
Solo to call the team “cowards.”
—Jim Chairusmi
DeAndre Jordan of the U.S. loses the ball against Serbia during a preliminary-round game at the Olympics.
they battled each other in the NBA
Finals. The team is also missing
Oklahoma City’s Russell Westbrook,
a dynamic if imperfect ex-Olympian
whose relentless play could have
been an energizer for this occasion-
ally languid roster. Of course, if
Westbrook were here, it would have
meant he was on the club with
Kevin Durant, who just abandoned
him to flee to Golden State, which
would have been a delicious Olym-
pic drama.
Who runs this thing? Past men’s
basketball rosters have been Sun
Valley summits of basketball CEOs,
no more so than the original Dream
Team in 1992, where the U.S. had
cling. In all, the sport has delivered
more than a quarter of Britain’s
Olympic gold medals in the past
three Summer Games.
“It’s an amazing set of Games that
we’ve had, really,” said sprinter Ja-
son Kenny, a five-time gold medalist.
“I don’t think we’ve ever been sec-
ond in the medal table.”
Few countries rely as heavily—or
as overtly—on a single sport to
boost their medal totals. China has
tried in recent Olympics with gym-
nastics and diving. Italy’s strength in
fencing has helped the country out-
perform expectations. But the only
accurate comparison to Britain’s
dominance of cycling might be the
U.S. swim team, which has contrib-
uted more than a third of America’s
gold medals in the past three Sum-
mer Games.
The birth of Britain’s cycling em-
pire came in 1997, when U.K. lottery
funding began flowing into the sport.
Cycling officials were able to con-
vince Britain’s national sports author-
ities that their sport was already
close to winning medals and could re-
turn plenty with the right investment.
“We looked at it ruthlessly,” said
Chris Boardman, a former Olympic
cyclist and British Cycling execu-
tive. “On the track, there’s more
Overwhelming Majority of
Paralympics Tickets Unsold
Olympic organizers here said that
less than 10% of available tickets to
the Paralympic Games have been
sold, amid mounting concerns that
funding problems will turn the hall-
mark event for disabled athletes into
a major embarrassment for Brazil.
Three weeks before the Paralym-
pics are scheduled to begin, only
220,000 of the 2.5 million available
tickets have been sold, a spokesman
for the Rio 2016 organizing commit-
tee, Mario Andrada, said Monday.
Slow sales come on top of legal
challenges to organizers’ hopes of
securing government subsidies for
the Paralympics, which are set to
run Sept. 7 to 18 and feature more
than 4,000 disabled athletes from
around the world.
A number of Paralympic groups,
especially from poor countries that
depend on grants from Rio 2016 to
travel to the event, have expressed
concern in recent days that their ath-
letes won’t be able to participate.
“The participation of a large part
of African countries has been seri-
ously compromised,” said Ousmane
Diane, secretary-general of Guinea’s
Paralympic Committee. “Guinea relies
primarily on the rapid availability of
grants to buy its plane tickets.”
Leaders of the International Para-
lympic Committee, the world govern-
ing body for disabled sports, met
Monday with a senior Brazilian gov-
ernment official in the capital of
Brasília and separately in Rio de Ja-
neiro with Mayor Eduardo Paes.
Paes promised 150 million Brazilian
reais ($47 million) to fund the Para-
venerable kingpins like Magic John-
son, Michael Jordan and Larry Bird.
Who’s the boss of this 2016 outfit?
Carmelo Anthony is the roster’s vet-
eran sage, a two-time gold winner
who thrives in the relaxed Olympic
style of play, but has never even
reached the NBA finals and is not
exactly known as a ruthless leader.
The Warrior trio—Durant, Klay
Thompson, Draymond Green—are
more in sync with Golden State’s
commune lifestyle. It should be un-
derlined that this team has been a
delightful group of Olympians, who
have shown up at numerous events,
soaked up Brazil (they went down
the beach and drank coconut water
low-hanging fruit.”
Today, the British cyclists are the
best-funded in the sport. Over the
past four-year cycle, their budget ex-
ceeded $32 million. The U.S., mean-
while, spends around $1 million a
year on track cycling, according to
USA Cycling, with the bulk of it fo-
cused on its women’s pursuit team.
On Saturday, Great Britain beat the
Americans in the women’s team pur-
suit final by two seconds.
“It was very clear that lottery
funding is about gold medals, not
even [just] medals,” Boardman said.
“Gold medals in the Olympic
Games—not world records, not
growing the sport.”
The reason Britain’s plan has
proved so effective is that track cy-
cling is the rare sport in which sub-
tle improvements can have a mea-
surable impact on a large number of
athletes. A new aerodynamic helmet,
for instance, might help medal hope-
fuls in six different events.
Britain’s lead is now nearly im-
possible to overhaul. Its financial ad-
vantage means that every cycle,
Team GB can afford to keep techno-
logical innovations under wraps un-
til the eve of the Games. As U.S.
coach Andy Sparks put it, they get to
the Olympics and “just unload their
A Helping Hand
OUT OF ACTION: Nikki Hamblin of New Zealand tended to American Abbey
D’Agostino after they got tangled up during a 5,000-meter heat Tuesday.
lympic Games, IPC spokesman Craig
Spence said.
But a court battle over transpar-
ency in Rio 2016’s financial accounts
currently stands in the way of any
government funds. The organizing
committee has long declined to break
down its budget on the grounds that
it is privately funded by sponsors, li-
censing agreements, ticket sales and
transfers from the International
Olympic Committee.
—Paul Kiernan
THE WALL STREET JOURNAL.
U.S. close despite sitting Tony
Parker) have been better at passing
and distributing the basketball,
while the U.S. reverts to one-on-one
style, which even the NBA has
stepped away from in recent years.
Basketball in crunchtime often re-
quires an intuitive feel for everyone
else on the court, and there is also…
The pressure of blowing It. This
is not the U.S. men’s fault, but their
trip to Rio is a big deal only if they
lose. Otherwise, they’re expected to
march down the aisle and get the
gold, with minimal trouble. That ex-
pectation ignores obvious truths—
international basketball may not be
perfect or even close to its high
point, but it’s not a slouch fest.
Meanwhile, even the best teams can
have a bad run. The 73-win War-
riors lost in the Finals this season!
It’s never an ideal mind-set when
the fear of losing creeps up against
the desire to win. Those close group
ELSA/GETTY IMAGES
stage games weren’t technically do-
or-die, but what happens when the
U.S. men find themselves in a close
one when they know losing will be a
national embarrassment? This is
probably keeping coach Mike
Krzyzewski up at night—the knowl-
and played volleyball on their off edge that a few bad bounces here
day Monday), and have been stellar and there, and he comes back to a
ambassadors for the game. But flurry of How Did Coach K Screw
who’s going to be the decision This Up? headlines. Again, not fair,
maker when the United States in- but the reality for Team USA.
variably needs one? The upside to this is that these
They sort of just met. OK, this is games will be intriguing. Krzyze-
not exactly true. A lot of the Team wski, regarded as an undisputed
USA players have known each other college coaching legend, has one of
since they were elite young up-and- the more compelling challenges of
comers. But as constituted, this is his career—stitching together great-
their first tournament. They’ve been ness on the fly from a strange and
together barely a month, whereas perhaps ill-fitting U.S. roster. This
some of their competition have will almost surely not be another
been playing national team basket- dull Olympic romp for gold. Pre-
ball for years. This has revealed it- sume nothing about U.S. men’s bas-
self on offense—opponents like Cro- ketball this year. That’s maybe not a
atia and France (which played the freakout, but it’s fun.
BRYN LENNON/GETTY IMAGES
The track cycling world has had a difficult time keeping up with Great Britain
and Jason Kenny, above left during a men’s keirin race in Rio on Tuesday.
nuclear weapons on you.” The rest of the track cycling
Britain’s dominance is so com- world is now resigned to winning
plete that it even takes the suspense non-Olympic events. Britain effec-
out of gold-medal races. On Sunday, tively decided to punt on this year’s
the men’s sprint came down to world championships, because the
Kenny and compatriot Callum Skin- timing didn’t jibe with its training
ner, a scenario they had rehearsed schedules for Rio. It still won five
hundreds of times in training. It was events, but those were more of a dis-
the same in 2008, when Kenny fin- traction than anything else.
ished as runner-up to Hoy. Rivals “What is the point of us winning
have no idea what to make of it. something that we’re not being
“It’s annoying, because you can asked to win?” British Cycling pro-
tell they’re just walking it,” French gram director Andy Harrison said,
sprinter Virginie Cueff said. “You adding that Olympic gold “is what
watch and cycling is easy for them.” we’re here for.”
Everything You Need to
Know About Diving in Track
When Shaunae Miller of the Baha-
mas lunged for the finish in the
women’s 400-meter final on Monday,
nabbing the gold medal over Ameri-
can Allyson Felix by less than a sec-
ond, her path to victory prompted a
question: Is diving across the finish
line legal?
In short, it is. According to Rule
164 of track and field’s official compe-
tition rule book, “the athletes shall be
placed in the order in which any part
of their bodies (i.e. torso, as distin-
guished from the head, neck, arms,
legs, hands or feet) reaches the verti-
cal plane of the nearer edge of the
finish line as defined above.”
KAI PFAFFENBACH/REUTERS
In other words, it is the torso, and
not the extremities, which counts in
determining finish place. Anna Leg-
nani, a spokeswoman for the Interna-
tional Association for Athletics Feder-
ations which sets the rules for
international track competitions in-
cluding the Olympics, said there is
currently no language in the rules
which prohibit diving across the finish.
Diving for the finish isn’t all that
uncommon in track races—in fact,
Biles Wins Once More several U.S. Olympic team spots were
Simone Biles took her final, fourth determined with a dive this summer,
gold medal of these Olympics on including the third and final place in
floor exercise on Tuesday and again the women’s 1,500.
finished 1-2 with teammate Aly Rais- Miller said after the race that the
man, clinching the U.S.’s domination dive wasn’t intentional. “It all kind of
of this gymnastics competition. happened,” she said. “My mind went
For bronze, Great Britain’s Amy completely blank and the next thing I
Tinkler edged Italy’s Vanessa Ferrari, was on the floor.”
who revived a decade-old routine Felix, who choked back tears after
with which she won the 2006 world the race, was resigned about the out-
championships all-around title. come. “Rules are rules,” she said.
—Louise Radnofsky —Sara Germano
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
Euro vs. Dollar
1.16
BUSINESS & FINANCE
1.1281 s 0.86% FTSE 100
1.13
1.10
1.07
J J A J
As of 4 p.m. ET
© 2016 Dow Jones & Company. All Rights Reserved.
Linde and Praxair Confirm Merger Talks
Possible combination
of industrial-gas firms
would create company
valued at $60 billion
BY EYK HENNING
FRANKFURT—Germany’s
Linde AG and U.S. rival
Praxair Inc. said Tuesday they
were in preliminary merger
talks for a deal that would cre-
ate the world’s largest indus-
trial-gas supplier, with a po-
tential market value of more
than $60 billion.
The statement confirmed a
Wall Street Journal article late
Monday.
Such a deal would combine
Weakness
In Pound
Is Fuel
For FTSE
BY MIKE BIRD
The FTSE 100 is on a roll.
The U.K’s flagship stock index is
up 8.8% since the country voted
to leave the EU, and is now
testing a record level reached
in April 2015.
Though the index pulled
back by around 0.7% Tuesday,
that still leaves it just 3% shy of
a historical high.
But there is a
ANALYSIS big catch. The
rally has coin-
cided with a rare
surge in expectations for earn-
ings, which are denominated in
sterling. The FTSE 100 is one of
the most internationally fo-
cused indexes in the world, and
the drop in the pound seems to
be almost entirely responsible
for the surge.
Aggregate forecasts for
earnings per share at FTSE 100
companies 12 months from now
are enjoying their largest rise
in the last five years, climbing
from a low of £386.85 in April
to £430.19 Tuesday. That marks
a sharp turnabout from an al-
most constant decline from
more than £600 in late 2011.
In local-currency terms, the
FTSE 100 has risen about 15%
since June 27, when it reached
its lowest level after the EU ref-
erendum. Its roughly 10% rise
this year is outperforming the
S&P 500 in local-currency
terms. As of midday in New
York, the S&P 500 was up 6.7%
Since June 23, the increase
in earnings expectations has
been matched almost entirely
by the decline in sterling. The
pound itself has dropped by
nearly 12% since the referen-
dum, compared with a basket
of currencies.
The two-step dance between
sterling and earnings estimates
shows just how sensitive to
currency movements the FTSE
100 has become. On three-quar-
ters of the days since the refer-
endum, the pound and forward
EPS have moved in opposite di-
rections. When the pound goes
up, expectations drop, and visa
versa.
“EPS revisions are still nega-
tive for the other key regional
markets and for MSCI World,”
said a note on Friday by equity
analysts at J.P. Morgan Chase &
Co. “We believe that the roll-
over in the pound largely ex-
plains the rebound in EPS revi-
sions.”
Deutsche Bank AG analysts
recommend overweight posi-
tions in the FTSE 100 compared
with the broader Stoxx Europe
600, arguing that “further ster-
ling weakness should also help
the FTSE 100 to outperform the
broader European market.”
The daily changes in the
Please see FTSE page B2
HYPERLOOP STUDIED FOR PORTS TECHNOLOGY | B3
7000
6893.92 t 0.68% Gold
6500
6000
5500
J A
companies of about $30 billion
apiece, ranking it as one of the
largest tie-ups in a strong year
for mergers.
Linde shares rose more
than 11% in German trading
Tuesday, while Praxair shares
were up 2.7% in late-afternoon
New York trading.
A merger would likely bring
synergies of more than $600
million, people familiar with
the matter said Tuesday. They
added that the parties were
discussing an all-stock trans-
action.
“Discussions are ongoing
and have not resulted in any
concrete results or agreements
yet,” Linde said.
The companies have dis-
cussed a potential merger be-
Chinese manufacturers bought roughly 67,000 robots in 2015. Demand is projected to jump to 150,000 robots annually by 2018.
Factories Use Robots as Wages Rise
A Chinese factory near
Shanghai is relying on a new
breed of workers to maintain
its competitive advantage in
assembling electronics de-
vices: small robots designed in
Germany.
By Robbie Whelan
in Stockholm
and Esther Fung
in Suzhou, China
Suzhou Victory Precision
Manufacture Co.’s chairman,
Yugen Gao, said the days when
the company drew its strength
from China’s cheap and hard-
working employees are gone.
“We’ve been losing that
edge in the past three years,”
Stocks in U.S. and Europe Edge Lower
BY AARON KURILOFF
AND RIVA GOLD
U.S. stocks edged back from
record highs on Tuesday and
government bonds retreated
following mixed signals from
Federal Reserve officials about
the course of
TUESDAY’S interest rates.
MARKETS In 4 p.m.
trading in New
York, the Dow
Jones Industrial Average fell
84.03 points, or 0.5%, to
18552.02. The S&P 500 de-
clined 0.5%, and the Nasdaq
Composite Index lost 0.7%.
Treasury yields rose after
New York Fed President Wil-
liam Dudley said in a television
interview that the economy
should strengthen later in the
year and that the U.S. presi-
dential race won’t affect the
Fed’s decisions on the course
of rates. The Fed is scheduled
1340
1350.50 s 0.76% WTI crude
1290
1240
1190
J J A J
THE WALL STREET JOURNAL.
fore, but talks were put on ice
after Linde issued profit warn-
ings in October 2014 and No-
vember last year, according to
a person familiar with the
matter.
Talks resumed while Air
Liquide SA pursued an acqui-
sition of U.S. company Airgas
Inc. of the U.S., another person
said. That transaction, which
closed in May, returned the
French company to the No. 1
spot in the industry.
A combination of Linde and
Praxair would again surpass
Air Liquide, creating a com-
pany with revenue of more
than $30 billion before dives-
titures.
Analysts said a merger
would help cut overcapacities.
said Mr. Gao in his office,
overlooking rows of buildings
where a battalion of robots
was cranking out computer
keyboards. “It’s one of the ef-
fects of the one-child policy.”
China’s appetite for Euro-
pean-made industrial robots is
rapidly growing, as rising
wages, a shrinking workforce
and cultural changes drive
more Chinese businesses to
automation. The types of ro-
bots favored by Chinese manu-
facturers are also changing, as
automation spreads from
heavy industries such as auto
manufacturing to those that
require more precise, flexible
robots capable of handling and
assembling smaller products,
to release minutes of its most
recent meeting on Wednesday.
The dollar fell to its lowest
level since June, however, af-
ter a paper released by Federal
Reserve Bank of San Francisco
President John Williams sug-
gested a possible increase to
the inflation target, which
would give the bank room to
keep rates lower for longer.
Data released on Tuesday
showed U.S. consumer prices
were flat in July, a signal that
inflation remains modest.
The yield on the benchmark
10-year Treasury note was
1.576%, compared with 1.554%
on Monday. Yields rise as bond
prices fall.
Stocks sensitive to changes
in interest rates, such as tele-
communications companies,
were among the biggest de-
cliners in the S&P 500. Shares
of phone companies fell 1.5%.
Verizon Communications was
50
46.58 s 1.84% German Bund
45
40
35
J A
“In our view, high synergies
of up to €800 million—3% of
the combined entity—could
be…achieved,” Baader Helvea
analyst Markus Mayer said in
a note Tuesday.
On top of cost savings, a
tie-up would help better bal-
ance the companies’ regional
footprint and product mix. Un-
like Linde, Praxair doesn’t run
large medical-gas and engi-
neering operations, which ca-
ter to the oil-processing indus-
try. While Linde is big in
Europe and Asia, Praxair has a
large presence in the U.S. and
Latin America.
Despite being somewhat
complementary, analysts cau-
tioned that a deal would face
Please see DEAL page B2
including consumer electronics
and apparel.
At stake is whether China
can retain its dominance in
manufacturing.
“China is saying, ‘we have
to roboticize our industry in
order to keep it,’ ” said Stefan
Lampa, chairman of the robot-
ics division of Kuka AG, a Ger-
man automation firm and a
supplier to Suzhou Victory.
The rush to buy robots
comes in part because China’s
population of workers aged 15
to 59 is starting to shrink,
forcing manufacturers to turn
to automation. The United Na-
tions estimates the number of
the country’s workers peaked
in 2010 at more than 900 mil-
among the biggest decliners in
the Dow industrials, losing
1.2% in late trading.
The weaker dollar dragged
down shares of global export-
ers, weighing on markets in
Europe and Japan. The Stoxx
Europe 600 slipped 0.8% and
Japan’s Nikkei Stock Average
fell 1.6%.
The euro rose to $1.1275
late Tuesday in New York from
$1.1185 late Monday, while the
dollar was at ¥100.26 from
¥101.25. The British pound
rose to $1.3036 from $1.2880
as U.K. inflation figures nar-
rowly beat expectations.
In Germany, shares of
Volkswagen slid 1.7% follow-
ing reports that U.S. prosecu-
tors and Volkswagen were ne-
gotiating a settlement after
the Justice Department found
evidence of criminal wrongdo-
ing in the car company’s die-
sel-emissions cheating.
0.40
yield -0.028% 10-Year Treasury
2.50
yield 1.576%
0.20 2.00
0.00 1.50
-0.20 1.00
J J A J J A
Sources: Tullett Prebon; SIX Financial
Wednesday, August 17, 2016 | B1
STEPHAN JANSEN/PICTURE-ALLIANCE/ASSOCIATED PRESS
Rivals Linde and Praxair are valued at about $30 billion apiece.
Setbacks
For Two
Hedge
Funds
BY LAURENCE FLETCHER
AND GREGORY ZUCKERMAN
Damaging outflows contin-
ued to sting the hedge fund in-
dustry Tuesday as one of the
largest firms in the industry
reduced its head count by 15%
and another posted outflows
of more than $3 billion.
Brevan Howard, one of the
VINCENT YU/ASSOCIATED PRESS
world’s largest hedge-fund
firms, experienced investor
withdrawals of more than $3
billion from its flagship fund
in the first half of this year.
The Brevan Howard Master
Fund was one of the star per-
formers during the credit cri-
sis but is now in its third
straight calendar year of
losses.
It has struggled recently, as
bond markets have proved
tough to predict. Information
lion and will fall below 800 about this year’s withdrawals
million by 2050. comes from letters sent to in-
In addition, the average vestors and calculations by
hourly labor cost—defined as The Wall Street Journal. The
wages plus benefits—of $14.60 fund now has $15.7 billion un-
in China’s coastal manufactur- der management, the letters
ing heartland has more than said. A spokesman for Brevan
doubled as a percentage of U.S. declined to comment.
manufacturing wages, from Separately, Paul Tudor
roughly 30% in 2000 to 64% in Jones’s Tudor Investment
2015, according to Boston Con- Corp. has reduced its work-
sulting Group, making the force by about 15% as it begins
country less competitive as a to emphasize computer driven
destination for manufacturers. trading amid losses and inves-
China, in 2013, became the tor withdrawals, according to
world’s largest market for in- people close to the matter, a
dustrial robots, surpassing all sign of how even hedge-fund
of Western Europe, according giants are feeling pain lately.
to the International Federation Mr. Jones, who became a
of Robotics. In 2015, Chinese billionaire with prescient
Please see ROBOTS page B2 Please see FUNDS page B2
Setback
Volkswagen’s daily share price
€150
U.S. energy companies
gained as the price of U.S. Tuesday: €124.15
crude futures rose 1.8% to 140 1.7%
$46.58 a barrel on the New
York Mercantile Exchange. 130
Following a slow summer
climb in stock markets, some 120
investors are growing wary of
the recent rally, as the gains 110
have come without an increase
in corporate-earnings growth, 100
which many expect later in the
year.
90
“Profit growth will be nec-
essary to drive the market J F M A M J J A
higher from here, but while we Source: FactSet
wait for that, we’ll probably THE WALL STREET JOURNAL.
consolidate the recent gains
we’ve had,” said Matthew Pe- tive rates around the world
ron, head of global equity at forcing investors toward risky
Northern Trust. assets, including stocks.
But many suggest a lack of For investors, “the focus
alternatives and ultra-support- seems to be on the heavy lift-
ive central-bank policy should ing that is being done by mon-
keep investors in the stock etary policy,” said Koen Straet-
market even if earnings disap- mans, a multiasset strategist
point, with ultralow and nega- at NN Investment Partners.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B2 | Wednesday, August 17, 2016
INDEX TO BUSINESSES
These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.
A
ABB ............................. B2
Advanced Info Services
.....................................B7
Aetna...........................B4
Airgas..........................B1
Air Liquide .................. B1
American Express.......B7
Anglo American..........A6
Apple......................B3,B7
Archer Daniels Midland
.....................................B4
B Hyperloop One............B3
Baidu ........................... B3
Bank Audi....................B2
Bank of America.........B1
Barrick Gold................B6
Bayer...........................B4
Beijing Kunlun Tech....B3
Beijing Topsec Network
Security Technology.B3
Berkshire Hathaway...B7
BHP Billiton.........A1,B10
BP................................A1
Brevan Howard...........B1
C-D
Chesapeake Energy....A6
Chevron.......................A6
China Telecom.............B3
China Vanke................A1
Cisco Systems.............B3
C&J Energy Services .. B6
Coca-Cola ............... B2,B7
Comae Technologies...B3
ConocoPhillips.............A6
Coty.............................B4
Deere...........................B7
Dell..............................B2
DONG Energy..............B4
DP World.....................B3
E-G
Ecolab..........................B5
EOG Resources...........A6
INDEX TO PEOPLE
A-C
Andrada, Mario...........B2
Baker, Doug.................B5
Bauer, Randy.............B10
Blin, François ..............B6
Bowler, Bill .................A2
Buffett, Warren..........B7
Cabana, Mark............B10
Carr, James.................B9
Cassidy, Sukhinder
Singh.........................B5
Combs, Todd................B7
Cook, Tim....................B3
D-E
Dudley, William .......... B1
Elswick, Jeffery........B10
Evans-Pritchard, Julian
.....................................A2
F-G
Feygin, Ilya ................. A2
Fibig, Andreas.............B5
ROBOT
Continued from the prior page
manufacturers bought roughly
67,000 robots, about a quarter
of global sales, and demand is
projected to more than double
to 150,000 robots annually by
2018.
Chinese firms also are in-
vesting in industrial technol-
ogy, with an eye toward build-
ing more of their own robots.
Chinese home-appliance maker
Midea Group Co. launched a
bid to buy Kuka for more than
$5 billion in May and now
owns about 86% of the robots
company. Some German politi-
cians criticized the deal, say-
ing Kuka should have re-
mained German or European-
owned.
At a robotics-research con-
ference in Stockholm in May,
companies including Kuka and
Switzerland’s ABB Ltd. dis-
played lightweight robots with
agile arms capable of manipu-
lating items as small as bottle
caps. Last year, ABB, intro-
duced a two-armed version of
its YuMi robot, a lightweight
robot that was designed spe-
cifically for the Chinese mar-
ket. It can put together car-
dashboard electronics,
wristwatches and eyewear.
YuMi, which is manufac-
tured both in Sweden and in a
sister factory in Shanghai that
opened a decade ago, was de-
signed as a “collaborative” ro-
bot, meaning it is small and
safe enough that it can share
the manufacturing line with
humans and doesn’t require a
protective cage, as many large
industrial robots do.
Over the past five years,
China has become ABB’s larg-
est market for robotics cus-
tomers, according to Steven
Wyatt, ABB’s head of market-
ing and sales. Mr. Wyatt said
China originally started adopt-
DEAL
Continued from the prior page
intense antitrust scrutiny and
questioned whether regulators
would approve another big
takeover in the industry with-
out hefty divestitures.
The top four industry pro-
ducers have a share of more
than 75% of the market, while
the merged entity would have
about 40%, analysts from
Bernstein said Tuesday.
Peter Spengler, an analyst
at DZ Bank, said regulators in
Europe especially could sub-
ject any Linde-Praxair deal to
Exxon Mobil.....A1,A6,B2
Fitbit............................B2
Ford Motor..................B3
Fortinet ....................... B3
General Electric .......... B2
Pinterest ..................... B5
Praxair.........................B1
Procter & Gamble.......B2
Q-R
Qihoo 360 Technology B3
Germanwings..............A3 Royal Dutch Shell.......A6
Golden Brick Silk Road
S
Fund Management
(Shenzhen) ............... B3 Samsung Electronics..A8
Schlumberger..............B6
H-I
Shaanxi Networkcloud
Hershey.......................B4
Information
Hershey Trust.............B4 Technology................B3
Silver Wheaton...........B6
Intel.............................B3 Simon Property GroupB9
International Business
Singapore
Machines...................B7 Telecommunications.B7
International Flavors & Soros Fund
Fragrances.................B5
Management.............B6
Intouch Holdings.........B7 SPDR S&P 500............B6
J-K Statoil.........................A6
Suncor Energy.............B7
Johnson & Johnson....B5
Suzhou Victory
Juniper Networks.......B3
Precision Manufacture
Kinder Morgan............B7
.....................................B1
KUKA...........................B1
Symantec .................... B5
L-N T-V
Lenovo Group..............B2
TCL .............................. A1
Liberty Broadband......B6 Temasek Holdings ...... B7
Linde............................B1 Tencent Holdings........B3
McDonald's..................B2 TJX...............................B4
Midea Group..........B2,B3
Total............................A6
Mondelez International UBS Group...................B5
.....................................B4 U.S. Steel....................B4
Monsanto....................B4 Vale ............................. A6
Morgan Stanley........B10 ValueAct Capital.......B10
Nissan Motor..............B3 Visa..............................B2
Nucor...........................B5 Volkswagen............B1,B3
Nusra Front.................A1
Voya Financial.............B5
O-P
W-Z
Occidental Petroleum.A6 Wal-Mart Stores.........B7
Opera Software .......... B3
Wells Fargo.................B7
OptoForce....................B2 Westfield.....................B9
PetroChina...................B2 Wyndham Worldwide.B2
Phillips 66...................B7 ZTE..............................A1
Fishman, Dave..........B10 Mayer, Markus............B1
Franklin, Missy ........... B2 McBride, Shawn..........B2
Gorman, James.........B10 Musk, Elon..................B3
H-K P-T
Horn, Karen.................B5 Payne, Michael............B2
Prazmark, Rob ............ B2
Howard, Alan..............B1
Sakai, Yuzo ................. B6
Ishikawa, Junichi........B6
Krzanich, Brian ........... B3 Sands, Anita M...........B5
Kumar, Renuka..........B10 Shin, Jihae .................. B5
Soros, George ............. B6
L-M Spengler, Peter...........B2
Lawler, David..............A1 Spieth, Jordan.............B2
Lawler, Doug...............A6 Stewart, Beth.............B5
Li Keqiang...................A5 Suiche, Matt...............B3
Lloyd, Rob ................... B3 Tinker, Mark ............... A2
Looney, Bernard..........A6 V-Z
Lubitz, Andreas..........A3
Vautrinot, Suzanne M B5
Mackenzie, Andrew Weaver, Nicholas........B3
............................. A6,B10
Weschler, Ted ............. B7
Mahoney, David..........B5 Zaghari-Ratcliffe,
Malone, John .............. B6 Nazanin.....................A3
Martin, Rodney O.......B5 Zlotnik, David ............. B2
Do the Robot
Chinese purchases of industrial
robots have surged as manufac-
turing labor has become scarcer
and more expensive.
150 thousand units Projected
125
100
75
50
25
0 and
2005 ’10 ’15
Source: International Federation of Robotics
THE WALL STREET JOURNAL.
ing automation en masse in re-
sponse to concerns over the
quality of goods manufactured
in the country. Now, however,
Chinese factories—including
those that make consumer
goods—are buying robots to
fill positions that would other-
wise sit empty because of high
job turnover rates.
“Hard as it may be to be-
lieve, despite having 1.3 billion
inhabitants, China doesn’t find
enough people to do the work
generated in its factories,” Mr.
Wyatt said.
Budapest-based OptoForce
Ltd. manufactures €2,500
($2,796) sensors that can be
attached to robotic arms and
used to polish metal parts that
go into car transmissions and
other products.
Its head of sales, Szabi
Fekete, said such sensors have
become significantly cheaper
to produce in recent years.
“Ten years ago when a force
sensor cost €20,000, no one
wanted to automate polishing,
because it was cheaper to hire
100 workers,” Mr. Fekete said.
heavy scrutiny. Antitrust hur-
dles may, however, not be as
big in the U.S., where Linde is
active in health care and
Praxair has a large on-site
business, said Mr. Spengler.
Other analysts see antitrust
issues extending beyond Eu-
rope. “Antitrust regulators in
the U.S., Europe and China
would likely challenge the
combination’s on-site market
position,” said Bernstein ana-
lysts.
“There are significant over-
laps across the businesses, es-
pecially in their ability to offer
on-site projects,” Bernstein
added.
Sponsors Dial Down at Rio
BY REBECCA DAVIS O’BRIEN
For the London Olympics in
2012, McDonald’s Corp. set up
its biggest-ever restaurant: a
32,000-square-foot building
with cushioned chairs, recy-
cled wood floors and a balcony
overlooking the Olympic Park.
The McDonald’s in Rio’s
main Olympic Park is a frac-
tion of that size. Perched on
the edge of a concrete plaza
behind the tennis stadium, The
so-called dessert kiosk has no
seating and serves only ice
cream. The company’s choice
highlights a distinctive feature
of the Rio games: the subdued
presence of major Olympic
sponsors on the ground.
The streets of Rio de Janeiro
aren’t packed with buses
wrapped in brand names. Spon-
sors’ billboards and promotions
seem lost in the colorful city.
In the Olympic Park, small
Coca-Cola Co. logos adorn ta-
bles and menus, while drink
stands consist of a cart staffed
by an attendant or two, with
stacked cases of warm soda.
“I have not seen a lot of
overt commercialization of
Olympic sponsorship,” said
Rob Prazmark, president of 21
Sports and longtime adviser to
the International Olympic
Committee, who was in Rio as
a guest of the IOC. “It’s a very
conservative games.” Indeed,
Olympic officials and others
say corporate sponsors aren’t
using and are even returning
tickets, as potential guests de-
cided to stay away from the
Games for various reasons.
In Rio, corporate sponsors
Western Firms Slowly Return to Iraq
BY SARAH KENT
AND ALI NABHAN
BASRA, Iraq—For years Iraq
has careened from crisis to cri-
sis. Now, some foreign compa-
nies see opportunity as the tur-
moil appears to be subsiding.
After disruptive anticorrup-
tion protests earlier this year,
a degree of stability has re-
turned to parliament. Weak oil
prices that sapped its economy
have staged a fragile recovery.
And Iraqi forces have beaten
back Islamic State to just a few
pockets in the country, most
recently driving them from Fal-
lujah and Ramadi.
Since then, interest in the
country from serious investors
has increased, said Mudher Sa-
lih, a former senior central
bank official who advises Prime
Minister Haider al-Abadi on fi-
nancial policy. “After Fallujah
Ramadi everything
changed,” he said. Part of that
’18
change is foreign capital, and
deal-scouting executives are
cautiously returning to Iraq.
In January, General Elec-
tric signed contracts worth $1
billion to upgrade Iraq’s elec-
tricity infrastructure, the com-
pany’s largest power deal in
the country since 2008. GE,
which has been operating in
the country for years, said it
“continues to see growth op-
portunities going forward.”
In April, the World Bank’s
International Finance Corpora-
FUNDS
Continued from the prior page
trades that anticipated moves
in various financial markets,
has seen Tudor’s assets drop
to approximately $11 billion
from $13 billion last year, one
of the people said. Now the
firm is cutting underperform-
ing traders who rely on a tra-
ditional, fundamental ap-
proach and is focusing
resources on its best money
makers. Tudor also is hiring
so-called quantitative traders
who rely on mathematical
models rather than fundamen-
FTSE
Continued from the prior page
Bank of England’s sterling ex-
change-rate index and forward
EPS for the FTSE 100 have a
so-called R-squared measure of
0.862. The statistic measures
how much of the variation in
EPS is explained by the change
in the pound. A score of zero
means none of the variation
can be explained, and a score of
one means all of it can.
So it also shouldn’t be sur-
prising that more U.K.-focused
BUSINESS NEWS
The McDonald’s restaurant in Rio’s Olympic Village. The chain also runs a dessert kiosk on site.
have faced several challenges,
experts say, including a failing
economy, broader shifts in
marketing strategies, and the
fact that the events spread
across a sprawling metropolis,
rather than being concentrated
in a single Olympic Park, as in
London. “It does feel dimin-
ished because things are so
spread out,” said Shawn
McBride, executive vice presi-
dent of sports at Ketchum
Sports & Entertainment, which
represents sponsors including
Procter & Gamble. “I think
you get outside these Olympic
clusters and you feel like
you’re in a big city, not swept
up in the Olympics.”
That feeling is compounded
by a sharp swing toward digital
and social-media marketing,
which tends to be less visible.
“There’s no question that
more marketing dollars are go-
tion arranged a $375 million fi-
nancing package for an Iraqi
power company, backed by
Lebanon’s Bank Audi—the
bank’s first major investment
in the country. The deal is a
sign of the IFC’s increased sup-
port for Iraq in the 12 months
to June 2016, which was accom-
panied by an “increase in inter-
est by investors from the re-
gion,” said Mouayed Makhlouf,
IFC Director for the Middle East
and North Africa. Bank Audi de-
clined to comment.
In a sign that some companies
are betting that even tourism
could begin to pick up, Wynd-
ham Hotel Group announced
plans to open two new hotels in
Najaf, a pilgrimage destination
for Shiite Muslims, by 2018.
“It takes a long time to de-
velop new hotels so you can’t
wait until the moment before
the thing is in all the travel mag-
azines,” said Daniel Ruff, Wynd-
ham’s president for Europe, the
Middle East and Africa.
International law firm Ever-
sheds says it is working on
two deals to acquire assets in
the country—the first Iraqi ac-
quisitions the firm has handled
in more than 12 months.
Another big reason for opti-
mism: the International Mone-
tary Fund. Last month, it ap-
proved a $5.3 billion bailout
for the cash-strapped country,
helping to plug its budget
shortfall and restore corporate
confidence. The deal requires
tal analysis, the people say.
Two key Tudor hedge funds
were down about 3% for the
year through early August, ac-
cording to investors, well be-
low the overall market. The
workforce reduction of about
60 employees includes money
managers as well as other
staff, the people said.
Bloomberg News first re-
ported Tudor’s staff reduction.
The withdrawals at Brevan,
which is headed by Switzer-
land-based billionaire Alan
Howard, mean the firm’s as-
sets have now more than
halved in the past two years,
from around $42 billion to
$19.4 billion. It has shut com-
stocks aren’t enjoying the re-
bound. The FTSE Local U.K.,
which includes only companies
that make at least three-quar-
ters of their revenue in Britain,
is down 7.05% in sterling terms
this year, and 18.8% in dollar
terms.
A quick look at the 10 best-
and 10 worst-performing stocks
on the FTSE 100 this year of-
fers a good example. Of the top
10, only Admiral Group, up
nearly 36%, has any meaningful
domestic exposure. Most, such
as Smiths Group and Mediclinic
International, make less than
10% of their revenue in the U.K.
THE WALL STREET JOURNAL.
ing into the social media expe-
rience, as opposed to spending
several million on a showcase
in Olympic Park,” said Michael
Payne, former director of mar-
keting for the IOC.
The lower-profile presence
of top Olympics sponsors re-
flects sensitivity to Brazil’s po-
litical instability and economic
woes, which have shaped and
haunted the games.
Several major sponsors said
their presence in Rio is on par
with previous Summer Olym-
pics, and dismissed suggestions
that concerns about security
and public health might have led
them to scale back their plans.
In addition to the dessert ki-
osk, McDonald’s has a full-ser-
vice restaurant in the athletes’
Olympic Village. Spokesman Da-
vid Zlotnik said the company,
which has 33 permanent
McDonald’s restaurants in Rio,
Cautious Investing
After years of turmoil, foreign
companies tentatively are
returning to Iraq.
Direct foreign investment in Iraq
$5 billion
Projected
4 last year and is expected to be
3
2 anticorruption protests have
1 government, and could resurface.
0 stifling bureaucracy and ram-
’10 ’11 ’12 ’13 ’14 ’15 ’16
Source: UNCTAD
THE WALL STREET JOURNAL.
Iraq to undertake significant
economic changes, cutting
spending and tackling corrup-
tion, and paves the way for
added assistance.
Driven by higher oil produc-
tion, economic reforms and di-
minished threat from the mili-
tant group, the World Bank
expects Iraq’s economy to
grow about 7% this year.
Foreign direct investment in
Iraq could increase by around
20% this year to nearly $4 bil-
lion, according to estimates by
Astrit Sulstarova, head of the
investment trends and data
unit at the United Nations
Conference on Trade and De-
modities and emerging-mar-
kets funds in recent years, and
spun out its credit-funds unit.
Like most so-called global
macro hedge funds, Brevan
has struggled to cope with
markets dominated by central
bank money-printing. This has
flattened yield curves and sup-
pressed volatility in bond mar-
kets, making it harder for such
funds to profit.
Brevan was also caught out
by the European Central
Bank’s lower-than-forecast
stimulus package in December,
which hit funds betting on a
weaker euro. However, it was
among funds to profit after
the U.K.’s vote to exit the Eu-
There are some other sup-
portive factors, particularly the
recovery in commodity prices,
lifting the most internationally
exposed stocks. For that rea-
son, miners such as Glencore,
Fresnillo and Anglo-American
find themselves in the top 10.
They also have next to no expo-
sure to the British economy.
The worst performers, such
as easyJet, Royal Bank of Scot-
land, ITV and Berkeley Group—
all down more than 28%—have
far more exposure to the U.K.
than the broad index.
The FTSE 100 may yet reach
a fresh record high. But if its
MICHAEL KAPPELER/ZUMA PRESS
chose to operate only those two
Olympic outlets because the
events are so far flung—only
45% of the events are taking
place in Rio’s main park, he said,
compared with 80% to 85% in
the 2012 London Olympics.
The decision to operate just
one restaurant and a dessert
kiosk in Rio had nothing to do
with the local economy, Mr.
Zlotnik said. Instead,
McDonald’s decided to showcase
an operation fairly unique to Bra-
zil, where it runs 2,500 dessert
kiosks serving vanilla cones, Mc-
Flurry desserts and smoothies.
A spokesman for Coke, which
has sponsored the Olympics since
1928, said the beverage com-
pany’s marketing efforts in Rio
have been “typical’’ compared
with previous Summer Games.
—Ted Mann, Julie Jargon
and Mike Esterl
contributed to this article.
velopment. In 2015—a year of
military uncertainty and falling
oil prices—FDI crashed 30%.
Iraq is still in a delicate sit-
uation. The price of oil—the
main source of government
revenue—remains under pres-
sure. The country’s budget def-
icit ballooned to 14.3% of GDP
closer to 15% in 2016.
Meanwhile, a mounting hu-
manitarian crisis threatens to
overwhelm the government. And
dogged and disrupted the Iraqi
The hurdles facing compa-
nies also remain significant. A
pant corruption make for a
challenging environment. It is
little surprise that Iraq ranks
161 out of 189 countries in the
World Bank’s 2016 ease of do-
ing business rankings.
The Iraqi government in
particular, makes a difficult
business partner. Mohammed
Al Khasaky, chairman of Iraq’s
AKG Engineering Construction
& Trading Group said his com-
pany, like many others, hasn’t
been paid in more than a year.
Sami al-Araji, chairman of
Iraq’s National Investment Com-
mission, acknowledged the chal-
lenges, but said it is looking at
“all means and ways to try to al-
leviate the difficulties of the
companies.”
—Ghassan Adnan
contributed to this article.
ropean Union in June.
Macro funds on average are
up 3.7% this year, but lost
money in four of the previous
five calendar years, according
to Hedge Fund Research.
Brevan’s main fund gained
25% in 2007 and 20% in 2008
but suffered its first-ever cal-
endar-year loss in 2014, falling
0.8%. Last year it lost 2% and
this year the fund is down
2.25% through the end of July.
The Journal reported last
year that Brevan planned to
cut at least 10% of its work-
force. Staff numbers are down
from around 460 in 2014 to
around 350 currently, said a
person familiar with the firm.
relationship with the pound
holds, that will require the U.K.
currency to weaken even fur-
ther.
And with several analysts
expecting the pound to con-
tinue to fall, FTSE 100 investors
may get just what they want.
Delivering news and insight
on finance and markets
from London
Download on the App Store
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Opera Software
Revises China Sale
BY MATTHIAS VERBERGT
Opera Software ASA
agreed to exclude its video-
compression and virtual pri-
vate network business from
the sale of the Oslo-based
company’s internet browser to
a Chinese consortium after
earlier failing to secure regu-
latory approval for a broader
deal.
In exchange, the parties
agreed to reduce the enter-
prise value of the deal to $575
million from $600 million, Op-
era said.
The amended deal follows
the collapse last month of the
consortium’s earlier $1.2 bil-
lion bid for the entire com-
pany after the parties failed to
obtain regulatory clearance.
Opera hasn’t disclosed which
regulator blocked the deal and
why, but approval was pending
in the U.S. and China.
The Chinese consortium in-
cludes security-software firm
Qihoo 360 Technology Co.,
online-game company Beijing
Kunlun Tech Co. and private-
equity firm Golden Brick Silk
Road Fund Management
Ford Outlines Plans
For Self-Drive Autos
BY CHRISTINA ROGERS
Ford Motor Co. plans to re-
lease a fully driverless car
without a steering wheel or
pedals in the next five years,
the latest salvo in a technolog-
ical arms race engulfing the
global auto industry.
The Dearborn, Mich., auto
maker on Tuesday said it
would initially target ride-
sharing fleets and package-de-
livery services with the un-
named model, underscoring
the still-incremental approach
many car companies are tak-
ing before offering vehicles to
consumers that don’t require
humans behind the wheel.
ETHAN MILLER/GETTY IMAGES
Ford also is taking a stake in
laser-sensor maker Velodyne.
Ford expects the first of its
driverless cars to be used by
commercial-fleet operators
looking to cut the costs of em-
ploying human drivers, com-
pany executives said. The ve-
hicles largely will be confined
to cities with pre-mapped
zones designed for autono-
mous vehicles.
Separately, Ford said it had
acquired Israeli machine
learning firm SAIPS and in-
vested $75 million in Morgan
Hill, Calif.-based laser sensor
maker Velodyne Inc. Both are
aimed at boosting Ford’s au-
tonomous-vehicle know-how,
Intel Unveils Virtual-Reality Headset
BY DON CLARK
SAN FRANCISCO—Intel
Corp. stepped up an effort to
shape the fast-moving market
for virtual-reality technology,
demonstrating an unusual
headset prototype it hopes
other companies will manufac-
ture and sell.
The chip maker, which also
announced plans to collaborate
with Microsoft Corp. in the
field, said its “Project Alloy”
prototype differs from other
virtual-reality headsets in sev-
eral ways, most notably be-
cause it doesn’t need to be con-
nected to a high-performance
personal computer as Facebook
Inc.’s Oculus Rift device does.
Project Alloy headsets also
have front-facing 3-D camera
technology, known as Re-
alSense, which allows the
wearer to see objects sur-
rounding them in the physical
world and to use hand ges-
tures to execute commands
rather than a separate control-
(Shenzhen) LLP.
The consortium’s bid is the
latest sign of Chinese interest
in European technology com-
panies, including internet gi-
ant Tencent Holdings Ltd.’s
acquisition of Finnish games
editor Supercell Oy and Midea
Group’s takeover of German
robot maker Kuka AG earlier
this year.
In the Opera deal, the
transaction would now ex-
clude Opera’s Skyfire soft-
ware, which reduces the size
of videos to fit available band-
width, as well as its SurfEasy
business, which provides a
virtual private network, or
VPN, to protect users’ online
identities and unlock web-
sites.
The Chinese group would
acquire Opera’s mobile and
desktop browser, which are
the Norwegian company’s
flagship products, technology
licensing outside of Opera TV
and Opera’s 29.09% stake in
Chinese joint venture nHori-
zon.
Opera said it still expects
the transaction to close late in
the third quarter this year.
with the latter working on
sensors to help autonomous
cars successfully recognize ob-
jects and navigate traffic. Chi-
nese web-service provider
Baidu Inc. invested in Velo-
dyne alongside Ford.
Ford’s forays mark the lat-
est attempt to keep up as tra-
ditional car companies and Sil-
icon Valley upstarts race to
deliver automated-driving
technologies. But those en-
deavors have come under in-
creased scrutiny after the May
fatal crash of a Tesla Motors
Inc. car driving itself. Ques-
tions also remain over regula-
tions and legal liabilities aris-
ing from the advancements.
General Motors Co.
punched the accelerator ear-
lier this year, taking a $500
million stake in ride-hailing
startup Lyft Inc., with which it
plans to soon start testing a
fleet of driverless taxis. The
Detroit car maker also has
said it expects next year to
roll out its SuperCruise fea-
ture that allows for hands-free
driving on the highway.
Other global giants includ-
ing Toyota Motor Corp., Nis-
san Motor Co. and Volks-
wagen AG have committed to
putting self-driving cars on
the road. Nissan pledged it
would roll out 10 new models
within the next five years with
a range of self-driving features
aimed at individual buyers, in-
cluding a fully autonomous
car.
Ford’s driverless car won’t
be made available for sales to
individual customers until
later in the decade, Chief Ex-
ecutive Officer Mark Fields
said in an interview.
“We’ve done a lot of work
reducing the cost on the tech-
nical components, but at the
outset, it is still going to be a
relatively expensive vehicle,”
he said.
Intel CEO Brian Krzanich on Tuesday welcomed developers to the
company’s developer forum in San Francisco.
ler device. The camera also
eliminates the need to deploy
sensors to prevent users from
walking into walls.
Intel’s approach could be
considered a variation on aug-
mented reality, a term that
usually refers to headsets that
combine digital images with
TECHNOLOGY
Hyperloop Studied for Ports
DP World joins with
Hyperloop One to look
at possible use of the
futuristic technology
BY ERICA E. PHILLIPS
LOS ANGELES—Hyperloop
technology is fast-tracking into
the freight sector.
Hyperloop One Inc., one of
two companies racing to build
the futuristic speed-of-sound
transportation technology, an-
nounced a new partnership
with DP World, one of the
world’s largest port-terminal
operators.
Hyperloop One and DP
World will work together to
study the viability of using hy-
perloop technology to unload
ocean-container cargo at the
Jebel Ali port in Dubai. Con-
tainers would travel swiftly via
hyperloop to an inland depot,
while minimizing the impact
on local surface traffic.
Hyperloop, a concept popu-
larized in recent years by bil-
lionaire entrepreneur Elon
Musk, is a technology that
would transport people or
cargo in suspended capsules
through miles-long near-vac-
uum tubes at speeds reaching
more than 700 miles, or 1,120
kilometers, an hour.
“We have to be creative to
sustain our business,” said Sul-
tan Ahmed Bin Sulayem, chair-
man and chief executive of DP
World, at a news conference at
Hyperloop One’s offices in Los
Angeles on Monday. “This is a
game changer for the terminal
handling operation as it is to-
day.”
Dubai’s Jebel Ali port last
year handled about the same
volume of cargo as the South-
ern California port complex,
which includes the ports of
Los Angeles and Long Beach,
but it is growing quickly, Mr.
Sulayem said. With nearly
8,000 port-related businesses
Hackers Peddle Cyberweapons
BY ROBERT MCMILLAN
A previously unknown hack-
ing group claims to have broken
into a cyberespionage organiza-
tion linked to the National Secu-
rity Agency and is offering to
sell what it says are U.S. govern-
ment hacking tools.
The group, calling itself the
Shadow Brokers, said in an in-
ternet post on Saturday that it
had access to a “full state
sponsor tool set” of cyber-
weapons. To back up its
claims, the group posted what
appears to be attack code that
targets security software on
routers that direct computer
traffic around the internet.
In a post written in broken
English, the Shadow Brokers
offered to sell a complete
trove of tools to the highest
bidder. It said that if it is paid
one million bitcoin, valued at
roughly $568 million, it will
release the tools publicly.
Security experts doubt the
group has access to the hack-
ing treasure trove that it
boasts, but several of them
said the code it released ap-
pears to be legitimate. It af-
fects routers built by three
U.S. companies—Cisco Sys-
tems Inc., Juniper Networks
Inc. and Fortinet Inc.—and
INTEL
the physical world. The com-
pany on Tuesday applied the
term “merged reality” to Proj-
ect Alloy, stressing the bene-
fits of RealSense in making
simulated experiences more
useful and convenient.
“When sight and computing
come together, it gives the de-
A rendering of a hyperloop system at Dubai’s Jebel Ali port. Hyperloop One and port-terminal
operator DP World will work together to study the viability of using hyperloop technology.
in Dubai, and thousands of ve-
hicles visiting the port each
day, he said, “congestion is a
way of life.”
The DP World feasibility
study will explore design, cost
and financing options, and it
will include studying the pos-
sibility of an offshore, floating
hyperloop. That concept would
enable containers to be taken
from a ship, placed into the
tube, then transported directly
to an inland hub rather than
requiring handling and taking
up space on the docks—vastly
reducing local congestion and
emissions, while freeing up
port real estate.
If hyperloop works in Jebel
Ali, Mr. Sulayem said, “this
will re-engineer our thinking
world-wide.” DP World oper-
ates 77 cargo terminals in
more than 40 countries.
The announcement comes
as ports around the world are
working both to improve effi-
ciency and reduce emissions,
after decades of global trade
growth have increased traffic
congestion and pollution in
port-adjacent communities.
The Dubai port is one of sev-
two Chinese companies—
Shaanxi Networkcloud Infor-
mation Technology Co. and
Beijing Topsec Network Se-
curity Technology Co.
A Cisco spokeswoman said
her company was investigating
the incident, but “so far, we
have not found any new vul-
nerabilities.”
A Fortinet representative
didn’t have a comment. Juni-
per, Topsec and Shaanxi Net-
workcloud didn’t respond to
requests for comment.
The Shadow Brokers’ claims
are still being analyzed by se-
curity experts. If true, they
would reflect an unprece-
The group offered to sell U.S. government
hacking tools to the highest bidder.
dented breach of a computer-
espionage outfit dubbed the
Equation Group.
In a report last year, Rus-
sian computer-security firm
Kaspersky Lab ZAO said the
Equation Group launched
hacking efforts against gov-
ernments, telecommunications
companies and other organiza-
tions in countries such as Rus-
sia, Iraq and Iran. Kaspersky
didn’t name any U.S. agencies
vice the ability to understand
and respond to its environ-
ment,” said Brian Krzanich, In-
tel’s chief executive, at the
company’s annual gathering of
developers here.
The Wall Street Journal in
March reported that Intel was
working on an augmented-re-
ality headset using RealSense.
Mr. Krzanich said on Tues-
day the company would share
specifications for Project Alloy
to allow other companies to
make their own versions of the
product in the second half of
2017. No pricing was discussed
for the technology.
Intel’s moves coincide with
Microsoft’s own efforts in vir-
tual and augmented reality,
which include a headset
dubbed HoloLens. Terry Myer-
son, a Microsoft executive vice
president, said his company
would work with Intel to de-
fine specifications to help de-
velopers create software that
would work with both compa-
nies’ technology.
Wednesday, August 17, 2016 | B3
eral where Hyperloop One’s
engineers are studying the ap-
plication of their technology to
move cargo. The firm is also
conducting freight-related fea-
sibility studies in the U.S.,
Switzerland and Russia.
“The first hyperloop could
easily happen in Dubai,” said
Hyperloop One CEO Rob Lloyd.
While the technology has been
discussed widely as a speedy
means of passenger transpor-
tation, Mr. Lloyd said freight
may be the first step.
“Our intuition and discus-
sions with regulators have told
us start first with freight,” Mr.
Lloyd said. “That’s why we’re
pretty excited about these
projects.”
In Southern California,
where Hyperloop One is based,
the firm has teamed up with
AECOM and GRID Logistics
Inc. to study the feasibility of
hyperloop technology at the
Ports of Los Angeles and Long
Beach, the largest container
port complex in the U.S.
Mr. Lloyd said hyperloop
technology has advantages
over proposed rail-transfer fa-
cilities that have recently hit
in its report, but it appeared
to detail the kind of work typi-
cally conducted by the NSA.
The NSA didn’t reply to re-
quests for comment. In the
past, the agency has neither
confirmed nor denied involve-
ment with the Equation Group.
In an internet post, the
Shadow Brokers railed against
“wealthy elites.” It didn’t re-
spond to emails and Twitter
messages seeking comment.
Security experts who have
examined the code published
by the hackers said it appears
to contain genuine NSA pro-
grams that could manipulate
or redirect computer traffic as
it passes through a router.
“The more we look at it…it
looks more and more like a
tool kit from the NSA,” said
Matt Suiche, the founder of
Comae Technologies FZE, a
computer-security startup
based in the United Arab
Emirates.
“It looks genuine,” said
Nicholas Weaver, a researcher
with the International Com-
puter Science Institute, a non-
Apple CEO Vows to Make
Deeper China Investments
BY EVA DOU
BEIJING—Apple Inc. Chief
Executive Tim Cook, in a meet-
ing with senior Chinese gov-
ernment officials, pledged to
increase investment in China,
including creating Apple’s first
research center in the country.
Chinese state broadcaster
CCTV reported in its evening
news program on Tuesday that
Mr. Cook met with China Vice
Premier Zhang Gaoli.
The research center, which
will open later this year, will
focus on developing new prod-
ucts and services and
“strengthening relationships
with local partners and univer-
sities,” a spokesman for Apple
said. “We look forward to ex-
panding our operations in
China with a new Research
and Development center as we
continue to grow our talented
team here,” he said.
Apple declined to provide
further details on the research
@wsjd | wsjd.com
HYPERLOOP ONE
setbacks in Southern Califor-
nia, including a BNSF Railway
Co. rail yard that lost a court
battle after the neighboring
community objected to the en-
vironmental impact.
“The things that prevented
BNSF’s project don’t apply to
hyperloop,” Mr. Lloyd said.
“We could go directly from the
dock to hyperloop, to rail yards
or the Inland Empire in the fu-
ture.” The Inland Empire is an
area east of Los Angeles that is
a popular transportation and
logistics hub for goods deliv-
ered via the port complex.
Hyperloop One faces other
challenges. In July, Brogan
BamBrogan, one of the
startup’s co-founders, sued co-
founder Shervin Pishevar and
the company in a California
state court, alleging misman-
agement, breach of fiduciary
duty and other mistreatment.
The company filed a $250 mil-
lion countersuit, alleging Mr.
BamBrogan and three col-
leagues tried to start their own
competing company while at
Hyperloop One, breaching non-
solicitation, nondisparagement
and confidentiality agreements.
profit research center affili-
ated with the University of
California, Berkeley. Mr.
Weaver said that, in addition
to the router-attack programs,
the code includes tools that
would be available only to
someone with access to NSA
computers and tools that ap-
pear to interact with NSA soft-
ware described in documents
leaked by former NSA contrac-
tor Edward Snowden.
However, security experts
questioned the ransom demand,
saying it was unlikely anyone
would pay millions for the
promised tools, sight unseen.
Mr. Weaver believes the bitcoin
auction scheme was most likely
a distraction to obscure who-
ever obtained the documents.
“Whoever stole the data
wants the world to know that
they stole it,” he said in an
email message. “The suspect
list is almost certainly short—
Russia or China, and given the
recent espionage troubles be-
tween the U.S. and Russia,
probably the former.”
The Shadow Brokers say that
they obtained their code via
hacking. However, the origin of
the documents remains unclear,
said Oren Falkowitz, the CEO of
Area 1 Security Inc., and a for-
mer NSA analyst.
center, including its location,
expected head count and the
total amount the company will
invest in the effort.
The move comes as Apple
faces multiple headwinds in
China, including the shutdown
of its online book and movies
services, tighter cybersecurity
regulations and slowing
iPhone sales.
China has been leaning on
Apple and other U.S. technol-
ogy companies to store their
data locally, share source
code—a company’s proprietary
software—with the govern-
ment and accept reviews to
prove their products are se-
cure, according to industry
groups. Apple in 2014 moved
Chinese customer data to a fa-
cility operated by local tele-
communications carrier China
Telecom Corp. and said the
data was encrypted and wasn’t
accessible by China Telecom.
—Robert McMillan
contributed to this article.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B4 | Wednesday, August 17, 2016
The Company Town That Chocolate Built U.S.Puts
Hershey, Pa., reaped many benefits over the years, and residents now fear corporate suitors like Mondelez
BY ANNIE GASPARRO
HERSHEY, Pa.—This town
runs on chocolate.
From the roller coast-
ers at Hershey Park to the
butterfly conservatory at
Hershey Gardens, Hershey,
Pa., was literally built on the
generosity of its founder, the
iconic chocolatier Milton S.
Hershey.
Seven decades after his
death at the age of 88, the
maker of Hershey’s Kisses
and Reese’s Peanut Butter
Cups still employs 4,500 peo-
ple in a close-knit community
surrounded by farmland. The
related entertainment com-
pany draws 8,000 more full-
and part-time workers into
the town of 14,200 people.
No wonder, then, that
Hershey residents fret the
tap might run dry if Hershey
Co. is sold or merges with a
suitor such as Mondelez In-
ternational Inc., the Oreo
cookie maker that offered
on June 30 to buy Her-
shey for $23 billion.
Hershey’s board re-
jected the bid.
“Who knows what
happens to all that if the
company is sold? That’s
what worries people,” said
Ken Rawley, who grew up in
Hershey, where his father
was a sales and marketing
executive at the company. Mr.
Rawley has since moved
to New York and works
for a boat company.
Hershey is a holdout
from a bygone American
era, when some 2,000
towns sprang up to serve
one particular coal mine, tex-
INGO FAST
tile factory or slaughter-
house. Many have faded as
factories moved overseas and
technological advancements
led to job cuts.
The coal-mining town of
Lynch. Ky., built by U.S. Steel
in 1917, saw its population
start to plummet in the 1950s
from a peak of 10,000 as the
industry mechanized. As of
the 2010 U.S. census, there
were 747 people left in Lynch.
Archer Daniels Midland Co.
recently left its longtime
home of Decatur, Ill. for
trendier pastures in Chicago,
hurting fancier restaurants
and hotels that catered to the
commodities giant’s execu-
tives and white-collar visitors.
Belgium-based InBev pur-
chased Anheuser Busch in
2008. The beer giant had cut
some 2,000 jobs in the St.
Louis area—AB’s headquar-
ters—by the end of 2011, and
started a yearslong squabble
over who would operate a be-
loved local nature reserve. St.
Louis-area residents face an-
other potential blow with
Bayer AG’s percolating bid
Noranda Wins
Approval to Sell
Its Foil Business
BY PEG BRICKLEY
A bankruptcy judge said he
would sign off on the $309.7
million sale of Noranda Alu-
minum’s foil business to Swe-
den’s Granges AB, after No-
randa came to terms with
junior creditors.
At a hearing Monday in a
bankruptcy court in St. Louis,
Noranda and its official unse-
cured creditors committee an-
nounced a pact that will clear
the way to the Granges sale.
Judge Barry Schermer said he
would sign the sale order.
The settlement among No-
randa, its top lenders and its
unsecured creditors ends sev-
eral weeks of waiting for
Granges, a Stockholm-based
company that supplies rolled
aluminum products for indus-
try.
The Swedish company is
getting three U.S. plants that
make rolled aluminum prod-
ucts. Most of the money will
go to pay off the bankruptcy
financing that has been sup-
porting Noranda’s operations
during the chapter 11 process.
Noranda’s unsecured credi-
tors cut a deal to have $7.5
million set aside from the sale
proceeds. The settlement pro-
vides money to keep the rest
of the company operating as it
looks for a buyer or a way out
of bankruptcy.
The official committee of
for seed giant Monsanto
Co.—a major employer and
charitable donor that could
depart if it gets acquired.
The same fate hasn’t be-
fallen Hershey, where Kisses-
shaped lamps burn bright
above the downtown inter-
section of Chocolate and Co-
coa Avenues. “Hershey seems
as prosperous and welcoming
as ever,” said Hardy Green,
author of “The Company
Town: The Industrial Edens
and Satanic Mills That
Shaped the American Econ-
omy.” He added, “People in
the town of Hershey are re-
luctant to say anything bad
about the company because
they’re afraid of what will
happen.”
Hershey’s resilience is due
largely to the unusual
strength of Hershey Trust
Co., a secretive body of about
10 members that oversees a
$12 billion endowment, chari-
unsecured creditors threatened
to block the sale to Granges on
the grounds that the transac-
tion could potentially leave
Noranda’s remaining business
stranded in bankruptcy with-
out cash to operate or a means
of exiting chapter 11.
Additionally, Noranda’s un-
secured creditors will get 10%
of the sale of the remaining
business, which is the “pri-
mary aluminum” operation
that includes a bauxite mining
operation in Jamaica, accord-
ing to the settlement an-
nounced in court.
Noranda’s primary alumi-
num business goes on the
bankruptcy auction block in
September.
Granges won a bankruptcy
auction for the foil business
with an offer valued at more
than $324 million, a figure
that includes liabilities the
new owner agreed to take on.
The Swedish company is
taking on labor-union con-
tracts, including pension obli-
gations, as part of the deal.
Noranda, based in Franklin,
Tenn., filed for chapter 11
bankruptcy in February, hav-
ing already agreed to sell its
aluminum-foil operations to
appease senior creditors.
The company’s balance
sheet was weighed down with
nearly $530 million in secured
loans, as well as $175 million
in unsecured bond debt.
BUSINESS NEWS
table and entertainment in-
stitutions across Hershey,
and 81% of the chocolate
maker’s voting shares.
Milton Hershey founded
the trust over a century ago,
mainly to look after the Mil-
ton Hershey School for some
2,000 underprivileged chil-
dren. It still does that, but
today the trust also owns a
resort and spa, an amuse-
ment park and a real-estate
company in town.
The trust enjoys an un-
usual relationship with state
leaders. Pennsylvania law re-
quires the state’s attorney
general to oversee the trust’s
major investment decisions,
including a possible sale.
Democrat Josh Shapiro and
Republican John Rafferty are
running for the open state at-
torney-general seat, and Her-
shey has become a campaign
issue. “I will vigorously pro-
tect Hershey’s continued suc-
Coty, maker of brands such as OPI nail polish, posted a $31 million loss for its latest quarter.
Business
Watch
DONG ENERGY
Wind-Farm Project
Gets U.K. Clearance
The U.K. government gave
development consent on Tues-
day to the world’s largest off-
shore wind farm, the Hornsea
Project Two planned by Den-
mark’s Dong Energy off the
coast of northeast England.
Investment in the wind farm
would total about £6 billion, or
$7.7 billion. It would deliver as
many as 1,800 megawatts of
electricity to about 1.8 million
homes, generated by as many as
300 wind turbines located about
90 kilometers off the coast, the
government said. The planned
development would create as
many as 1,960 construction jobs
cess in Pennsylvania,” Mr.
Shapiro said.
The latest offer from
Mondelez, formerly Kraft
Foods Inc., included conces-
sions to call the combined
company Hershey and make
the town its chocolate head-
quarters. That hasn’t stifled
concerns in Hershey that jobs
would leave.
Mondelez told worried
Britons that its acquisition of
Cadbury in 2010 would pre-
serve a local factory that had
been slated for closure. After
inking the deal, Mondelez
closed the factory after all.
Hershey Co. has also dis-
appointed its citizenry in the
past. A few years ago, Her-
shey closed its original fac-
tory, built under smokestacks
that still proclaim the com-
pany’s name, indicating to
visitors that they’ve come
upon “the sweetest place on
earth.” A more mechanized
and 580 operational and mainte-
nance jobs, it said.
Dong, which is part-owned by
Goldman Sachs, welcomed the
announcement.
—Nicholas Winning
COTY
Acquisition Costs
Dull Glow of Sales
Beauty-products maker Coty
Inc. swung to a quarterly loss as
charges associated with recent
acquisitions more than offset
improving sales in its fragrance
business.
The New York company has
been aggressively hunting deals
to improve its business and ex-
pand its footprint. Last year
Coty said it would snap up much
of Procter & Gamble Co.’s beauty
business, including labels such
as CoverGirl makeup, Gucci fra-
grances and Clairol hair dye, for
about $13 billion.
For the June quarter, Coty re-
ported a loss of $31 million, or
nine cents a share, compared
with a year-earlier profit of $21
THE WALL STREET JOURNAL.
OutNew
1 Hershey Park
Part of Hershey Entertainment
& Resorts, a Hershey Trust Co.
Rulesfor
Trucks
business
HE&R has 8,000 full- and
part-time employees in peak
season
2 The Hershey Story BY AMY HARDER
museum AND IMANI MOISE
Owned by M.S. Hershey
Foundation WASHINGTON—Major truck
129 full-time employees work manufacturers and operators
for the foundation's properties of large commercial fleets cau-
tiously embraced federal stan-
3 Highpoint Mansion dards released Tuesday re-
Milton Hershey's former home quiring cuts in fuel usage of
serves as headquarters for big trucks, one of the last in a
Hershey Trust Co. long line of regulations Presi-
Trust manages $12 billion dent Barack Obama has issued
endowment for school over the past several years
seeking to clamp down on
4 Hershey Co. greenhouse-gas emissions
corporate offices across the U.S. economy.
Hershey has several offices The Environmental Protec-
and two factories in town tion Agency and the Transpor-
It employs 4,500 people in tation Department jointly an-
Hershey, Pa. nounced the final standards
for big vehicles ranging from
5 Giant Center vans to garbage trucks to 18-
Hershey Bears hockey arena wheelers that requires up to
Part of HE&R 25% lower carbon emissions
Cost $75 million to and fuel consumption in cer-
build in 2000 tain models over the next de-
cade compared with today.
6 Hershey Marking a departure from
Chocolate Factory the divisive debates over Mr.
Hershey Co. spent $300 million Obama’s climate agenda, many
to build it, replacing the executives in the trucking in-
original factory dustry backed the standards,
Opened in 2012 and makes 70 saying they ultimately help cut
million Hershey's Kisses a day down fuel costs across large
commercial fleets of trucks.
7 Milton Hershey School Some operators of large
Endowment managed by fleets, such as Waste Manage-
Hershey Trust ment Inc., are shifting to nat-
Houses 2,000 students and ural gas, a cleaner burning
has 1,200 full-time employees fuel whose prices have been
cheap in recent years, while
8 Hershey Gardens
others see a business opportu-
Owned by the M.S. nity by selling more efficient
Hershey Foundation
engines.
Completed a $7 million “The whole suite of tech-
expansion in June
nology to help commercial
facility nearby employs 500 fleets do their jobs in a posi-
fewer people than the old tive way provides a lot of pull
plant. for Cummins products,” said
John Foley, a Milton Her- Brian Mormino, executive di-
shey School alumnus who rector of environmental strat-
sits on the town’s board of egy and compliance at Cum-
supervisors, said despite mins Inc., one of the largest
downsizing, Hershey resi- engine makers in the world for
dents still see the company big trucks.
as their “golden goose.”
“They should never sell it.
Even if the headquarters
Big vehicles are to
stayed here, we’d lose our lower fuel use and
power,” he said.
Brad Reese, the grandson
carbon emissions up
of the creator of Reese’s to 25%, EPA says.
Peanut Butter Cups, which
Hershey bought in 1963,
spent his early years in Waste Management and
what he calls “this very in- Cummins are among two
sular town.” He swam in the members of a coalition of ma-
pool at the Hershey-built jor corporations, which also
community center, and includes PepsiCo Inc., and Wa-
drank milk from the Her- bash National Corp., that have
shey-owned dairy. worked with the EPA on the
“It’s a honey pot,” said rule and generally backed the
Mr. Reese, “the hand that agency’s work.
feeds.” The vehicles covered in the
rules comprise just 5% of road
traffic but 20% of emissions
and fuel use in the transporta-
tion sector, according to the
EPA.
The sector makes up about
6% of overall U.S. greenhouse-
gas emissions.
ASTRID STAWIARZ/GETTY IMAGES FOR ELLE MAGAZINE
The regulations, first pro-
posed last summer, include
two broad categories for stan-
dards: one for the load-pulling
tractor unit of large so-called
semitrailers and one for the
trailer it hauls.
The final standards, which
cover the engines and trailers
of 18-wheelers and other big
hauling trucks over the next
decade, as well as buses and
vocational vehicles, are sightly
more stringent and will result
in higher compliance costs
than last year’s proposal.
million, or five cents a share. “There will be some escala-
Revenue was $1.08 billion.
—Sharon Terlep
tion in cost, but it is with a
long lead time and gradual
and Lisa Beilfuss and very short payback pe-
riod,” EPA Administrator Gina
TJX McCarthy said Tuesday.
By 2027, operators of the
Retailer Pulls Share trucks covered by the stan-
From Competitors dards can expect to recoup
TJX Cos., the parent of T.J. costs between two and four
Maxx and other off-price chains, years, depending on the type
posted 4% growth in sales at es- of vehicle, Ms. McCarthy said.
tablished stores as it grabbed Those costs vary widely
market share from other retail- based on the vehicle type, en-
ers in the latest quarter. gine or trailer at issue.
The Framingham, Mass., com- While large companies
pany raised its annual profit tar- making engines and managing
get but issued a forecast for the commercial fleets mostly
current quarter that was below backed the rules, others repre-
Wall Street’s expectations. Shares, senting smaller companies and
which hit an all-time high on truck dealerships were more
Monday, were off 5.5% at $78.22 critical.
in Tuesday afternoon trading. The Owner-Operator Inde-
For the quarter ended July 30, pendent Drivers Association
TJX reported a profit of $562.2 said new and more expensive
million, up from $549.3 million a technology requirements
year earlier. Revenue increased 7% places an unfair burden on
to $7.88 billion. Sales at stores smaller truck companies that
open at least a year rose 4%. rely solely on their reputation
—Suzanne Kapner and can’t wait years to pay off
and Tess Stynes the standards’ cost.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL. Wednesday, August 17, 2016 | B5

MANAGEMENT
WORKAROUNDS
Job Seekers Face Virtual Interviews
Recruiters are turning “Others tend to fidget or look
away, but she looked di-
to video meetings to rectly into the camera and
speed up hiring and answered the questions
thoughtfully and com-
widen their reach pletely,” she said.
HireVue, Inter-
HEATH HINEGARDNER

BY DAHLIA BAZZAZ viewStream, WePow and other

vendors that make video-inter-
For job seekers looking to viewing software say their
make a good first impression, programs make hiring more
a working webcam and a tidy fair because all applicants
room might be the new firm must answer the same ques-
handshake. tions. Video interviews might
How One CEO Fights First-round job interviews also present some problems
Jet Lag When are the latest part of the hiring because managers cannot ask
process to undergo digitization follow-up questions or engage
Traveling for Work as companies use video inter- candidates further on a point,
Andreas Fibig rarely stays in views to cut recruiting costs said Carol Miaskoff, assistant
the same place for long. The 54- and times. Cigna Corp., Gold- legal counsel for the Equal Em-
year-old chief executive of New man Sachs Group Inc. and In- ployment Opportunity Com-
York-based International Fla- ternational Business Machines mission.
vors & Fragrances Inc. expects Corp. are among the employ- In letters to vendors, Ms.
to spend up to 40% of 2016 ers now asking some appli- Miaskoff has suggested that

BRUCE MACPHERSON
traveling for work, mostly cants to log on to a website companies assign more than
abroad. He recently flew home and submit video responses to one person to review individ-
after 10 days in Germany and It- interview questions in lieu of ual videos to ensure hiring de-
aly. Amid the strain of frequent talking with a human. cisions aren’t made hastily.
travel, some senior managers The method has grown in Taking robo-recruiting one
struggle to cope with the grog- recent years as nearly every- step further, some HireVue
giness, memory loss, indigestion one has access to a laptop or review the videos and pass year-old had to complete a Frank Abate, a senior re- customers have an algorithm
and impaired decision-making smartphone with a camera, along promising applicants to video interview last year for cruiter there, said one of his review the video interviews for
ability of jet lag. and companies say it is an effi- managers for consideration. an internal job switch at colleagues racked up more them. Using data about the
But Mr. Fibig has devised an cient, fair and inexpensive way Applicants who make the cut Cigna-Healthspring, she re- than $1 million annually just skills and attributes companies
unusual way to stay sharp dur- to process hundreds of appli- are typically invited to a one- called feeling apprehensive traveling to meet candidates. are seeking for a given role, a
ing short European visits: He cants. Salt Lake City, Utah- on-one interview. and camera-shy. She waited Since adopting video inter- program called HireVue In-
keeps his schedule in sync with based HireVue Inc., which pro- That doesn’t always mean it until after work hours and views four years ago, that col- sights scans videos for verbal
his U.S. time zone. He starts vides video interviewing will be in-person, though. Var- used a computer in the IT de- league’s expenses are now un- and facial cues that match
morning business meetings as software for Goldman Sachs sha Paidi, a software engineer partment. With the door der $100,000. those skills then ranks the top
late as 11 a.m., rather than his and 600 other firms, said it hired by IBM last year, had closed, she clicked a link to Companies say they seek 100 applicants.
typical 7 a.m. “You just get more hosted nearly three million subsequent online interviews Cigna’s video-interviewing similar traits in video inter- Human evaluation can help
sleep, and that makes you more video interviews last year, up and eventually received her site. Replaying footage of her views as they do in traditional when things go wrong mid-
productive,” he said. from 13,000 five years ago. job offer via text message. interview responses was “very interviews. Recruiters at IBM interview. Bruce DelMonico,
IFF gets 77% of its sales out- Most programs require ap- Speeding up the hiring pro- uncomfortable” at first, she and Cigna said they evaluate the assistant dean for admis-
side the U.S. On average each plicants to click a link or in- cess allows recruiters to look said. She resubmitted two re- candidates based on how well sions for the Yale School of
year, Mr. Fibig visits 15 of the 34 stall an app. Interviews begin at more applicants than be- sponses, but ultimately found the person communicates his/ Management—which requires
nations where it operates. IFF with a prompt such as “Tell us fore, giving companies wider her stride and even preferred her thought process, whether M.B.A. program applicants to
makes flavors and fragrances for about a time you had to deal reach, said Obed Louissaint, the video format because, she the person answers all parts of respond to video prompts—
products like cosmetics. with a conflict” that stays on- the human-resources lead for recalled, “you’re not trying to the question—and whether he/ said that unforeseen interrup-
Sticking to the same regimen screen for about 30 seconds. IBM’s Watson division. perform.” Last January, she she makes eye contact. tions like a roommate barging
during brief business trips to Eu- Then, the camera turns on Applicants, however, say got the job as a senior data an- According to Mary Wilson, in midinterview show how ap-
rope means Mr. Fibig must eat and the candidate has any- that computer-guided inter- alyst managing records for a Cigna hiring manager, Ms. plicants think on their feet.
dinner late. That doesn’t bother where from 30 seconds to 5 views take some getting used Medicare doctors. Hall’s interview stood out be- “All is not lost,” said Mr.
him because “I am still more on minutes to respond before the to. Amy Hall was never the Video interviews have sig- cause her responses seemed DelMonico. “We pay attention
the U.S. clock,” he said. next question pops up. type to get nervous during job nificantly reduced travel costs like they were addressed to an to how well you respond and
—Joann S. Lublin Human-resources staff then interviews, but when the 29- for Cigna recruiters. actual person, not a camera. recover.”

‘Plan A’ Works Best

Without ‘Plan B’
It turns out, the best-laid
Some Boards Step Up Push for Gender Parity
plans are those that don’t in- BY JOANN S. LUBLIN were looking to replace four female directors than those nority candidates for head-
clude a Plan B. male colleagues due to retire with none. “The system pro- coaching and general-manager
New research has found that A small but growing num- in 2016 and 2017. duces white male candidates jobs. Voya Financial informally
when people make a backup ber of U.S. companies have in- Directors believed increased unless board leaders deliber- took this approach after the
plan for their goals, their perfor- tensified their push to increase board diversity “sets the ex- ately do something different,” provider of retirement, life-in-
mance on the primary goal can the ranks of women on their ample for the company as a said Karen Horn, chairman of surance and investment services
ANDREW LAMBERSON FOR THE WALL STREET JOURNAL

suffer. “Simply contemplating boards as businesses pay whole,” recalled Mr. Baker, the National Association of went public in spring 2013 with
backup plans makes you want to greater attention to gender who would like women to ac- Corporate Directors. a nine-man board. CEO Rodney
achieve the primary goal less, parity at all levels. count for 50% of Ecolab’s cor- Under Ms. Stewart’s guid- O. Martin Jr. and another direc-
which makes you put less effort These initiatives are bearing porate leadership positions— ance, Symantec Corp. directors tor soon interviewed male and
into it,” said Jihae Shin, the fruit as companies revamp the up from about 20% today. limited their 2013 hunt solely female prospects.
study’s co-author and assistant way they recruit female direc- Ms. Stewart began as a to women because the maker Women landed four of the
professor of management and tors. Some companies have be- Goldman Sachs analyst. of antivirus software “takes its five board seats filled since
human resources at the Univer- gun to restrict initial searches Trewstar Corporate Board Ser- diversity commitment seri- Voya’s initial public offering.
sity of Wisconsin-Madison’s to women, while others insist vices, which she formed in ously,” said David Mahoney, Mr. Martin hopes women
business school. on interviewing at least one 2012, has recruited 30 women head of the board’s nominating will hold half of its 10 board
In a series of studies, Dr. Shin woman for director spots. to U.S. public-company boards. and governance committee. seats someday. “Our board
and co-author Katherine Milk- Among those pursuing such She says boards will gain The board then had one fe- should look a lot like our cus-
man, associate professor of op- strategies are Ecolab Inc., Sy- more gender diversity if they male member. tomer base,” he explained.
erations, information and deci- mantec Corp., Johnson & “interview all-women slates In an unusual move, Syman- “More women than men con-
sions at the University of Johnson, Voya Financial Inc., before interviewing men.” Us- tec didn’t insist that possible Beth Stewart, a recruiter of trol family financial decisions.”
Pennsylvania’s Wharton School Pinterest Inc. and Nucor Corp. ing this approach, Ms. Stewart directors already had served qualified female directors. Pinterest began applying
observed time and again the At Ecolab, the cleaning- helped Ecolab find two women on a public company board. the Rooney Rule to fill full-
detriments of making a backup products company had just directors since 2014. The requirement is one rea- “a high standard for commit- time leadership roles and di-
plan. The researchers only stud- one female director when These extra efforts have yet son that boards have ap- ment to the more routine re- rectorships in July 2015, a
ied the effect on individuals, Doug Baker advanced to be- to alter the sluggish progress pointed so few female direc- sponsibilities of public direc- spokeswoman said. The image-
rather than groups or compa- come its chief executive in on board gender diversity, tors, Mr. Mahoney said. tors,’’ Mr. Mahoney said. Both discovery site appointed its
nies. Even so, Dr. Shin said, the 2004. Its current 15-member however. Women held less Retired Air Force Gen. Su- now hold three seats apiece. first female director this May.
findings have implications for board includes four women— than one-fifth of directorships zanne M. Vautrinot and Anita Other businesses try a ver- “The clamor for gender
people who lead teams. Instead partly because of his work at S&P companies last year, a M. Sands, a former wealth- sion of the Rooney Rule, which board diversity in the tech in-
of asking the same team to with Beth Stewart, a recruiter slight gain from the prior year, management executive for requires that at least one dustry reached a fever pitch
work on a goal and formulate a who specializes in seeking according to Catalyst, a re- Swiss lender UBS Group AG, woman or underrepresented mi- during the past two years,’’
backup plan, managers can ask a qualified female directors. search group. A 2011 Catalyst joined Symantec’s board in Oc- nority be interviewed for posi- said Sukhinder Singh Cassidy,
different team to come up with The Ecolab CEO approached study found significantly bet- tober 2013. Neither had been tions. The National Football founder of Boardlist, a market-
a Plan B. Ms. Stewart when he and its ter financial results at big corporate directors previously. League created the rule to en- place for female board talent
—Rachel Emma Silverman lead independent director businesses with three or more As board novices, they set sure that teams interviewed mi- in technology.
© 2016 Dow Jones & Co., Inc. All rights reserved. 6DJ3890

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B6 | Wednesday, August 17, 2016 THE WALL STREET JOURNAL.

FINANCE & MARKETS

Soros Jacks Up Bearish Bet
Investor increases tions on roughly four million
shares in an exchange-traded
wager against U.S. fund that tracks the index. That
stocks and reduces is up from “puts” on 2.1 million
shares as of March 31.
exposure to China Meanwhile, Mr. Soros’s fund
also cut sharply its position in
BY MARIA ARMENTAL gold, selling off the bulk of the
shares it had bought last quar-
Billionaire investor George ter in Barrick Gold Corp., the
They generally rise in value as
the price of the underlying
stock falls relative to the strike
price. Call options, meanwhile,
grant the buyer the right to
buy the stock at a target price
within a specified time.
Mr. Soros hasn’t specified
when those positions were
placed or at what “strike” price
commodities, selling off posi-
tions in Schlumberger Ltd., the
world’s biggest oil-services
company by market value. Still,
the fund disclosed a new two-
million share position in oil-
field servicer C&J Energy Ser-
vices Ltd., which filed for
bankruptcy protection in July.
He also disclosed a large posi-

Soros, who rose to fame and
fortune by betting against ster-
ling in 1992, showed his latest
hand: nearly doubling down on
his bearish bet against the mar-
ket.
The 86-year-old’s fund, So-
ros Fund Management LLC,
disclosed in a regulatory filing
on Monday that it had in-
creased its bet against the S&P
500, the main index used to
measure big-stock performance
in the U.S., and holds put op-
world’s largest gold producer,
and cutting sharply its position
in a gold-backed ETF set up by
the World Gold Council. Mr. So-
ros’s fund had opened the posi-
tion in the first quarter, dis-
closing “call” options in about
one million shares. Mr. Soros
also sold off the stake it opened
last quarter in mining company
Silver Wheaton Corp.
Put options give the buyer
the right to sell stock at a set
price within a specified time.
and expiration date.
The investor has been shift-
ing the fund’s focus back to the
big-picture economic global
view that earned him recogni-
tion as he continues to warn of
a coming financial crisis, much
as he did leading to the 2007
crash.
On Monday, Mr. Soros indi-
cated he continued to unwind
his exposure to China, which
he’s placed at the center of the
next financial storm, along with
LUKE MACGREGOR/REUTERS
tion in media mogul John Ma-
lone‘s Liberty Broadband
Corp., its second holding by
value as of June 30, behind his
derivative position on the
SPDR S&P 500 ETF, the most
widely traded fund that tracks
the S&P 500. George Soros’s fund has sharply cut its position in gold.
The holdings were disclosed
in a filing with the Securities cates the number of shares held manages the Soros family for-
and Exchange Commission, a and the value of each stake at tune, although much of the
quarterly requirement for in- the end of the quarter. money is distributed to other
vestors managing more than Founded by Mr. Soros in hedge funds and investment
$100 million. The report indi- 1969, the New York City firm firms.

La Défense Office District Rallies in Paris Yen Turns

BY ART PATNAUDE
AND INTI LANDAURO
Stronger
Cheap rents have companies
flocking to La Défense, the
Against
Paris business district that be-
came a symbol of France’s
weak economy in the years fol-
The Dollar
lowing the financial crisis. BY HIROYUKI KACHI
In the first half of 2016,
more office space was rented TOKYO—The dollar fell to
in the area than any other six- less than ¥100 during Tues-
month period since 2000, ac- day’s trading for the first
cording to property broker time since immediately after
CBRE. the U.K.’s vote to leave the
The uptick is a reverse of European Union.
fortunes for La Défense, the Traders said thin trading
largest business district in con- volume and stop-loss orders
tinental Europe, sitting about exaggerated the Japanese
six kilometers west of the currency’s gain, with many in
Eiffel Tower. the financial markets taking
In the years following Eu- off this week for summer
rope’s debt crisis, the district holidays.
struggled as economic growth “Amid extremely thin vol-
sputtered. Companies looking ume, selling might have
to cut costs moved out to the kicked in to intentionally in-
suburbs. Development projects duce stop-loss orders,” fur-
CHARLES PLATIAU/REUTERS

were abandoned. Entire towers ther weakening the dollar

sat vacant. against the yen, said Yuzo
With offices empty, rents Sakai, manager of FX busi-
fell. Average prime rents in La ness promotion at Tokyo
Defense fell to €466 a square Forex & Ueda Harlow. He and
meter a year in 2015 from €529 other market watchers said
a square meter a year in 2010, there was no particular news
CBRE data show. Meanwhile, In the first half of 2016, more office space was rented in La Défense than in any other six-month period since 2000. trigger for Tuesday’s cur-
prime office rents in central rency movements.
Paris remained far higher, av- crisis stalled. But as firms same pace as in La Défense, as September, said Simon Mar- ment dropped 30% to €107.5 The dollar fell to ¥99.84 late
eraging €709 a square meter a move back, real-estate inves- said Philippe Depoux, the CEO rison, CEO for Europe at the billion in the first half of the in Tokyo, from ¥101.25 late
year last year. tors are building new towers, of Gecina, another real-estate firm. year compared with the same Monday in New York. Tuesday
Lower rents have become betting on continued demand. firm present in La Défense. After Britain’s vote to leave period in 2015, according to afternoon in New York, the
enticing to companies looking Unibail Rodamco SE, the “These are the areas where the European Union, office real-estate consultant firm dollar was at ¥100.24.
for space. Construction-materi- biggest listed property firm in we seek to focus on, beside in- markets in Paris and other Eu- Real Capital Analytics. Political Investors have been watch-
als firm Saint-Gobain SA, ac- Europe, is aiming to complete tramuros Paris. Transactions ropean capitals like Frankfurt risks, including Brexit, and ing the direction of interest
countancy company Deloitte the 33-story Trinity Tower in are rising there, too,” he said. and Dublin could benefit years of rising prices were rates in the U.S. and Japan.
and health-care data company the second half of 2018 and the More daring developers should companies, especially among reasons global investors Weak retail sales in the U.S.
IMS Health Holdings Inc. are much larger Sisters towers due have set their eyes on noncom- those in the financial-services held back. have led some investors to
among the firms that signed after 2020. mercial areas such as Aubervil- sector, decide to relocate some But Paris held up better take the view that the Federal
up for office space in the area The Abu Dhabi Investment liers, Fontenay-sous-Bois or operations away from London. than other major markets like Reserve might hold off on in-
this year. Authority bought the 39-story Ivry-sur-Seine, where land is That isn’t the reason LaSalle London, Berlin and Madrid. terest-rate increases. If the
Saint-Gobain chose to Alto tower development that is cheap and the distance to Paris is pursuing development proj- Transaction volumes in the Fed did wait, that would be
gather all the headquarters of due to be finished in late 2019. short. ects, but it would be the “icing French capital were down 17% negative for the dollar.
its different units in La Défense “There is very little space to €7.8 billion, the second-most “Investors’ appetite for
this year partly because of the being built in the next few active market behind London, dollar buying remained low in
rents, according to its Chief Ex- years,” said Karim Habra, head
After Europe’s debt crisis, the district RCA data show. the wake of downbeat U.S.
ecutive Pierre-Andre de Chal- of France at LaSalle Invest- struggled as economic growth sputtered. A number of headwinds are economic indicators recently.
endar. “We wouldn’t have cho- ment Management, which ad- expected to weigh down the Against that backdrop, I think
sen it otherwise,” he said in an vised ADIA on the Alto sale French economy in the coming there were some investors
emailed statement. and is spearheading the devel- French banks BNP Paribas on the cake,” Mr. Marrison months, such as the weakness who opted to offload [the
Another draw: La Défense opment. “There is a window of and Société Générale have re- said. in the U.K. after the vote to dollar] amid weakness in To-
offers the types of large office opportunity.” cently installed some offices in Mr. Depoux at Gecina leave the EU and the spate of kyo stocks,” Mr. Sakai said.
spaces where companies can A series of developments in Fontenay-sous-Bois and water doesn’t see developments out- terror attacks in Europe. Uncertainty about the Bank
install thousands of workers. other areas in the Paris periph- utility Veolia Environnement is side La Défense as a threat. For La Défense, swings of Japan’s direction also con-
In downtown Paris, where sky- ery are likely to compete with planning to move its headquar- Public transportation to La should be expected, analysts tinues to create instability in
scrapers are forbidden, build- La Défense. In the traditional ters to Aubervilliers. Défense is far better, and many said. Tokyo markets.
ings are far smaller, requiring areas close to either La More developments are peripheral projects may not “Vacancy and occupancy After the central bank de-
some big firms to rent multiple Défense or downtown Paris— coming. Chicago-based LaSalle come to fruition because build- rates there have always swung cided on July 29 not to take
spaces. That makes rents in La like Boulogne-Billancourt, in July bought an office devel- ers typically wait for tenants much more than other parts of significant new easing steps
Défense appear even cheaper. Neuilly-sur-Seine, Issy-les- opment in Clichy, a northern before starting any work, he Paris,” said François Blin, head beyond an increase in pur-
In La Défense, development Moulineaux or Levallois-Per- suburb of Paris, and plans to said. of international investment in chases of stock funds, the yen
projects during the financial ret—demand is rising at the complete another deal as soon European real-estate invest- France at broker JLL. rose because traders believed
that the central bank was un-
likely to lower interest rates

The Dog Isn’t Barking in the Options Market

further. Monetary easing is
one of the original “three ar-
rows” in Prime Minister
Shinzo Abe’s pro-growth
BY JON SINDREU pening three months from now. fate of his government on the Donald Trump in the U.S. elec- beast has smelled a familiar “Abenomics” policy.
Looking at the political cal- result of a referendum on con- tion on Nov. 8 could deeply rat- presence: a central bank. “The yen’s strength is ac-
Although there is a lot of endar for this period, the cur- stitutional reform, which is ex- tle markets. Whether a Trump “Cheap money makes inves- celerating as investors be-
risky stuff on the political cal- rent level of implied volatility pected to take place in late Oc- victory would push the dollar tors pay less heed to potential come mindful about the lim-
endar for the next three seems like a curious incident tober or early November. up or down is uncertain, but risks” and low bond yields force its of Abenomics,” said
months, options markets re- indeed. Across the Atlantic, many swings are still to be expected. them to make riskier invest- Junichi Ishikawa, market ana-
main silent. Why? In Italy, Prime Minister Mat- analysts have said that a vic- And yet, even when it comes ments, said Jane Foley, an ana- lyst at IG Securities.
In “Silver Blaze,” Sherlock teo Renzi is likely gambling the tory by Republican candidate to stocks, the three-month Vol- lyst at Dutch lender Rabobank.
Holmes investigates the disap- atility Index, or VIX, which It may be that none of these
pearance of a racehorse. He measures the implied volatility political events matter as much Taking Off
points out “the curious incident Calming Down of options on the S&P 500 to investors as some analysts The yen surged past 100 to the
of the dog in the night-time,” Price of hedging against swings in the euro against the U.S. dollar three stock-market index, is heading would lead us to believe. At the dollar on Tuesday.
meaning that the dog did noth- months ahead, measured by implied volatility on options contracts toward record lows. same time, it is noteworthy
ing at all. Had strangers broken Implied volatility should go that, even after heavily buying ¥100
in, Holmes reasons, surely it 20% up when there is a potentially- options as a hedge, markets
would have barked. Therefore, disruptive political event on the still underestimated the proba- 102
the dog had to be acquainted agenda, because financial mar- bility of a Brexit—and were
with the thief. 15 kets are prone to plunge or forced into a violent correction. 104
Something similar appears rally right after. “This is ultimately reflective
to be happening in financial That happened in the run-up of a failure of markets to appre- 106
markets. The three-month im- to the U.K. referendum on Eu- ciate the looming political
10
plied volatility of the euro ropean Union membership. Op- risks,” said Hassan Malik, a 108 June 23
against the U.S. dollar has tions contracts on the pound strategist at Ned Davis Re- Brexit vote
dropped around 3 percentage expiring right after the vote be- search Group. “The point is not
110
points since June and, after a 5 came extremely expensive, but that investors don’t care about
bumpy year, is now back at paid off after Britons chose to political events—just that they
2014 levels. This is a gauge of exit the bloc: Sterling plunged may not care early enough to 112 Scale inverted
how expensive it is for inves- 12% against the dollar. hedge against adverse out- June July Aug.
0
tors to use options to hedge What could explain why the comes, the likelihood of which Note: Through 8:32 a.m. EDT Tuesday
themselves against swings in 2011 2012 2013 2014 2015 2016 dog isn’t barking? Many ana- they have underestimated in re- Source: Tullett Prebon
the euro versus the dollar hap- Source: Thomson Reuters THE WALL STREET JOURNAL. lysts believe it is because the cent times.” THE WALL STREET JOURNAL.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Hedge Fund Puts Bet on Morgan Stanley
Investor thinks the
bank’s shares are
undervalued, isn’t
calling for change
BY LIZ HOFFMAN
AND DAVID BENOIT
Activist investor ValueAct
Capital Management LP dis-
closed Monday that it had
taken a $1.1 billion stake in
Morgan Stanley, signaling a po-
tential rallying cry for bank in-
vestors after years of poor re-
turns.
ValueAct’s stake of 38 mil-
lion shares represents about 2%
of the shares outstanding in
Morgan Stanley. But unlike
most activist positions, Value-
Act says it is the market, not
the company, that has it wrong.
“We believe there is a dis-
proportionate amount of time
and energy spent overanalyzing
Morgan Stanley’s trading and
lending business and fretting
about its Fed oversight,” Jef-
frey Ubben, ValueAct chairman
and chief executive, wrote in a
quarterly letter to investors
that was reviewed by The Wall
Street Journal. “It feels like
missing the forest for the
trees.”
The stake could represent a
catalyst for investors who have
shunned bank stocks for years,
due mainly to low interest rates
that sap lending profits and
tough postcrisis rules that have
Berkshire Takes a Bigger Chunk of Apple
BY TESS STYNES
Warren Buffett-led Berk-
shire Hathaway Inc. in-
creased its bet on Apple Inc.
by about 55% in the second
quarter, bringing its stake in
the iPhone maker to roughly
$1.5 billion.
Though Mr. Buffett’s record
has been built on investments
in insurers, financial compa-
nies and industrial businesses,
including household names
like Coca-Cola Co. and Amer-
ican Express Co., Berkshire
disclosed in May that it had
made a $1 billion bet on Apple
stock. Apple’s shares have
since advanced more than
20% in the past three months.
Berkshire added 5.42 mil-
lion Apple shares to its posi-
tion in the second quarter,
bringing the firm’s total stake
to 15.2 million shares, valued
at $1.46 billion at the end of
the period. In late New York
Gilts: Europe’s Most New Doubt on OPEC Talks
Actively Traded Bonds
BY CHRISTOPHER WHITTALL
U.K. government-bond trad-
ers might want to postpone
their August vacations.
Gilts have become the most
actively traded bonds in Europe
since Britain’s June vote to
leave the European Union, in
another sign of how the U.K.
has become the main driving
force in global bond markets in
recent weeks.
The average daily trading
volume of the U.K. 10-year gov-
ernment bond is £6.75 billion
($8.7 billion) so far in August—
roughly seven times higher
than it was during the first
three months of year, according
to Trax, a subsidiary of bond-
trading platform MarketAxess
that processes around 65% of
all fixed-income transactions in
Europe.
That surge in trading volume
is no small feat given that Au-
gust tends to be a time of
lighter trading activity as in-
vestors and traders alike head
for the beach.
Average daily volumes in the
benchmark U.S. Treasury 10-
year note total $1.87 billion so
far this month, down from
$2.25 billion in July, while trad-
ing in equivalent German debt
has more than halved to €640
million ($716 million) over that
period.
U.K. government bonds have
been in the limelight since the
surprise Brexit vote on June 23.
The yield on the 10-year note
tumbled as prices rose from
around 1.37% before the refer-
endum to 0.59% Tuesday—just
above a record low.
That precipitous fall has rip-
pled through markets, helping
to pull down yields on other
government bonds as investors
taken much of the risk—and
profit—out of once-lucrative
trading businesses.
Over the past decade, Mor-
gan Stanley and other big
banks have sought to make
themselves slimmer and sim-
pler, becoming less reliant on
the risky businesses that once
powered their earnings. But it
has been a struggle to convince
investors.
Morgan Stanley shares are
down 22% over the past year,
the worst performer of the
largest U.S. banks and com-
pared with a 10% decline in the
KBW Nasdaq bank index, itself
a laggard in the broader stock
market.
Morgan Stanley’s shares
have regularly traded below
book value, a symptom it
shares with other banks includ-
ing Citigroup Inc. and Bank of
America Corp. Banks regularly
traded for a multiple of their
book value before the financial
crisis. Their fall is a sign that
investors don’t see a return to
rapid profit and revenue
growth any time soon.
VaueAct, which manages $16
billion in assets, said the mar-
ket is misunderstanding the
New York bank, keeping the
stock price low based on the
bank’s exposure to stock and
bond trading businesses.
But ValueAct believes that
overlooks the current focus of
the bank, whose earnings are
now more geared toward giving
advice to corporations and a
Berkshire Hathaway raised its Apple stake to about $1.5 billion. Above, a Brooklyn store.
trading Tuesday, Apple’s stock
inched down to $109.40.
While Mr. Buffett has long
voiced his aversion to invest-
ing in technology companies,
the initial investment was
made by one of his stock-pick-
ing lieutenants. Todd Combs,
look for securities that offer
higher returns.
The 10-year Treasury yield
was at 1.58% Tuesday, down
from 1.74% before the Brexit
vote, as investors bet on global
central banks keeping interest
rates lower for longer.
Gilt trading volumes began
picking up in June and July
around the time of the EU ref-
erendum. During that time, the
10-year gilt supplanted the 10-
year U.S. Treasury note as the
most actively traded bond in
European debt markets.
Investors’ focus on gilts has
heightened since the Bank of
England said it would restart
its quantitative-easing bond
buying with an additional £60
billion of purchases at its Aug.
4 policy meeting, as part of a
broad package of measures.
Gilt yields lurched lower—a
move that intensified after the
Bank of England failed to buy
all of the long-dated debt it was
after in an auction last week.
That suggested investors such
as pension funds were reluctant
to part with these bonds, which
they need to match long-dated
liabilities.
Those fears eased Tuesday
after the BOE said it had
bought £1.17 billion of long-
dated gilts after being offered
£3.12 billion of these securities.
The yield on the 30-year gilt
rose to around 1.32%, from
1.25% earlier in the day.
The success of Tuesday’s
auction reflects the fact that
the U.K. is scheduled to sell
£1.25 billion of government
bonds due in 2055 on Wednes-
day, which more than offsets
the BOE’s buying, said Francis
Diamond, an interest-rate strat-
egist at J.P. Morgan Chase &
Co.
Wednesday, August 17, 2016 | B7
FINANCE & MARKETS
massive wealth-management gave the hedge fund the im-
business in which brokers ad- pression the company wasn’t
vise individuals how to invest. prepared to make changes it
Those operations typically gen- thought were needed, The Wall
erate fees with less risk and Street Journal previously re-
less volatility. Morgan Stanley’s ported.
chairman and chief executive, Most recently ValueAct has
James Gorman, has called been contending with problems
wealth management, for exam- in one of its once-most-lucra-
ple, a “ballast” that can smooth tive investments, Valeant Phar-
out the choppier earnings from maceuticals International Inc.,
investment banking and trad- where shares are down about
ing. 90% from last summer.
ValueAct, which has success- Morgan Stanley in 2013
fully lobbied for change at com- drew an investment from fel-
panies like Microsoft Corp. and low activist Third Point. But
last year took a stake and then that investment was much
sold out of American Express smaller, about $150 million, and
Co., isn’t planning to call for only lasted a few months, with
any major changes at the bank little long-term impact on the
JASON HENRY FOR THE WALL STREET JOURNAL
and backs Mr. Gorman, people bank.
familiar with the matter said. “The banking industry is
“As with any investor, we ripe for activism,” notes CLSA
welcome ValueAct as a share- analyst Mike Mayo. “It proba-
holder,” a Morgan Stanley bly doesn’t make for a pleasant
spokesman said in a statement. August for Morgan Stanley
Morgan Stanley’s return on management,” but investors
equity, a closely watched mea- should view the news as “fan-
sure of bank profitability, has tastic” because the presence of
also lagged behind Wall Street a potentially vocal activist
rivals and remains below Mr. means that “someone is carry-
Gorman’s stated goal of 10% by ing the torch for them.”
next year. Jeffrey Ubben, ValueAct chairman and chief executive ValueAct has had discus-
Mr. Gorman has been push- sions with Morgan Stanley
ing for years the message that management business aggres- activist investor, an approach management, a person familiar
Morgan Stanley is a far differ- sively and maintained its No. 2 in which investors take a stake with the matter said.
ent firm than the one that spot in merger advice. in a company and then press The firm bought shares of
nearly collapsed during the fi- Mr. Ubben said he valued for strategic, managerial, finan- Morgan Stanley at about 0.7
nancial crisis. Morgan Stanley’s the bank on the more utility- cial or other changes. times book value, according to
future lies more in the lower- like profits Morgan Stanley can ValueAct took a roughly $1 the letter. Over the past year,
risk businesses of advising earn reliably, rather than on billion stake in AmEx in 2015 the bank’s stock has traded as
companies and wealthy individ- the unpredictable trading reve- but sold the position that No- high as 1.1 times and as low as
uals. Under Mr. Gorman, the nue that once powered it. vember after discussions with 0.6 times the value of its assets,
bank has expanded its wealth- ValueAct is well known as an the company’s management according to FactSet.
SingTel
at more than $10 billion,
which has since been ex-
Revives
panded. In the second quarter,
Berkshire left its IBM stake
unchanged, along with posi-
Talks With
tions in Wells Fargo & Co.,
Coca-Cola and American Ex-
press.
Temasek
Berkshire reduced its hold- BY P.R. VENKAT
ings in retailer Wal-Mart
RICHARD B. LEVINE/ZUMA PRESS
Stores Inc. by 27% and cut its SINGAPORE—Singapore
stake in farm-machinery Telecommunications Ltd. has
maker Deere & Co. by 5.7%. restarted discussions to buy a
The firm cut its stake in Sun- portion of Temasek Holdings
cor Energy Inc., Canada’s Pte. Ltd.’s $2.4 billion stake in
largest oil producer, by 26%. one of Thailand’s largest tele-
Berkshire added to its communications companies, ac-
stake in refiner Phillips 66, cording to people familiar with
increasing its holdings by the situation.
4.3%, but left its position in SingTel has revived talks to
who joined Berkshire in 2011, came aboard as part of Mr. pipeline company Kinder purchase a stake in Intouch
and Ted Weschler, who ar- Buffett’s long-term plan for Morgan Inc. unchanged. Holdings PCL, founded by for-
rived a year later, have shown the conglomerate’s future. Mr. Buffett’s positions were mer Thai Prime Minister Thak-
a willingness to wade into Berkshire’s first big step into disclosed in a filing with the sin Shinawatra, from state-in-
corners of the market that Mr. the tech sector was in 2011, Securities and Exchange Com- vestment firm Temasek, after
Buffett won’t touch, including when the company disclosed a mission, a quarterly require- exploring a similar deal in 2013.
the tech sector. The two for- stake in International Busi- ment for investors managing The stake purchase would
mer hedge-fund managers ness Machines Corp. valued more than $100 million. further boost SingTel’s pres-
ence in Thailand as Intouch
owns a 40.6% stake in the coun-
try’s largest mobile operator
Advanced Info Services PCL.
SingTel already holds a 23.3%
stake in Advanced Info.
BY BENOIT FAUCON
AND SUMMER SAID
around 3.6 million barrels a
day in the past two months,
after rising by 600,000 barrels
group’s members have
pumped at full tilt and com-
peted for their slice of the ex-
SingTel, Southeast Asia’s
largest telecom firm and the
biggest company in Singapore
Iran on Tuesday undercut a day after sanctions were port market. by market capitalization, has
hopes of an agreement to limit lifted in January. An extended period of low chased growth around the globe
petroleum output next month, The press official said Iran prices, though, has devastated to expand beyond its saturated
saying it doesn’t expect that hadn’t decided whether it OPEC members like Venezuela, local market. It snapped up U.S.
its production will have risen would join other OPEC mem- where consumer-price infla- managed-security services spe-
to the levels the country has bers in talks over production tion is forecast by the Interna- cialist firm Trustwave last year.
said it needs to justify cooper- levels in Algeria at an energy tional Monetary Fund to hit In 2012, it bought Amobee, a
ation with its rivals. conference scheduled to begin 480% this year and the mili- digital advertising firm. SingTel
The spotlight has been on on Sept. 26. tary now controls food stocks owns substantial stakes in sev-
Iran in recent weeks after the Persian Gulf producers said after widespread looting. Most eral Asian telecom firms, in-
Organization of the Petroleum there would be no agreement countries that rely heavily on cluding India’s Bharti Airtel Ltd.
Exporting Countries, a 14-na- if Iran doesn’t join the cap—a oil revenue need much higher and Telkomsel in Indonesia.
tion cartel that counts Iran as longstanding condition set by prices to balance their na- Thailand is an attractive
a member, said it would hold Saudi Arabia and its Arab tional budgets. growth market for telecom
discussions in late September neighbors. “Iran has to be Venezuela’s oil minister Eu- companies. The country is ex-
about whether action was there or there will be no logio del Pino was in Tehran periencing increased mobile us-
needed to lift oil prices. While freeze,” one OPEC delegate in this week, meeting Iran’s for- age as incomes rise and the
global production has fallen the region said. eign minister Mohammad Ja- economy grows at a steady clip.
back in line with demand, The assessment from Iran vad Zarif on Monday, accord- Mobile phone and data sub-
large amounts of stored oil comes as other OPEC members ing to Mr. del Pino’s official scribers are expected to in-
continue to keep prices below express pessimism about those Twitter account. Mr. del Pino crease to more than 88 million
$50 a barrel. talks bearing much fruit. Oil is on a whirlwind tour of oil- this year, which is up 4.4% from
In April, Iran refused to join ministers in Iraq and Nigeria producing countries to build a year earlier.
other OPEC members like Qa- both said they expect no pro- support to limits on output. SingTel is in discussions
tar, Venezuela and Saudi Ara- duction cuts to come out of But the calls for production with Temasek over the exact
bia and nonmembers like Rus- the meeting. limits are coming as countries size of the Intouch stake that it
sia in an agreement to limit OPEC members have been like Iraq and Saudi Arabia are could buy, according to people
production and potentially unable to agree on ways to pumping more oil than ever. familiar with the talks. Intouch,
raise prices. The country’s oil curb their production for al- Iraq’s new oil minister Jabar which trades on the Thai stock
officials said that before con- most two years since oil prices Ali al-Luaibi on Tuesday exchange, has a market cap of
sidering cooperation, their began a free fall, descending pledged to work “day and $5.9 billion and Temasek owns
production had to rise to be- to $27 a barrel this year—a 12- night on increasing the na- a 41% stake. The people cau-
tween 4 million and 4.2 mil- year low—from highs of $115 a tional production of oil and tioned that the discussions ha-
lion barrels a day. barrel in 2014. Instead, the gas.” ven’t been completed and
On Tuesday, an Iranian could still fall apart or change.
press official said the country Thai regulators cap foreign
likely wouldn’t be pumping ownership of local telecom
that much oil when the re- firms at 49%.
newed OPEC discussions begin Intouch has been a lightning
in late September, and pointed rod in local politics after being
out that Iran had never an- founded by Mr. Shinawatra.
nounced a time-frame for that Temasek led a consortium that
SIMON DAWSON/BLOOMBERG NEWS
level. The level is important bought control of the firm,
because it is what Iranian offi- then known as Shin Corp.,
cials say represented the from Mr. Thaksin and his fam-
country’s market share before ily in 2006.
the West tightened sanctions A stake sale of Intouch
over the country’s nuclear would give Temasek more cash
program, crippling Iran’s oil to invest in technology and
industry. newer industries, such as arti-
According to OPEC, Iran’s ficial intelligence and life sci-
production has stagnated to Venezuela’s oil minister, Eulogio del Pino, supports output limits. ences.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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B8 | Wednesday, August 17, 2016 THE WALL STREET JOURNAL.

MARKETS DIGEST
Nikkei 225 Index STOXX 600 Index S&P 500 Index Data as of 4 p.m. New York time
Last Year ago
16596.51 t 273.05, or 1.62% Year-to-date t 12.80% 343.32 t 2.73, or 0.79% Year-to-date t 6.15% 2178.15 t 12.00, or 0.55% Trailing P/E ratio * 24.91 21.70
High, low, open and close for each 52-wk high/low20554.47 14952.02 High, low, open and close for each 52-wk high/low 388.13 303.58 High, low, open and close for each P/E estimate * 18.57 17.65
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months. All-time high 414.06 4/15/15 trading day of the past three months. Dividend yield 2.09 2.04
All-time high: 2190.15, 08/15/16

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

17500 360 2200

65-day moving average

17000 350 2160
65-day moving average

16500 340 2120

16000 330 2080

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

Session open Close

Close Open
t

15000 310 2000

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

International Stock Indexes Data as of 4 p.m. New York time Global government bonds
Latest 52-Week Range YTD Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
Region/Country Index Close NetChg % chg Low Close High % chg and 10-year government bonds around the world. Data as of 3 p.m. ET
World The Global Dow 2447.25 –5.14 –0.21 2033.03 • 2503.41 4.7 Country/ Spread Over Treasurys, in basis points Yield
MSCI EAFE 1708.26 –2.48 –0.14 1471.88 • 1956.39 –0.5 Coupon Maturity, in years Yield Latest Previous Month Ago Year ago Previous Month ago Year ago
MSCI EM USD 914.44 –1.42 –0.16 691.21 • 1044.05 15.1 3.250 Australia 2 1.429 67.9 71.2 96.2 124.1 1.441 1.635 1.967
4.250 10 1.889 31.5 32.7 43.5 59.3 1.885 1.982 2.794
Americas DJ Americas 526.32 –3.01 –0.57 433.38 • 529.65 8.0
1.250 Belgium 2 -132.0 -123.4 -90.0 -0.591 -0.561 -0.175
-0.570 -132.1
Brazil Sao Paulo Bovespa 58878.05 –267.93 –0.45 37046.07 • 59323.91 35.8
1.000 10 0.185 -138.9 -140.7 -129.5 -119.5 0.151 0.251 1.005
Canada S&P/TSX Comp 14713.19 –63.83 –0.43 11531.22 • 14855.69 13.1
1.000 France 2 -0.554 -130.4 -128.7 -120.6 -91.7 -0.557 -0.533 -0.191
Mexico IPC All-Share 48362.80 –332.10 –0.68 39256.58 • 48956.06 12.5
0.500 10 0.191 -138.2 -140.7 -132.0 -122.4 0.151 0.227 0.976
Chile Santiago IPSA 3250.16 7.81 0.24 2730.24 • 3253.99 10.4
0.000 Germany 2 -0.609 -135.9 -133.9 -131.9 -99.4 -0.610 -0.646 -0.268
U.S. DJIA 18552.02 –84.03 –0.45 15370.33 • 18668.44 6.5
0.000 10 -0.028 -160.2 -162.7 -153.9 -154.0 -0.070 0.008 0.661
Nasdaq Composite 5227.11 –34.90 –0.66 4209.76 • 5271.36 4.4
0.250 Italy 2 -0.062 -81.2 -82.0 -70.5 -63.4 -0.090 -0.032 0.092
S&P 500 2178.15 –12.00 –0.55 1810.10 • 2193.81 6.6
1.600 10 1.122 -45.2 -49.4 -29.1 -39.3 1.064 1.256 1.808
CBOE Volatility 12.51 0.70 5.93 11.02 • 53.29 –31.3
0.100 Japan 2 -0.191 -94.1 -91.4 -100.5 -71.9 -0.185 -0.332 0.006
EMEA Stoxx Europe 600 343.32 –2.73 –0.79 303.58 • 388.13 –6.1 0.100 10 -0.095 -166.9 -164.3 -177.7 -182.1 -0.086 -0.230 0.379
Stoxx Europe 50 2867.87 –22.53 –0.78 2556.96 • 3353.75 –7.5 4.000 Netherlands 2 -0.568 -131.8 -131.3 -127.2 -94.7 -0.583 -0.599 -0.221
Austria ATX 2276.46 –8.07 –0.35 1929.73 • 2515.09 –5.0 0.500 10 0.073 -150.1 -152.5 -143.0 -136.7 0.033 0.117 0.834
Belgium Bel-20 3524.40 –38.85 –1.09 3117.61 • 3773.73 –4.8 4.450 Portugal 2 0.450 -30.0 -37.9 4.5 -38.9 0.351 0.719 0.337
France CAC 40 4460.44 –37.42 –0.83 3892.46 • 5011.65 –3.8 2.875 10 2.834 126.0 112.8 159.5 21.8 2.686 3.142 2.419
Germany DAX 10676.65 –62.56 –0.58 8699.29 • 11430.87 –0.6 0.250 Spain 2 -0.149 -89.9 -89.6 -80.5 -63.1 -0.166 -0.132 0.095
Greece ATG 572.43 –3.69 –0.64 420.82 • 731.18 –9.3 1.950 10 0.992 -58.2 -61.7 -32.2 -20.6 0.941 1.225 1.995
Hungary BUX 27671.68 –197.11 –0.71 20452.90 • 28100.59 15.7 4.250 Sweden 2 -0.634 -138.4 -136.8 -129.3 -119.3 -0.638 -0.620 -0.467
Israel Tel Aviv 1467.58 –4.87 –0.33 1378.80 • 1720.94 –4.0 1.000 10 0.066 -150.8 -150.3 -133.1 -155.0 0.055 0.216 0.651
Italy FTSE MIB 16792.96 –204.87 –1.21 15017.42 • 23495.41 –21.6 1.250 U.K. 2 0.191 -55.9 -59.1 -50.4 0.4 0.139 0.170 0.730
Netherlands AEX 451.40 –3.11 –0.68 378.53 • 480.85 2.2 2.000 10 0.588 -98.6 -102.5 -71.1 -30.4 0.533 0.835 1.896
Poland WIG 48463.51 –167.93 –0.35 41747.01 • 52701.83 4.3 0.750 U.S. 2 0.750 ... ... ... ... 0.730 0.673 0.726
Russia RTS Index 974.82 2.72 0.28 607.14 • 987.07 28.8 1.500 10 1.574 ... ... ... ... 1.558 1.547 2.200
Spain IBEX 35 8621.70 –98.90 –1.13 7579.80 • 10952.20 –9.7
Sweden SX All Share 503.55 –4.95 –0.97 432.78 • 530.82 –0.3 Commodities Prices of futures contracts with the most open interest 3:30 p.m. New York time
Switzerland Swiss Market 8215.45 –89.83 –1.08 7425.05 • 9415.54 –6.8 EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
South Africa Johannesburg All Share 52396.40 –1.57 –0.003 45975.78 • 54760.91 3.4 Derivatives Berhad; TCE: Tokyo Commodity Exchange; COMEX: Commodity Exchange; LME: London Metal Exchange;
NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe. *Data as of 8/15/2016
Turkey BIST 100 77707.13 –765.44 –0.98 68230.47 • 86931.34 8.3
One-Day Change Year Year
U.K. FTSE 100 6893.92 –47.27 –0.68 5499.51 • 6955.34 10.4 Commodity Exchange Last price Net Percentage high low
337.75 0.75 0.22% 449.00 322.50
Asia-Pacific DJ Asia-Pacific TSM 1471.01 –3.15 –0.21 1188.42 • 1479.05 5.8 Corn (cents/bu.) CBOT
Soybeans (cents/bu.) 1008.50 -0.75 -0.07% 1,186.25 868.00
Australia S&P/ASX 200 5532.00 –8.00 –0.14 4765.30 • 5587.40 4.5
Wheat (cents/bu.)
CBOT
CBOT 439.75 1.50 0.34 551.50 425.25
China Shanghai Composite 3110.04 –15.16 –0.49 2655.66 • 3794.11 –12.1
Live cattle (cents/lb.) CME 114.075 -1.050 -0.91 125.500 106.950
Hong Kong Hang Seng 22910.84 –21.67 –0.09 18319.58 • 23474.97 4.5
Cocoa ($/ton) ICE-US 3,064 49 1.63 3,216 2,728
India S&P BSE Sensex 28064.61 –87.79 –0.31 22951.83 • 28208.62 7.5
Coffee (cents/lb.) ICE-US 140.55 unch. unch. 157.65 119.40
Japan Nikkei Stock Avg 16596.51 –273.05 –1.62 14952.02 • 20554.47 –12.8
Sugar (cents/lb.) ICE-US 20.22 0.24 1.20 21.22 12.92
Singapore Straits Times 2858.80 –8.41 –0.29 2532.70 • 3083.07 –0.8
Cotton (cents/lb.) ICE-US 68.83 -0.03 -0.04 77.98 54.19
South Korea Kospi 2047.76 –2.71 –0.13 1829.81 • 2052.77 4.4 Robusta coffee ($/ton) ICE-EU 1810.00 -24.00 -1.31 1,886.00 1,423.00
Taiwan Weighted 9110.36 –38.15 –0.42 7410.34 • 9200.42 9.3
Copper ($/lb.) COMEX 2.1815 0.0195 0.90 2.3290 1.9710
Source: SIX Financial Information;WSJ Market Data Group Gold ($/troy oz.) COMEX 1353.50 6.00 0.45 1,384.40 1,066.00
Silver ($/troy oz.) COMEX 19.815 -0.032 -0.16 21.225 13.930
Currencies London close on Aug. 16 Aluminum ($/mt)* LME 1,657.00 12.50 0.76 1,695.50 1,451.50
Tin ($/mt)* LME 18,025.00 -155.00 -0.85 18,650.00 13,225.00
Yen, euro vs. dollar; dollar vs. major U.S. trading partners US$vs,
Tue YTDchg Copper ($/mt)* LME 4,761.50 0.50 0.01 5,070.50 4,320.50
Country/currency in US$ per US$ (%) Lead ($/mt)* LME 1,836.00 16.00 0.88 1,909.00 1,598.00
20% Europe Zinc ($/mt)* LME 2,226.00 -16.00 -0.71 2,306.50 1,467.00
s
Yen Bulgaria lev 0.5765 1.7347 –3.6 Nickel ($/mt)* LME 10,400.00 -80.00 -0.76 10,950.00 7,750.00
Croatia kuna 0.1508 6.631 –5.4 Rubber (Y.01/ton) TCE 157.40 0.30 0.19 159.30 150.80
10
Euro zone euro 1.1281 0.8865 –3.7
WSJ Dollar index Euro Palm oil (MYR/mt) MDEX 2542.00 -35.00 -1.36 2,669.00 2,171.00
s s Czech Rep. koruna-b 0.0417 23.960 –3.7
0 Denmark krone 0.1516 6.5976 –4.0 Crude oil ($/bbl.) NYMEX 47.23 0.83 1.79 53.02 33.28
Hungary forint 0.003640 274.73 –5.4 NY Harbor ULSD ($/gal.) NYMEX 1.4827 0.0140 0.95 1.6047 1.0081
Iceland krona 0.008498 117.67 –9.6 RBOB gasoline ($/gal.) NYMEX 1.3597 0.0245 1.83 1.5121 0.9930
–10 Norway krone 0.1220 8.1969 –7.3
0.2636 3.7940 –3.3
Natural gas ($/mmBtu) NYMEX 2.662 0.033 1.26 3.0220 2.0490
2015 2016 Poland zloty
Russia ruble-d 0.01571 63.645 –11.5 Brent crude ($/bbl.) ICE-EU 49.46 0.85 1.75 53.81 32.51
US$vs, US$vs,
YTDchg YTDchg Sweden krona 0.1189 8.4104 –0.4 Gas oil ($/ton) ICE-EU 428.25 5.75 1.36 474.50 291.50
Tue Tue
Country/currency in US$ per US$ (%) Country/currency in US$ per US$ (%) Switzerland franc 1.0394 0.9621 –4.0
Turkey lira 0.3419 2.9249 0.2 Sources: SIX Financial Information; WSJ Market Data Group
Americas Hong Kong dollar 0.1290 7.7547 0.1
Ukraine hryvnia 0.0400 25.0255 4.3
Argentina peso-a 0.0682 14.6680 13.4
India rupee
Indonesia rupiah
0.0150
0.0000763
66.8376 1.0
13102 –5.3
U.K. pound 1.3027 0.7676 13.1 Cross rates London close on Aug 16
Brazil real 0.3144 3.1805 –19.7 Middle East/Africa
Japan yen 0.009971 100.29 –16.6
Canada dollar 0.7776 1.2861 –7.1 USD GBP CHF JPY HKD EUR CDN AUD
Kazakhstan tenge 0.002913 343.34 1.4 Bahrain dinar 2.6521 0.3771 –0.01
Chile peso 0.001536 651.00 –8.1 Australia 1.2994 1.6924 1.3504 0.0130 0.1675 1.4653 1.0104 ...
Macau pataca 0.1254 7.9752 –0.4 Egypt pound-a 0.1126 8.8825 13.4
Colombia peso 0.0003414 2929.10 –7.7 Canada 1.2861 1.6752 1.3365 0.0128 0.1658 1.4503 ... 0.9898
Malaysia ringgit-c 0.2509 3.9861 –7.4 Israel shekel 0.2647 3.7783 –2.9
Ecuador US dollar-f 1 1 unch
New Zealand dollar 0.7267 1.3761 –6.0 Kuwait dinar 3.3188 0.3013 –0.7 Euro 0.8865 1.1550 0.9216 0.0088 0.1143 ... 0.6894 0.6822
Mexico peso-a 0.0556 17.9740 4.5
Pakistan rupee 0.0095 104.715 –0.2 Oman sul rial 2.5976 0.3850 0.01 Hong Kong 7.7547 10.1012 8.0610 0.0773 ... 8.7476 6.0304 5.9680
Peru sol 0.3020 3.3115 –3.0
Philippines peso 0.0216 46.254 –1.3 Qatar rial 0.2747 3.641 –0.1 Japan 100.2880 130.6400 104.2500 ... 12.9330 113.1100 77.9900 77.2000
Uruguay peso-e 0.0348 28.770 –3.8
Singapore dollar 0.7467 1.3393 –5.6 Saudi Arabia riyal 0.2666 3.7504 –0.1 0.9621 1.2531 ... 0.0096 0.1241 1.0851 0.7482 0.7405
Venezuela bolivar 0.100150 9.99 58.4 Switzerland
South Korea won 0.0009127 1095.67 –6.8 South Africa rand 0.0752 13.3032 –14.0
U.K. 0.7676 ... 0.7980 0.0077 0.0990 0.8659 0.5969 0.5908
Asia-Pacific Sri Lanka rupee 0.0068937 145.06 0.6 Close Net Chg % Chg YTD % Chg
0.7696 1.2994 –5.3 Taiwan dollar 0.03198 31.269 –5.0 U.S. ... 1.3027 1.0394 0.0100 0.1290 1.1281 0.7776 0.7696
Australia dollar WSJ Dollar Index 85.55 –0.66 –0.77 –5.13
China yuan 0.1510 6.6235 2.0 Thailand baht 0.02888 34.630 –3.9 Sources: Tullett Prebon, WSJ Market Data Group Source: Tullett Prebon

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

Latest 52 wks ago % YTD% % YTD% % YTD%
Libor Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Cur Stock Sym Last Chg Chg Asia Titans 50
One month 0.50744% 0.20275% ¥ TakedaPharm 4502 4652.00 -1.38 -23.30 CHF RocheHldgctf ROG 245.40 -1.37 -11.22 Last: 141.66 t 0.31, or 0.22% YTD s 4.0%
Three month 0.80128 0.33285 Asia Titans HK$ TencentHoldings 0700 195.40 2.25 27.96 £ RoyDtchShell A RDSA 1930.00 -0.13 26.47
140
Six month 1.19456 0.52930 HK$ AIAGroup 1299 48.60 -1.82 4.29 ¥ TokioMarineHldg 8766 3738.00 -2.02 -20.67 € SAP SAP 77.99 -0.99 6.28 High
One year 1.49822 0.84435 ¥ AstellasPharma 4503 1634.00 -1.42 -5.63 ¥ ToyotaMtr 7203 5875.00 -1.26 -21.54 € Sanofi SAN 70.87 -1.28 -9.83
50–day 135
Close moving average
Euro Libor AU$ AustNZBk ANZ 26.58 -0.11 -4.83 AU$ Wesfarmers WES 42.64 0.09 2.48 € SchneiderElectric SU 60.29 -1.31 14.71 Low 130
One month -0.37143% -0.10429% AU$ BHP BHP 20.25 0.45 13.38 AU$ WestpacBanking WBC 29.71 -0.17 -11.47 € Siemens SIE 105.85 -1.17 17.77 t
Three month -0.32157 -0.02643 HK$ BankofChina 3988 3.47 -0.29 0.29 AU$ Woolworths WOW 23.37 -0.51 -4.61 € Telefonica TEF 8.97 -1.11 -12.37 125
Six month -0.20214 0.05271 HK$ CKHutchison 0001 97.80 ... -6.32 € Total FP 43.51 0.22 7.56 120
One year -0.07271 0.15743 HK$ CNOOC 0883 9.79 0.20 21.31 Stoxx 50 CHF UBSGroup UBSG 13.29 -1.34 -31.92
115
Euribor ¥ Canon 7751 2881.50 -1.20 -21.59 CHF ABB ABBN 21.29 -1.21 18.54 € Unilever UNA 41.24 -1.16 2.84
One month -0.36900% -0.08900% ¥ CentralJapanRwy 9022 17325 -1.39 -19.79 € ASMLHolding ASML 97.91 -1.45 18.61 £ Unilever ULVR 3610.50 -0.85 23.37 20 27 3 10 17 24 1 8 15 22 29 5 12
Three month -0.29900 -0.02800 HK$ ChinaConstructnBk 0939 5.74 ... 8.10 € AXA CS 18.21 -1.49 -27.82 € Vinci DG 67.60 -1.60 14.31 June July Aug.
Six month -0.18900 0.04300 HK$ ChinaLifeInsurance 2628 19.34 0.31 -22.95 € AirLiquide AI 99.26 2.35 -4.24 £ VodafoneGroup VOD 236.45 -1.36 6.99
One year -0.05000 0.15900 HK$ ChinaMobile 0941 98.00 -0.81 12.00 € Allianz ALV 132.80 -1.48 -18.80 CHF ZurichInsurance ZURN 249.60 -1.65 -3.41
Yen Libor AU$ CmwlthBkAust CBA 76.00 -0.39 -11.14 € Anheuser Busch ABI 111.45 -1.33 -2.58
DJIA Stoxx 50
One month -0.04814% 0.05657% ¥ EastJapanRailway 9020 8783.00 -0.58 -23.29 £ AstraZeneca AZN 5097.00 -0.91 10.41
17165 -1.21 -18.57 65.31 -0.49 -6.10 Last: 2867.87 t 22.53, or 0.78% YTD t 7.5%
Three month -0.01329 0.09429 ¥ Fanuc 6954 € BASF BAS 72.85 -0.30 3.01 $ AmericanExpress AXP
Six month 0.01036 0.13229 ¥ Hitachi 6501 478.70 -0.66 -30.77 € BNP Paribas BNP 44.02 -1.33 -15.72 $ Apple AAPL 109.39 -0.08 3.92 2925
One year 0.10214 0.24043 TW$ Hon Hai Precisn 2317 86.20 -1.15 6.68 £ BT Group BT.A 392.60 -1.06 -16.77 $ Boeing BA 135.00 0.25 -6.63
¥ HondaMotor 7267 2929.00 -0.66 -25.09 € BancoBilVizAr BBVA 5.27 -0.30 -21.03 $ Caterpillar CAT 84.28 0.15 24.01 2850
Offer Bid
KRW HyundaiMtr 005380 133000 -2.21 -10.74 € BancoSantander SAN 3.81 -0.88 -16.41 $ Chevron CVX 102.67 -0.10 14.13 2775
Eurodollars
HK$ Ind&Comml 1398 4.85 -0.41 3.63 £ Barclays BARC 161.75 -1.10 -26.11 $ CiscoSystems CSCO 31.12 -0.22 14.60
One month 0.5500% 0.4500%
43.85
2700
Three month 0.9000 0.8000
¥ JapanTobacco 2914 3991.00 -1.29 -10.74 € Bayer BAYN 97.92 -0.73 -15.44 $ CocaCola KO -0.88 2.07
¥ KDDI 9433 3190.00 -2.00 1.14 £ BP BP. 436.25 -0.14 23.23 $ Disney DIS 96.88 -0.23 -7.80 2625
Six month 1.2500 1.1500
¥ Mitsubishi 8058 2014.50 -1.54 -0.67 £ BritishAmTob BATS 4968.00 -0.26 31.74 $ DuPont DD 68.03 -0.89 2.15 2550
One year 1.5500 1.4500
¥ MitsubishiUFJFin 8306 518.00 -1.31 -31.58 CHF FinRichemont CFR 60.55 -0.16 -16.02 $ ExxonMobil XOM 87.94 0.15 12.82
Latest 52 wks ago
1254.00 -2.18 -13.25 $ GenElec GE 31.21 -0.10 0.19 20 27 3 10 17 24 1 8 15 22 29 5 12
¥ Mitsui 8031 € Daimler DAI 62.52 -1.23 -19.41
June July Aug.
Prime rates ¥ Mizuho Fin 8411 163.10 -1.33 -33.02 € DeutscheTelekom DTE 15.49 -0.71 -6.26 $ GoldmanSachs GS 165.65 0.06 -8.09
U.S. 3.50% 3.25% ¥ NTTDoCoMo 9437 2708.50 -0.22 9.04 £ Diageo DGE 2171.50 -0.73 16.97 $ HomeDepot HD 136.23 -0.61 3.01
Canada 2.70 2.70 AU$ NatAustBnk NAB 27.04 -0.59 -10.46 € ENI ENI 13.74 0.29 -0.43 $ Intel INTC 35.21 0.86 2.21
Japan
Hong Kong
1.475
5.00
1.475
5.00
¥ NipponStl&SmtmoMtl 5401 1936.00
4854.00
-1.90
-0.33
-19.87
0.37
£ GlaxoSmithKline GSK 1689.50 -1.31 23.05 $
$
IBM
JPMorganChase
IBM
JPM
160.71
65.72
-0.72
...
16.78
-0.47
Dow Jones Industrial Average P/E: 20
¥ NipponTeleg 9432 £ HSBC Hldgs HSBA 542.50 -0.91 1.17
Policy rates ¥ NissanMotor 7201 980.70 -1.73 -23.35 € INGGroep INGA 10.48 -1.04 3.30 $ JohnsJohns JNJ 120.34 -1.61 17.15 Last: 18552.02 t 84.03, or 0.45% YTD s 6.5%
ECB 0.00% 0.05% ¥ NomuraHldgs 8604 448.90 -1.84 -33.90 £ ImperialBrands IMB 4139.00 0.56 15.40 $ McDonalds MCD 117.95 -0.48 -0.16
Britain 0.25 0.50 996.50 0.01 -19.67 $ Merck MRK 63.06 -0.41 19.39 18500
¥ Panasonic 6752 € IntesaSanpaolo ISP 1.94 -1.97 -37.27
Switzerland 0.50 0.50 HK$ PetroChina 0857 5.39 0.94 5.89 € LVMHMoetHennessy MC 157.15 -0.98 8.45
$ Microsoft MSFT 57.44 -0.55 3.53
$ NikeClB NKE 56.88 0.19 -8.99 18000
Australia 1.50 2.00 HK$ PingAnInsofChina 2318 40.10 -1.11 -6.53 £ LloydsBankingGroup LLOY 53.95 -1.01 -26.17
U.S. discount 1.00 0.75 $ RelianceIndsGDR RIGD 30.65 -1.13 0.16 € LOreal OR 174.55 -0.65 12.40
$ Pfizer PFE 34.79 -0.91 7.78 17500
Fed-funds target 0.25 0.00 AU$ RioTinto RIO 48.46 0.87 8.39 £ NationalGrid NG. 1081.00 -1.91 15.31
$ Procter&Gamble PG 86.58 -0.51 9.03
Call money 2.25 2.00 1568000 1.49 24.44 $ 3M MMM 179.26 -0.72 19.00 17000
KRW SamsungElectronics 005930 CHF Nestle NESN 78.95 -1.13 5.90
4353.00 -1.07 -21.57 $ TravelersCos TRV 117.00 -1.14 3.67
Overnight repurchase rates ¥ Seven&I Hldgs 3382 CHF Novartis NOVN 79.10 -1.49 -8.87 16500
6802.00 -0.03 10.80 $ UnitedTech UTX 109.14 -0.50 13.60
U.S. 0.56% 0.25% ¥ SoftBankGroup 9984 DKK NovoNordiskB NOVO-B 309.80 -0.45 -22.53
3329.00 -0.98 -27.72 $ UnitedHealthGroup UNH 141.07 -0.39 19.92 20 27 3 10 17 24 1 8 15 22 29 5 12
Euro zone n.a. n.a. ¥ Sumitomo Mitsui 8316 £ Prudential PRU 1415.50 -1.87 -7.54
108.40 -1.72 15.63 $ VISAClA V 80.81 -0.12 4.20 June July Aug.
HK$ SunHngKaiPrp 0016 £ ReckittBenckiser RB. 7521.00 -0.82 19.74
Sources: WSJ Market Data Group, SIX 175.50 -1.96 22.73
$ Verizon VZ 52.75 -1.60 14.13 Note: Price-to-earnings ratios are for trailing 12 months
TW$ TaiwanSemiMfg 2330 £ RioTinto RIO 2486.50 2.09 25.61
Financial Information, Tullett $ WalMart WMT 72.89 -0.59 18.91 Sources: WSJ Market Data Group; Birinyi Associates
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THE WALL STREET JOURNAL. Wednesday, August 17, 2016 | B9

THE PROPERTY REPORT

New Zealand Opens Doors Mall Owners Add
Foreign buyers flock
to Auckland; sales of
‘Pop-Up Stores’
$1 million-plus homes BY ESTHER FUNG sign a concept for the physical
space to upstarts that might
see 63% annual gain Mall landlords are turning not be able to commit to five-
to short-term retailers known or 10-year deals, mall owners
BY KATE GEENTY
as “pop-up stores” to attract are hoping to refresh and en-
AND RACHEL PANNETT
shoppers and boost revenue as liven their properties. Pop-up
department stores and other stores that introduce local
WELLINGTON, New Zea- tenants struggle to combat the brands, perform demos and of-
land—While other countries growth of online commerce. fer shoppers an elite selection
grappling to contain frothy Big shopping-center owners of products or allow them to
housing markets have moved such as Westfield Corp. and interact directly with design-
to cool foreign investment, Simon Property Group LP are ers can help drive traffic to
this picturesque island nation dedicating more staff and mall other tenants.
boasts one of the world’s most space to the short-term stores, One big potential category:
open-door policies. which once were seen as only online retailers that don’t yet
That relaxed attitude toward seasonal business opportuni- have a substantial bricks-and-
foreign buyers helped New ties to drive foot traffic during mortar presence.
BRENDON O’HAGAN/BLOOMBERG NEWS

Zealand’s commercial capital, holidays or transitory fillers to “All of these retailers that
Auckland, overtake Toronto as address temporary vacancies. have internet presence under-
the world’s “hottest” city for Now landlords increasingly stand that a bricks-and-mortar
luxury real estate last year, ac- view such retailers as neces- presence is an essential part
cording to a survey by Chris- sary fixtures as they seek to of their strategy,” said Simon
tie’s International Real Estate. minimize vacancy rates and Property President Rick
The harbor city of just over keep cash flow stable, in some Sokolov during an earnings
a million people recorded 63% cases offering a rotating cast briefing with analysts.
annual growth in $1 million- of pop-up stores virtually Some mall owners are allo-
plus home sales. year-round. cating about 5% of their leas-
“A strong economy, magnif- Auckland surpassed Toronto as the world’s “hottest” city for luxury real estate last year. In Woodbury Common Pre- able space to house such tran-
icent natural beauty and a mium Outlets in suburban sient tenants by building a
friendly image are key selling glut. New York, online designer- “white box” pop-up store with
points for New Zealand’s for- Concerned the boom once Hot Property dress rental firm Rent the a plain interior that can be
eign real-estate buyers,” Chris- thought to be limited primar- Auckland, New Zealand, was one of the world’s ‘hottest’ luxury Runway teamed up with Si- used by the next tenant. These
tie’s said. “Add to that the ily to Auckland is spreading, markets last year... mon Property, the outlet boxes are typically smaller
country’s property laws— Reserve Bank Gov. Graeme owner, to launch a pop-up than regular stores, at around
which do not include a stamp Wheeler on July 18 proposed Real-estate sales of property worth $1 million or more, 2015 store across eight days in May 1,000 to 1,500 square feet.
duty, capital-gains tax or visa curbs on the amount that can Locations Change from a year earlier and June. It took them just six In Westfield San Francisco
requirements—and the result be lent against the value of an Valencia, Spain 89%
weeks from the start to the Centre, the owner set apart
is one of the world’s most at- investment property nation- pop-up launch. the entire fourth level for pop-
tractive property markets for wide. Auckland, New Zealand 63 “They sold some of their up shops, events and co-work-
overseas buyers.” Mr. Wheeler is especially Costa Smeralda, Sardinia, Italy 50 existing inventory and they ing space. The mall, which
While many prime destina- worried about people buying Toronto, Canada 48
had unbelievable success,” houses Bloomingdale’s and re-
tions have plateaued amid a houses strictly as investments said David Simon, chief execu- tailers such as Burberry, said
volatility in financial markets, rather than as a place to live. Victoria, Canada 45 tive of Simon Property during this “Bespoke” project had
falling commodity prices, Household debt is climbing Jackson Hole, Wyo., U.S. 45 a recent earnings briefing. seen success at appealing to
China’s slowing economy and rapidly compared with other Portland, Ore., U.S. 40
“There’s so much creative shoppers seeking alternative
political unrest, others are developed countries; home stuff going on with new ideas experiences at malls, as well
flourishing as the world’s loans account for 55% of Stockholm, Sweden 31 and new concepts.” as businesses looking to test
wealthy continue to turn to banks’ loan books. Analysts Sydney, Australia 15 The moves come amid their prototypes.
luxury real estate as a safe as- say investors are more likely San Francisco, U.S. 12
tough times for big retailers. Joy Fan, a San Francisco-
set, Christie’s said. than owner-occupiers to sell in Macy’s Inc. said last week it based senior manager of expe-
Among New Zealand’s sell- a downturn. ...house prices are rising sharply ...fueling concerns of a speculative intends to close 100 stores, or rience at Westfield’s Bespoke
ing points: Despite the rising The number of homes sold across the country... debt bubble. 15% of its store base. In the project, hosts a monthly semi-
prices, it is still one of the for more than a million New past year, Office Depot Inc., nar to educate retailers and e-
cheapest luxury markets. Zealand dollars (US$719,700) Top 10* house price, year-to-year Household debt as a share of J.C. Penney Co. and Gap Inc. commerce brands about run-
In Auckland, $1 million—the increased by a third nation- change between 2012 and 2015 disposable incomes** all have announced they are ning and designing pop-up
entry point for luxury here ac- wide in the year through June, closing stores. The closures, in stores. “Even though there’s
Hong Kong 59% 180%
cording to real-estate agents— according to the Real Estate turn, jeopardize landlords’ so much available online and
would buy a three-bedroom, Institute of New Zealand. March 2016: 163% revenues, forcing them to everyone keeps focusing on e-
Sweden 38
solar-powered “eco” home Jeremy O’Rourke, a real-es- 160 scramble to fill empty space. commerce, much of the addic-
New Zealand 36
south of the city with district tate agent at Lodge Real Estate By giving more leasing flex- tive quality of purchasing hap-
views. A one-bedroom condo in Hamilton, an hour’s drive South Africa 35 ibility and offering to help de- pens in person,” Ms. Fan said.
in the Dogpatch section of San from Auckland, says he regu- U.S. 32 140
Francisco was recently listed larly sells properties for more
for roughly the same money. than NZ$1 million whereas two Ireland 31
On a price-per-square-foot ba- years ago NZ$750,000 was a Australia 31 120
sis, the New Zealand house “significant sale.” U.K. 27
cost $385.50, versus $1,077.45 New Zealand hasn’t tar-
for the American loft. geted overseas buyers in the Canada 25
100
Monaco recorded the same way other countries Denmark 17
DAVID PAUL MORRIS/BLOOMBERG NEWS

1999 2000 ’10

world’s highest average price a have done. The provincial gov-
square foot among million-dol- ernment of the Canadian city *Advanced economies excluding developing nations **Including investment housing
lar-plus home sales globally of Vancouver recently said for- Sources: Christie’s International Real Estate: Luxury Defined 2016 Report (sales); Westpac;
Bank for International Settlements (house prices); Reserve Bank of New Zealand (debt)
last year, at more than $4,000. eign home buyers will face an
THE WALL STREET JOURNAL.
Policy makers worry that if additional 15% property-trans-
left unmanaged the boom fer tax. In Australia, where
could turn into a destabilizing foreigners can only buy newly partly in an effort to collect ment is a means to launder
bust. Foreigners aren’t the built properties, wealthy Chi- data on foreign buyers after money or, more generally, to
only drivers. Many New Zea- nese are helping fuel a resi- the opposition Labour Party get money out of a country to
landers are returning from dential construction boom. published controversial data a ‘safer’ place.”
abroad amid a downturn in “While nothing has been suggesting a large number of In the capital of Wellington, Westfield San Francisco Centre’s fourth level is for pop-up stores.
neighboring Australia and ruled out, we are not actively homes were purchased by some 400 miles from Auck-
troubles elsewhere. Overseas pursuing any further property people with Chinese sur- land, real-estate agent Craig ADVERTISEMENT
students also play a role, as taxes at this time,” a spokes- names. Nearly 5,000 foreign- Lowe says the market is the
does a citywide housing short-
age in Auckland.
man for New Zealand’s Reve-
nue Minister Michael Wood-
ers have applied for a tax
number to buy or sell prop-
strongest he has seen in 16
years of selling real estate. Legal Notices
Back in 2014, when house house told The Wall Street erty since the laws came into Among his recent deals: an un-
prices last rose sharply, the Journal. force in October. renovated weatherboard house BANKRUPTCIES
central bank tightened interest New legislation introduced “The role of foreign money in a workaday suburb sold for
rates to cool things off. But in New Zealand last year will always be overstated US$676,000, more than 60%   
   %) ( &)% ,#( ;(( %& + # .& 
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lately the bank has been low- means properties purchased thanks to the inherent xeno- above its government-ap-      9#&8 86 '&. 1 5!&  & 9&D '&&. &(9" #

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ering rates—a quarter-point by investors and resold phobia that exists in any resi- praised value.    !" #
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cut on Aug. 11 took the bench- within two years face a sales dent population,” said Stephen “The psychology of the %& %'  #(  '%) *+,&&-
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2344 #-#& &5  +&%) &"&%&"#9 12 # #!&E " #  3  9#&8#D
low 2%—to aid an agriculture- now are required to register Bank of New Zealand. “In the ful that I don’t think any rhet- .( # &#1 %& &5#&    #" '%&. &(9" $$!& "(8 #& '! &3
( "(8 #& & %98& &(9" # 8:
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struggling amid a global milk ment: a measure introduced danger that property invest- make any difference,” he said.        52 ( "(8 #& &  #%#&9#19 *
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Fewer Mortgages Go to Blacks in U.S.

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8
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can-Americans has declined more affluent borrowers with years as many lenders have re- black borrowers’ applications ! 1 3! # ( !#& "# ' /
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since the last housing boom, a loans exceeding $417,000 in quired higher credit scores for Fannie- and Freddie-eligi- 1 95 #! 
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! #2 9#&8 9& " ! ! F ( " &  ( "9 
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down, according to a new in recent years because of homes totaled 0.65% in June, those insured by the Federal
#! # 0.*  <  3! $#28  " !
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report. their low default rates. The down from 0.80% a year ago, Housing Administration— 8& "  #  1 #(#992 ! ( &% " 12
!&8 9 !) < & ! #!"&  (9#&8 $!(  #"7!
&3 2 5&  1#& # ($2 3 
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6$! +  99 % !8 #9 & '5&( (#& # 8! " #&9 " " (!&$& 3 
9"& ! 5&&  # ! # 9#&8 8 18& ! <&! 8  3! B9& $!3 3 (9#&8. # $!3 3
for a smaller share of mort- banks’ books. Consumer Credit Default Indi- report. FHA mortgages are $!3 3 ( 9#&8   1 #(#992 ! ( &% " 12 (9#&8 3!8 ! ! 9# " "(8  2 8#2 "  12
gage originations in 2014, at The report released Mon- ces. That figure was 5.58% in generally easier to get ap- (1 ! -  # @6 $*8* $! %#&9& # !
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! +    %   $!&8 (9 !)*(87 "&78 :" ;*
9 #
!&8 9 !) (# #"%& 2 5  B9 
were 7%. By contrast, white
!3 3 9#&8*
borrowers accounted for 69%
of mortgages in 2014 versus
58% 10 years before then. That
!39& >> '@,.D &!
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is based on an analysis of the
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most recent Home Mortgage
#! # 0. ! 1 3! % ! 9"& (* ',,?.D "&  !#&#9 (*
Disclosure Act data in a report
 +  9#&8# 8 B9 # $!3
##" #
commissioned by the National
Association of Real Estate Bro-
#! # ! @6 $*8* # !
jumbo loans. It focuses on the
decline of black borrowers re-
ceiving smaller mortgages that
are eligible for purchase by
Fannie Mae or Freddie Mac.
Only 3% of Fannie Mae- and
Freddie Mac-eligible mort-
gages went to black borrowers
in 2014, down from 6% in
##"# >> '-G.D F ; !$!#& '@@@.D
crisis. Also pushing defaults
down is the near extinction of
subprime mortgages, or those
to borrowers with low credit
scores, which were widespread
during the last housing bub-
ble. Those loans “dispropor-
tionately went to black and
Latino households,” said
cause they permit lower credit
scores—but can also come
with higher costs for borrow-
ers.
The report also says “out-
dated credit scores” are hold-
ing back black borrowers from
getting mortgages. It says
many black borrowers lost
 #
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kers, or Nareb, a trade group 2004, according to the report. James Carr, a professor in their homes to foreclosure or  ! 9 %#  C (& ' / C (&
#! # 0.* % ! &"
5 ! 9"& >> '@--.D "&
of African-American real-es- The decline is largely be- Wayne State University’s De- experienced other negative '!8  .

9
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I
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Using similar data, The
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Wall Street Journal in June re- ers have been sticking to since port for Nareb. Others don’t use banking !)  D '  (: )  +0 5# & " 39& >> '?G.D &! &"
##"9 9"&
ported that minorities are re- the recession. Nearly half of all mortgage services often and their lack of # 
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ceiving a smaller share of In part, this has been to dollars extended to borrowers historical usage of loans is ,:,-D ' '(  ( &)%#((0 $677 9"( "  >> '+@,.*  #""!  3   1:
(# *$!&8 (9 !)*(87 "&7
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mortgages from the largest avoid the threat of having to in 2015 were sold to Fannie also negatively affecting their .)%%' %' (#, *+,&&  +0 '#,( H#!29#"  & H&!& ?,?*
U.S. retail banks as many have buy back loans from the agen- Mae or Freddie Mac, according scores.
 For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B10 | Wednesday, August 17, 2016
Email: heard@wsj.com
A Good Sign for Morgan Stanley
ValueAct Capital Man-
agement’s investment in
Morgan Stanley is a striking
vote of confidence in the
Wall Street institution—one
that could signal a broader
shift in investor perceptions
of major banks.
The $1.1 billion outlay, for
about 2% of Morgan Stanley,
is unusual in a few ways:
ValueAct isn’t urging big
changes in strategy or man-
agement. Instead, it is essen-
tially endorsing Chief Execu-
tive James Gorman’s
strategy. This fits with Value-
Act’s general practice of act-
ing as a friendly, rather than
hostile, activist investor.
But to the extent it is urg-
ing anything, ValueAct could
be seen to be gently encour-
aging more investment in
those business lines it sin-
gled out for praise, notably
advisory and wealth manage-
ment.
Activists, particularly
those investing in struggling
financial companies, typically
focus on what should be sub-
tracted. They frequently call
for underperforming busi-
nesses to be cut back or dis-
BHP Billiton Mines Some Cash for an Uncertain Future
More often than not, some-
thing is easier said than done.
That is especially true for
mining giant BHP Billiton.
The miner is trying to keep
shareholders happy as it
trudges through disasters
and operational challenges.
After recasting its progres-
sive dividend policy in Febru-
ary, BHP said Tuesday it
would return 30 cents a share
for the full year, down almost
80% from $1.24 last year, but
only slightly less than ex-
pected. For the second half of
the year, it sweetened its div-
idend by six cents on top of
the minimum payout of eight
cents.
But that takes attention
away from an earlier prom-
Finance
Watch
HANDELSBANKEN
Nordic Lender Ousts
Its Chief Executive
Svenska Handelsbanken AB,
one of the Nordic region’s larg-
est lenders, removed Chief Exec-
utive Frank Vang-Jensen from
his position, citing the bank’s
need for a manager with more
“complex” leadership skills.
The bank said that following
an extensive analysis, the board
unanimously decided it was time
for a new leader.
“All managers at Handelsban-
ken—particularly the branch
managers—must have a very
high degree of autonomy. Being
the most senior manager at the
bank therefore requires a special
type of leadership—considerably
more complex than traditional
management,” Chairman Par Bo-
man said.
“Thus, it is possible to be an
excellent leader and manager—
as Frank Vang-Jensen has
been—but not fulfill the require-
ments of CEO of Handelsban-
ken.”
Mr. Vang-Jensen is being suc-
ceeded immediately by the
bank’s U.K. operation chief, An-
ders Bouvin, who has worked at
the bank for more than 30 years
in positions including branch
manager in New York and gen-
eral manager of Handelsbanken
Denmark.
TT NEWS AGENCY/REUTERS
Anders Bouvin is Handelsbanken’s new chief executive.
HEARD ON THE STREET
Second Act
Morgan Stanley’s quarterly
return on equity
14%
12 2017 target:
Around 10%
10
8 low the 10% level that
6 investors generally look for
ASSOCIATED PRESS
4 Mr. Gorman’s plan to
2 reach a return on equity of
0
2015 ’16
Source: the company
THE WALL STREET JOURNAL.
continued, or for sweeping
breakups of financial con-
glomerates. ValueAct’s
agenda is notable for its em-
phasis on addition, not sub-
traction.
This reflects the fact that
Morgan Stanley already has
been through a huge restruc-
turing, including the signifi-
cant scaling back of its fixed-
income-trading business.
That activists are now focus-
ing on what segments could
do well marks something of
ise: meaningful debt reduc-
tion. The miner’s free cash
flow in the second quarter
came in strong at $3.4 billion,
but net debt has stayed
largely flat at $26 billion. The
The raised dividend
takes attention away
from a past promise
to reduce debt.
balance sheet remains robust,
but the burden of finance
costs continues to weigh. For
now, cash-flow generation
doesn’t seem to be hindered
by this. But it is only an un-
certain commodity price rally
“This decision is purely re-
lated to the individual. Handels-
banken remains strong and our
long-term goals stand firm,” Mr.
Boman added.
Mr. Vang-Jensen had been
chief executive since the start of
2015. A Handelsbanken veteran
who ran the bank’s Swedish op-
erations, he had also been Han-
delsbanken’s head of Danish op-
erations between 2007 and
early 2014, helping steer the
bank through a recession and a
sharp fall in housing prices.
—Dominic Chopping
NORWAY
Oil Output Reaches
A Five-Year High
Norway produced more oil in
July than in any other month
over the last five years, signifi-
cantly exceeding forecasts, the
Norwegian Petroleum Director-
ate said, a sign that oil compa-
nies are scrambling to boost
output and offset weak prices.
Norway increased its output
of crude oil by 10% from a year
earlier to 1.73 million barrels a
day in July, the NPD said.
—Kjetil Malkenes Hovland
CHINA
PBOC Injects Funds
Into Banking System
China’s central bank injected
289 billion yuan ($43.5 billion)
via a medium-term lending facil-
ity into 15 financial institutions
in the country on Monday, in a
bid to maintain ample liquidity in
the banking system.
The People’s Bank of China
said it would keep the lending
rate unchanged. —Grace Zhu
FINANCIAL ANALYSIS & COMMENTARY
James Gorman, chairman and
CEO of Morgan Stanley
a turning point.
ValueAct’s focus on wealth
management and advisory
makes sense and is consis-
tent with Mr. Gorman’s exist-
ing strategy. These are less
exposed than trading to the
ebb and flow of market ac-
tivity, giving Morgan Stanley
more control over its fate.
In the first half of 2016,
for instance, advisory reve-
nue rose 22% from a year
earlier and wealth-manage-
ment revenue fell just 3%,
that is giving BHP the room
to balance dividends, debt
and growth.
In an effort to keep free
cash flow looking strong, cap-
ital expenditure has tumbled,
down 40% since last year and
lower than BHP’s guidance in
February of this year. But in-
vestors should note that BHP
now forecasts higher spend-
ing in fiscal 2018.
The company on Tuesday
delivered some positive news
to mask its worst-yet annual
loss, tied to write-downs on
its U.S. oil business and pro-
visions for a fatal dam failure
in Brazil: It planned to double
cash flows to $7 billion next
year. That is good news until
you get to the caveat: “at cur-
FINANCE & MARKETS
Rare Bonus: Money-Market Yield
BY BEN EISEN
AND JOHN CARNEY
Something that has been
hard to find recently is show-
ing up in the money markets:
yield.
Rising rates paid by banks
and other companies that issue
commercial paper are attract-
ing new investors to the mar-
ket, just as more-traditional
buyers are scaling back in re-
sponse to looming regulations.
The newcomers include in-
vestors such as Renuka Ku-
mar, a senior portfolio man-
ager who manages corporate
cash at SVB Asset Manage-
ment in San Francisco, an af-
filiate of Silicon Valley Bank.
She bought six-month com-
mercial paper issued by a ma-
jor bank at a rate of 1.05% last
week. To get a similar yield
on a high-quality industrial
corporate bond, she said she
would have to commit money
for 18 to 24 months.
Commercial paper made up
a very small percentage of her
clients’ portfolios as recently
as a year ago. But with yields
improving, it has been grow-
ing. She now allocates be-
tween 30% and 40% of her cli-
ents’ cash to the market, on
average.
“It is really nice to see
higher rates,” she said. “We
have been in the low-rate en-
vironment for so long.”
Money managers that look
after short-duration bond
funds, which typically invest
in securities with maturities
between one and three years,
are turning to commercial pa-
per with even shorter maturi-
ties, as well.
“There’s no doubt that
we’ve become more active in
the traditional CP market,”
said Randy Bauer, senior
portfolio manager for low-du-
ration products at Federated
Investors. “It’s not traditional
anymore.”
He said his portfolios and
accounts typically would have
bought almost no commercial
paper with an initial maturity
of less than a year. Now that
rates have risen, that paper
averages between 5% and 7%
of their holdings.
while sales and trading reve-
nue plummeted 22%.
Poor market conditions
and weak trading revenues in
the first quarter pushed the
bank’s return on equity down
to a lamentable 6.2%. It re-
bounded to 8.3% in the sec-
ond quarter. That still is be-
in a bank.
around 10% by next year has
three basic planks: aggres-
sive cost cutting, return of
capital to shareholders and
achieving modest revenue
growth of 3% to 5% annually.
So far, the first two are on
track, while the third has
fallen short. ValueAct’s in-
vestment suggests that it be-
lieves Morgan Stanley can
hit its target. If its doesn’t,
the activists may start mak-
ing demands. But if it does,
it will be a very positive sign
for the bank and its peers—
that years of painful cut-
backs are drawing to a close
and that it finally is time to
start raising their sights.
—Aaron Back
Step Change
BHP Billiton's dividend per share
$1.5
1.0
0.5
0 oil prices to stay at about
FY2011 ’12 ’13 ’14
Note: Fiscal year ends June 30.
Source: S&P Global Market Intelligence
THE WALL STREET JOURNAL.
rent spot prices.”
Perhaps more convincing
would be a boost to cash
flow from operational pro-
ductivity. In May, when Chief
Executive Andrew Mackenzie
The opportunity has been
created by new rules that will
take effect Oct. 14 requiring
so-called prime funds that in-
vest in corporate paper to
make clear that investors can
lose money and allow the
funds to bar the exits in a cri-
sis. Both changes are a deter-
rent to corporate treasurers
who can’t afford to lose ac-
cess to their cash. The funds
in turn have been delaying in-
vestments and piling up cash
to prepare for redemptions.
The diminishing demand has
been lifting rates.
As of June 30, prime
money-market funds held 22%
less short-term debt issued by
financial institutions in the
U.S. than they did a year ear-
lier, according to data from
the Treasury’s Office of Fi-
nance Research. Yet demand
from borrowers hasn’t gone
away; the amount of such
debt outstanding fell by just
3.8% during the period, ac-
cording to the Federal Re-
serve.
“You still have plenty of is-
suers who need to fund and
are paying higher rates than
they did three months ago,”
said Dave Fishman, head of
the liquidity-solutions busi-
ness at Goldman Sachs Asset
Management.
Rates on three-month dou-
ble-A commercial paper is-
sued by financial institutions
hit 0.72% as of Thursday. A
year ago, that rate was 0.13%.
It averaged 0.55% over the
first six months of 2016. Pres-
sure has been high on rates
for 90-day commercial paper
backed by things like auto
loans and credit-card pay-
ments. Those rates rose to
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THE WALL STREET JOURNAL.
WSJ.com/Heard
OVERHEARD BOE Gets
Its Way on
Hear the word “market-
place” or “exchange” and
crowds of merchants vying
for customers’ business by
Bond Buying
offering either better or Last week, U.K. govern-
cheaper merchandise than ment bonds proved to be the
their competitors comes to thing even central-bank
mind. Someone should point money couldn’t buy. Not so
that out to Kevin Counihan, this week.
the “Marketplace Chief Execu- The Bank of England last
tive Officer” at the U.S. gov- week fell short of its target
ernment’s Centers for Medi- as it sought to buy govern-
care and Medicaid Services. ment bonds maturing in
While they may “continue more than 15 years, part of
to bring quality coverage to its new £60 billion ($77.4 bil-
millions of Americans next lion) gilt-purchase program.
year,” there may be a single Liquidity in this part of the
seller of those services in market is relatively low.
some places. That lack of The BOE’s failure had an
competition bodes poorly for electric effect on bond prices
price and quality. Health in- and yields. The yield on the
surance giant Aetna is the benchmark 30-year gilt fell
latest to say it will pull the to a record low of 1.18% on
plug on participating in sev- Thursday, 0.3 percentage
eral state exchanges autho- point below where it had
rized by the Affordable Care started the week, according
Act. Ironically, one reason the to Tradeweb. That is an ex-
U.S. Justice Department is traordinary move in just a
suing to block its acquisition few days.
of competitor Humana is the On Tuesday, however, the
potential impact on competi- BOE found it easy to buy
tion in ACA exchanges. long-dated bonds. It saw of-
They can now cross that fers of £3.1 billion of paper
worry off their list. against the £1.17 billion it
was seeking to buy. But this
may in part be a function of
impending supply. The gov-
ernment is about to sell
£1.25 billion of bonds due
2055. The response to Tues-
unveiled a streamlined strat- day’s purchases pushed
egy, he said BHP’s existing yields higher, helping make
opportunities could increase Wednesday’s sale cheaper
their value by a lofty 70%. for investors. The 30-year
Again, however, this assumes yield now stands at 1.32%.
commodity prices stay flat at But negative net supply
best. Take, for instance, will return in the next four
BHP’s problem child, the on- weeks, strategists at J.P.
shore U.S. business. It needs Morgan note, and alternative
investments for holders of
$50 a barrel to get growth long-dated bonds are thin on
’15 ’16 going, according to UBS ana- the ground. The BOE could
lysts. yet face a further hiccup in
BHP’s stock surged in Lon- its bond purchases over the
don to its highest level in summer.
nine months, and investors Investors face crosscur-
are rightly pleased to be at rents from rising U.K. infla-
the top of the miner’s priority tion, BOE buying and a
list. But they also should keep growing debate about fiscal
an eye on whether BHP deliv- policy. Holders of long-dated
ers on past promises. gilts could be in for a bumpy
—Anjani Trivedi ride. —Richard Barley
months to a year—maturities
Rising Yield that prime money-market
Rates on three-month double-A funds with an eye on October
commercial paper issued by are avoiding.
financial companies Other investors are looking
1.0% to different markets affected
by the rise in short-term
yields. Jeffery Elswick, the di-
0.8
rector of fixed income at
Frost Investment Advisors,
0.6 reasons that yields on other
types of debt also are rising
0.4 as Libor climbs. Long-term
floating-rate bonds that are
indexed to Libor, for example,
0.2
look more attractive than
commercial paper, he said.
0 Nevertheless he is enjoying
2015 ’16 the higher yields on the part
Source: Federal Reserve of his portfolio allocated to
THE WALL STREET JOURNAL. paper.
“We’re sitting back and go-
0.95% Friday from 0.30% a ing, this is fantastic,” he said.
year earlier. The new investors are help-
The three-month U.S. dol- ing provide stability to the
lar London interbank offered short-term markets during a
rate, a benchmark based on critical time, ensuring that
the cost of short-term bor- companies can fund them-
rowing between banks, selves as the traditional buyer
climbed to about 0.82% on base for their paper dries up.
Friday, its highest level since Analysts have praised the or-
the financial crisis. By com- derliness of the transition in
parison, a three-year U.S. preparation for the money-
Treasury note had a yield of market fund overhauls.
0.845% on Monday. But such investors might
Goldman Sachs Asset Man- not prove as enduring a
agement is among those hop- source of demand as money-
ing to benefit. It created its market funds if other assets
Short-Term Conservative In- begin to look more attractive
come Fund in February 2014 due to factors like a Fed rate
in anticipation of efforts to rise. That could add to the
overhaul money-market funds. challenges for companies try-
It had $21.4 million in assets ing to line up short-term
at the end of July. funding.
Recently the fund, which “It increases the risk that
isn’t subject to the coming you don’t have as stable U.S.
rule because it isn’t a prime dollar funding as you did in
money fund, has been buying the past,” said Mark Cabana,
commercial paper issued by head of U.S. short-rates strat-
European, Asian, and U.S. egy at Bank of America Mer-
banks that matures in six rill Lynch.
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