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COMPANIES RETHINK HOW

THEY SET SALARIES
The Donald J. Trump

Referendum
MANAGEMENT | B1
OPINION | A10
WEDNESDAY, AUGUST 3, 2016 ~ VOL. XXXIV NO. 129

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Mourners Honor Slain French Priest
ig U.S. firms reported

shrinking quarterly profit
and tepid sales, hurt by the
energy sector and lower
business investment. A1
BY THEO FRANCIS
AND KATE LINEBAUGH
Japans cabinet approved

a stimulus package with
$73 billion in new spending,
in Abes latest effort to
jump-start the economy. A1
GM, Ford and Toyota reported lower U.S. sales in

July, a sign the light-vehicle
market has plateaued. B4
South Korea banned the
sale of almost all VW cars
and levied heavy fines over
the emissions scandal. B4
Ferraris profit climbed
28% on more vehicle sales
and a lower tax rate. B4
P&G forecast another
year of sluggish sales as it
struggles to return to prerecession growth levels. B2
World-Wide
Ticket sales for the Olympics are lagging as Rio grapples with recession, a Zika
epidemic and security concerns ahead of the Games. A1
U.S. planes again struck
an Islamic State stronghold
in Libya, but the battle to uproot the extremists is likely
to be long and difficult. A3
Obama blasted Trump for
his attack on the parents of a
Muslim U.S. soldier killed in
Iraq and said the candidate
is unfit to be president. A7
Britain should do more to
resettle Syrian refugees and
strengthen border controls, a
panel of lawmakers said. A3
Japan criticized Chinas
maritime ambitions and expressed alarm over North
Korean progress in miniaturizing nuclear weapons. A5
Obama met with Singapores Lee and said the two
leaders are still committed
to the TPP trade deal. A5
Malaysias premier, facing
a global probe into alleged
domestic corruption, urged
other countries not to meddle in his nations affairs. A5
Thousands of people attended the funeral in
France of the Roman Catholic priest who was slain by
Islamic State followers. A3
Venezuelan authorities
approved the first of two petitions needed for a referendum to depose Maduro. A5
CONTENTS
Arts & Ent............... A9
Business & Fin.. B1-5
Crossword.............. A12
Finance & Mkts..... B6-10
Heard on Street. B10
Management.......... B5
Markets Digest..... B8
Opinion.............. A10-11
Personal Journal.. A8
Property Report... B9
U.S. News.................. A7
Weather................... A12
World News........ A2-5
3.20; CHF5.50; 2.00;

U.S. Military (Eur.) $2.20
s Copyright 2016 Dow Jones &

Company. All Rights Reserved
TRIBUTE: Thousands attended the funeral of the Rev. Jacques Hamel, the Roman Catholic priest killed by Islamic State followers in France. A3
Japan Refires Stimulus Gun

Spending plan among
countrys biggest since
the financial crisis
to jump-start the nations

sluggish economy.
The spending program,
which has a total value of 28
trillion over several years,
represents not just an attempt
to breathe new life into the
Japanese economy but a political test for Mr. Abe, who has
struggled to deliver sustained
growth.
The government will pump
money into infrastructure
BY MITSURU OBE
TOKYOJapans cabinet
approved a government stimulus package that includes 7.5
trillion ($73 billion) in new
spending, in the latest effort
by Prime Minister Shinzo Abe
South Africa has trailed overall

sub-Saharan Africa GDP growth
for the past two decades.
Sub-Saharan
Africa
BY PATRICK MCGROARTY AND JOE PARKINSON

SOWETO, South AfricaIn a far corner of the high school that was once an
incubator for black South African luminaries and their children, dozens of students killed time smoking marijuana and
nyaope, a crude concoction of heroin
and household chemicals.
Sipho Tshabalala, an 18-year-old student, kept a close watch over the drug
sellers, customers and lookouts who
crowded the lawless patch of schoolyard known as the island. You find all
kinds of comedians back here, he said
on a recent morning. You learn more
4
2
0
South Africa
2
2000
BOE may resume bond buying,

but some wonder why........... A4
Japans 10-year yield climbs
close to zero............................... B6
Heard: Investors should watch
Japans bond market........... B10
Procter & Gamble says

sluggish sales to persist..... B2
July auto sales stoke fears of
U.S. market plateau............... B4
Soweto high school, once a symbol of hope, is falling short, and so are its students
8%
1991
many benefits from more than

three years of Abenomics, the
prime ministers signature
growth program. The government will provide cash handPlease see JAPAN page A2
SOUTH AFRICAN SCHOOLS FADE
Below the Curve
projects, such as upgrading

ports to accommodate foreign
cruise ships and building foodprocessing facilities to increase exports of farm products. A supplementary budget
later this month will provide
direct spending of about 4
trillion in the fiscal year ending in March.
The package also aims to
offer more help to Japanese
who say they havent felt
Americas biggest companies logged a fourth straight

quarter of shrinking profits
and tepid sales, as weakness
from energy companies and
lower business investment
more than offset U.S. consumer strength.
Earnings reports for the
second quarter showed improvement from the first three
months, but concerns about
the countrys economic prospects are casting a shadow
over the outlook for the remainder of the year. Executives said they are worried
about slowing industrial production and a tumultuous political climate.
Construction machinery giant Caterpillar Inc. last week
cut its annual profit forecast,
warned of layoffs and said it
doesnt expect sluggish global
growth to reverse this year.
Praxair Inc., which makes
gases for industry, said it
would have to cut costs as a
result of a manufacturing
slowdown in the U.S.
Industrial production is
lackluster, said Michael Kneeland, chief executive of United
Rentals Inc., which caters to
construction and industrial
Please see RESULTS page A2
10
Source: International Monetary Fund
THE WALL STREET JOURNAL.
than in class.
Orlando West High School used to be
a symbol of hope in the township that
epitomized South Africas struggle
against apartheid. Nelson Mandela, an
evangelist for the power of education,
lived down the street, and in his will he
left money to fund college scholarships
for Orlando West students.
Yet, 22 years after Mr. Mandela was
elected president on a promise to lead
all South Africans to prosperity, Orlando West is failing and so are its students: Roughly half drop out before
graduation. Classes are routinely canceled because teachers stay homeso
often some students say they have finished a semester without completing a
page of their workbooks.
The troubles at Orlando West, at
one time an exemplar of educational
reform, reflect how far South Africa
has fallen short of Mr. Mandelas
dream of equality and opportunity.
Despite the many gains since the
end of white-minority rule in 1994,
the education system in South Africa
has changed from bad to worse, said
Benjamin Chiloane, an Orlando West
English teacher, whose two-decade
teaching career spans South Africas
Please see SCHOOL page A6
A White
House
Welcome
Nice Cargo Shorts! Youll Be

Sleeping on the Couch
i
Fans of the roomy summer staple meet

pockets of resistance
BY NICOLE HONG
Dane Hansen, who operates a
small steel business in Pleasant
Grove, Utah, says that throughout his 11-year marriage, 15
pairs of cargo shorts have
slowly disappeared
from his closet. On
the occasions when
he has confronted
his wife about the
missing shorts, she
will either admit to
throwing them away
or deflect confrontation by saying things
like, Honey, you just
need a little help.
Cargo
Mr. Hansen, 35
years old, is now
down to one pair of cargo
shorts, and he guards them
closely. He has hidden them in
small closet nooks where his
wife cant find them.
I dont let her get her
hands on them, he said. I
wish I had caught on sooner.
Relationships around the

U.S. are being tested by cargo
shorts, loosely cut shorts with
large pockets sewn onto the
sides. Men who love them say
theyre comfortable and practical for summer. Detractors
say theyve been out
of style for years,
deriding them as
bulky, uncool and
just flat-out ugly.
Mr.
Hansens
wife, Ashleigh Hansen, said she sneaks
her husbands cargo
shorts off to Goodwill, the charitable
organization, when
shorts
hes not around.
Mrs. Hansen, 30, no
longer throws them out at
home because her husband
has found them in the trash
and fished them out.
I despise them, she said.
There were so many good
things about the 90s. Cargo
Please see SHORTS page A6
J. SCOTT APPLEWHITE/ASSOCIATED PRESS
The U.K. housing market

may be a key bellwether of
Brexits economic impact. B6
MICHEL EULER/ASSOCIATED PRESS
Riverstone executives
ceded over $300 million of
profits they made from investments before the oil
bust erased those gains. B1
A U.K. regulator proposed

extending the deadline to
compensate bank customers who bought payment
protection insurance. B6
EURO 1.1226 0.56%
Anxiety
Weighs
On U.S.
Earnings
Business & Finance
Biogen has drawn takeover interest from drug

companies including
Merck and Allergan. B4
EUROPE EDITION
HONORED GUEST:
Singapore Prime
Minister Lee Hsien
Loong, center, visited
U.S. President Barack
Obama, marking the
nations 50th
anniversary of
diplomatic relations.
Mr. Obama also
called on Republican
leaders to revoke
their endorsements
of Donald Trump
instead of merely
criticizing him. A5, A7
Tourism Flags in Rio Ahead of Games

BY LUCIANA MAGALHAES
RIO DE JANEIRORio 2016
ticket sales are lagging behind
those of recent Olympics and
demand for hotels and flights
is showing some softness too,
as the host city grapples with
recession, a Zika epidemic
and worries about security
days before the opening ceremonies.
About 79% of the 6.1 million tickets for the Rio Games
had been sold as of Aug. 1, according to local organizers.
That is well behind the final
figures for the last two Games
in London and Beijing, both of
which sold more than 95% of
their seats.
Still, Rios percentage sales
already have beaten those of a
number of past summer Olym-
pics, including Athens, Atlanta, Barcelona and Seoul,

none of which cracked the
80% mark, according to figures compiled by the statistics
portal Statista.
I think its an acceptable
result, said David WallechinPlease see RIO page A4
Property Report: Rio projects
fail to reach the finish line... B9
A2 | Wednesday, August 3, 2016
WORLD NEWS
Xi Enforces Partys Version of History

Spat over a celebrated Chinese war story is a flashpoint in presidents push to promulgate an official narrative
FIVE HEROES VILLAGE,

ChinaA jagged cluster of
granite spires where one of
Chinas most celebrated war
skirmishes unfolded has
once again become the backdrop to a battle, this time
over the right to question
the Communist Partys version of history.
In June, a Beijing court
declared writer Hong Zhenkuai guilty of libel for challenging elements of the
Five Heroes of Langya
Mountain, a tale of patriotism and self-sacrifice taught
to generations of Chinese
school children. In raising
doubts about the tale, the
court said, the writer had
damaged the soldiers heroic image and spiritual
value.
Mr. Hong is one of several Chinese writers, scholars and bloggers who have
been swept up in an intensifying campaign against what
party-affiliated media and
scholars describe as Western-influenced skepticism, or
historical nihilism, aimed
at negating the partys contributions to Chinas progress.
The push widens a crackdown on dissenting views
under President Xi Jinping
that has dramatically tightened the space for political
debate.
Last month, authorities
purged top editorial staff at
Yanhuang Chunqiu, a venerable, reform-minded history
journal where Mr. Hong once
worked. In response, the
magazines 93-year-old publisher, Du Daozheng, has
vowed to sue the magazines
supervisory agency, though
so far the courts have de-
RESULTS
Continued from Page One
firms. The company has moderated capital spending as reduced demand from the oil industry left a glut of equipment
available in the market.
With just over two-thirds of
S&P 500 companies reporting
results, adjusted earnings
which exclude various items
deemed unusualare expected
to fall for the fourth straight
quarter, down 2.6% from the
same period last year, according to Thomson Reuters. Revenues are also forecast to slip
0.4%, the sixth straight quarterly decline.
Excluding the hard-hit energy sector, second-quarter
earnings are expected to rise
by a still-slow 1.8%, while revenues are likely to increase
about 2.6%, Thomson Reuters
said. The forecast combines
available results for companies
in the index with analyst estimates for those that have yet
to report.
The pain is broad-based:
Only the consumer discretionary, health care and utili-
JAPAN
outs of 15,000, or about $147,
each to 22 million low-income
people, bring more workers
into a public-pension system
by easing admission criteria,
and offer more college scholarships.
In addition, the stimulus
plan promises more child-care
facilities for working parents,
and money to help employers
provide longer maternity
leaveboth aimed at addressing a labor shortage.
Mr. Abe had vowed to help
JOSH CHIN/THE WALL STREET JOURNAL
BY JOSH CHIN
Hong Zhenkuai, left, with a guide on Langya Mountain, from where five soldiers are said to have leapt to avoid being captured.
clined to accept the lawsuit.
Meanwhile, censors have
shut dozens of historythemed social-media accounts, many of them hosted
on the popular WeChat messaging app, for spreading
unhealthy information.
Two other writers in addition to Mr. Hong face lawsuits: one for making a joke
online involving a Chinese
soldier who died in the Korean War, the other for questioning the story of how one
1930s military commander
and 700 Manchurian farmers
wiped out a force of 3,500
Japanese soldiers.
In a commentary last
month, Seeking Truth, an
authoritative journal on
party theory, described efforts to question official histies sectors are expected to
see profits grow by more
than 5%. Quarterly earnings
are expected to decline by
87% for energy companies,
3.6% for financial firms and
1.4% for telecommunications
companies, according to
Thomson Reuters.
Analysts now forecast that
the third quarter will barely
show profit growth, predicting
an average increase of 0.3% for
companies in the S&P 500
compared with expectations of
2% growth a month ago. Earnings forecasts often become
less optimistic as a quarter
progresses.
The U.S. stock market has
remained largely resilient as
investors have favored equities in face of low yields
from other investments.
However, in the wake of
seven record closing highs
posted in July by the S&P
500 and the Dow Jones Industrial Average, the market
is showing some signs of jitters. The Dow fell for a seventh straight day on Tuesday,
as oil prices continued to
weaken.
The muted manufacturing
and industrial picture was
more people play productive
roles in Japanese society following criticism that his early
policies benefited mostly big
corporations. Corporate-tax
cuts and a weaker yenthe
latter a key policy goal of his
governmenthelped send corporate profits to record highs,
but most consumers struggled, particularly the 38% of
the workforce in temporary,
lower-paying jobs.
By total size, the stimulus
package ranks among Japans
biggest since the global financial crisis, but actual new, direct spending will total only
about 7.5 trillion, most of it
over the next two years.
Try, Try Again

Japans frequent stimulus packages typically include governmentbacked loans as well as direct spending to boost the economy.
60 trillion
50
Overall package
Direct scal spending
40
30
20
10
0
2008
09
10
Note: 1 trillion = $9.84 billion

Source: Mizuho Securities
11
12
13
14
15
16
tory as a conspiracy. Now

that weapons can no longer
stop Chinas rise, enemy
forces abroad and at home
have chosen historical nihilism as a progressive tactic,
it said.
In a recent act of defiance, Mr. Hong huffed his
way up a steep, little-used
trail from Five Heroes Village, or Wuyongcun, about a
three-hour drive south of
Beijing. A four-hour hike led
him to the spot, marked with
a makeshift sign, where five
soldiers are said to have
jumped off a cliff after diverting Japanese forces to
save their battalion and
nearby villagers.
Mr. Hongs doubts, outlined in two articles he
wrote in 2013, center on
Prot Squeeze
Large companies in
most sectors are
expected to record
stagnant or declining
prots in the second
quarter.
claims that the five soldiers

killed large numbers of enemy troops before leaping,
and that two of the soldiers
survived after landing on
tree branches. The lawsuit
against him was filed by a
retired Peoples Liberation
Army officer on behalf of the
surviving soldiers relatives.
Standing on a rock overlooking the cliff, the writer
had a picture taken to send
to the court, along with evidence for an appeal. These
judges havent been here,
he said. They dont have
the capability to decide historical fact.
Concerns about historical
nihilism trace their roots in
China to the early 1990s,
when the party was reeling
from the Tiananmen Square
Consumer Discretionary
Year-over-year change in earnings

for sectors in the S&P 500*
Health Care
7.1%
Utilities
5.5%
Industrials
Technology
0.1%
1.4%
2.8%
0.2%
Consumer Staples
Telecom
2.6%
S&P 500
3.6%
Financials
6.4%
86.6%
11.7%
Materials
Energy
*Reects actual results for 71% of S&P 500 companies and analyst estimates for the remainder.
Source: Thomson Reuters
countered by some encouraging results from consumer-oriented companies and highprofile tech firms like
Facebook Inc. and Google parent Alphabet Inc. that have
seized on mobile advertising.
Online retailing giant Amazon.com Inc. clocked its third
straight profit record, helped
by stronger product and
cloud-computing revenue.
Outdoor-equipment retailer
Cabelas Inc. reported its first
increase in same-store sales
since third-quarter 2013,

though margins suffered from
heavier discounting. Fortune
Brands Home & Security Inc.,
which sells cabinets, plumbing
fixtures and door locks, noted
higher new-home construction
and said that remodeling activity continued to reflect
strong pent-up demand from
consumers.
Overall, consumer spending
rose by 4.2% in the second
quarter, the U.S. Commerce
Department reported, mark-
Mr. Abe didnt speak publicly about the stimulus package Tuesday. His top aide,
Chief Cabinet Secretary Yoshihide Suga, said the prime minister had told his cabinet that
the plans were about investment in the future.
The yen strengthened further Tuesday after details of
the stimulus package were released. The currency had been
advancing since last week,
when broad outlines of the
stimulus program began to be
revealed before a Bank of
Japan policy announcement on
Friday that left investors underwhelmed. The U.S. dollar
was down 1.6% in New York
afternoon trade, at 100.79.
Trading on the Tokyo Stock
Exchange on Tuesday had
ended before the stimulus
package was approved.
Mr. Abes spending plans
are intended to bolster Japans
economy amid concerns about
global growth, particularly a
slowdown in China and emerging markets and the effects of
the U.K.s decision to exit the
European Union.
Japans economy has swung
between expansions and contractions in recent quarters. In
the April-June period, annualized growth is believed to have
slowed to 0.1% from the previous quarters 1.9%, according
to a survey of 43 economists
by the Japan Center for Economic Research. The figure is

due for release Aug. 15.
Economists predict the
stimulus will only modestly increase economic growth. Koya
Miyamae, of SMBC Nikko Securities, said he expects it to
boost growth by 0.4 percentage point in the current fiscal
year ending in March.
Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co., said the package
will provide some help to the
economy. But he said fiscal
stimulus alone wont create
sustainable growth, and called
for more structural changes
something critics of Abenomics say the government hasnt
delivered as promised.
Mr. Kodama cited the need
for deregulation in sectors
such as agriculture, medical
services, nursing care and education.
The package marks the latest loosening of fiscal policy
by Mr. Abe as economists and
policy makers increasingly
conclude that monetary policy
alone wont be able to rev up
Japans economy. In June, Mr.
Abe postponed a planned
sales-tax increase for 2
years, underscoring weakness
in the economy.
The Bank of Japan last
week chose to only tweak its
monetary stimulus, confirming
democracy protests and the

fall of the Soviet Union.
They have been revived and
amplified under Mr. Xi, who
has tried to reinvigorate
faith in the party amid slowing economic growth and social dislocation.
Mr. Xi has rejected Western political ideals, while defending the Mao Zedong era
and championing a return to
ancient Chinese values. In a
speech about ideology published in April by the Peoples Daily, the partys flagship newspaper, he quoted
19th-century poet Gong Zizhen to preface a warning
about forces trying to attack
the party using its past: In
extinguishing a kingdom of
men, the first step is to remove its history.
In the past, you didnt

dare doubt the stories, but
now everyone doubts them,
said Zhang Ming, a professor
of political science at Beijings Renmin University.
The party cant use reason
to defend the heroes, so they
have to use force instead.
In its ruling against Mr.
Hong, Beijings Xicheng District Court said he had insufficient evidence for his
doubts and ordered him to
apologize publicly in newspapers and online. In filing
his appeal, the writer argued that the court had
failed to point out any specific factual errors in his
articles.
The court didnt respond
to a request to comment. A
lawyer for the soldiers descendants hung up the
phone repeatedly.
Scholars are divided over
what is driving the partys
new attention to history.
Many credit the personal
convictions of Mr. Xi, who
came of age as a Red Guard
during the Cultural Revolution, while others argue that
slowing economic growth
has sent the party scrambling for other fonts of legitimacy.
Cradling his camera, Mr.
Hong slipped and fell multiple times clambering down
from the cliff to his friends
car in Five Heroes Village.
Driving back to Beijing, he
said he didnt expect to win
his appeal, but wanted to
pursue it anyway, just to
have it on record.
Notice to Readers
Andrew Browne is on
vacation. His Chinas World
column will resume Aug. 17.
ing the strongest growth

since late 2014 and offsetting
continued declines in business
investment. Meanwhile, average hourly earnings are starting to increase and unemployment levels have largely
improved.
But some consumer-driven
companies are warning of
trouble. We continue to face
a relatively slow-growth, volatile world, said Jon Moeller,
chief financial officer of
Procter & Gamble Co., which
sells Gillette razors and Pampers diapers.
The U.S. economy got its
weakest annual start since
2011, tracking a 1% growth
rate for the first half of 2016,
the Commerce Department reported Friday. Gross domestic
product increased just 1.2% in
the second quarter.
And recent events from terrorist attacks and police
shootings to the heated political rhetoric around the U.S.
presidential election has given
pause to some companies.
Starbucks Corp. CEO Howard Schultz said the U.S. restaurant industry experienced a
profound weakening in consumer confidence in the lat-
est quarter, cutting into customer traffic and ending the

coffee chains 25-quarter
string of at least 5% sales
growth
excluding
newly
opened and closed stores.
We have a situation where
you have a very uncertain
election, you have domestic
civil unrest with regard to
race, and I think the issues
around terror have created a
level of anxiety, said Mr.
Schultz. So we are no longer
looking at just an economic
downturn.
McDonalds Corp. CEO Stephen Easterbrook attributed
softer consumer demand in
part to general economic uncertainty, along with factors
like a widening gap between
the cost of restaurant meals
and groceries. In the U.S., the
companys comparable sales
rose by 1.8%, well below the
3.2% growth anticipated by
analysts.
Whether through elections
or through global events, people are slightly mindful of an
unsettled world, Mr. Easterbrook told investors last week.
When families are uncertain,
caution starts to prevail, and
they start to hold back.
for many economists that it

had reached the limits of its
power to fuel growth and inflation.
Japanese government officials have promised coordination of fiscal and monetary
policies. Finance Minister Taro
Aso and BOJ Gov. Haruhiko
Kuroda met Tuesday afternoon as the stimulus package
was being approved.
Other items in the package
included interest-free loans

for infrastructure projects, including a magnetic-levitation
train line connecting Tokyo
and Osaka, and new hotels for
foreign tourists.
CORRECTIONS
AMPLIFICATIONS
Polands parliament recently passed a new law on retail sales. A Business & Finance article Tuesday about
corporate investors starting to
cool on Poland incorrectly said
the law is moving through
parliament.
Designer Billy Cotton
bought a block print made in
Ahmedabad, India, from New
York Citys Xenomania. An Off
Duty article in the Friday-Sunday edition about handmade
textiles from abroad incorrectly said it was from Osmanabad, India.
Readers can alert The Wall Street
Journal to any errors in news articles
by emailing wsjcontact@wsj.com.

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Wednesday, August 3, 2016 | A3
WORLD NEWS
Libya, U.S. Facing Entrenched Militants

Pentagons strikes aim
to help retake Sirte,
but Islamic State dug
in around the country
Even with the U.S. launching airstrikes on an Islamic
State stronghold in Libya, the
battle to uproot the extremists
from the oil-rich North African
nation is expected to be long
and difficult.
The U.S. began the attacks

on Monday and struck again
on Tuesday in support of a
ground offensive to retake
Sirte, a strategic port on the
Mediterranean coast. But Islamic State is also entrenched
in other pockets across the
country, including parts of the
eastern city of Benghazi,
Libyas second largest; Derna,
another eastern city; and the
western town of Sabratha,
near the Tunisian border.
The competing militias and
centers of power that have
stoked Libyas civil war complicate the fight against Islamic State. The chaos has
given the group an opening to
gain its first territorial foothold outside its self-declared
caliphate in Iraq and Syria.
Libya has two rival governmentsone that is internationally recognized in the capital, Tripoli, and another based
GORAN TOMASEVIC/REUTERS
By Hassan Morajea
in Tunis, Tunisia,
Maria Abi-Habib
in Beirut
and Paul Sonne
in Washington
Forces allied with the U.N.-backed government in Libya battling Islamic State fighters in Sirte, a militant stronghold, on Tuesday.
in the east. The competing
governments so far have refused to work together to defeat Islamic State or toward
national unity, despite international efforts.
President Barack Obama
said on Tuesday that he hopes
combating Islamic State will
help move Libya toward a
functioning
government,
something he said would be a
long process.
Pentagon spokesman Capt.
Jeff Davis said that Mr.
Obamas authorization is limited to using U.S. air power to
help Libyan forces allied with
the Tripoli government retake
Sirte.
In the quest to defeat Is-
lamic State in Libya, international and regional powers

have haphazardly supported
competing factions, worsening
the protracted civil war that
allows the insurgents to
thrive, said Abubaker Baira, a
parliamentarian representing
the eastern government.
Unfortunately all sides of
the Libyan conflict happily
open their doors to this socalled military or political support, even if covertly, in the
hope it will empower them
against their domestic enemies, Mr. Baira said. What
they dont seem to realize is
this only further entrenches
this civil war that has gone on
too long already.
Western officials have worried that Islamic State was

trying to establish Libya as a
fallback alternative to its
shrinking territory in Syria
and Iraq, where it captured a
large swath of territory in
2014.
The United Nations-recognized Government of National
Accord, an interim body that
was seated in Tripoli in
March, is leading the current
offensive in Sirte, having cobbled together a ground force
from various militias.
In the east, the rival government backs Gen. Khalifa
Haftar, who has fought Islamic
State since last year, drawing
on the backing of Western and
regional powers. Gen. Haftar

has repeatedly denounced the
interim government in Tripoli.
Eamon al-Mani, a soldier allied with the Tripoli government fighting in Sirte, said
that when he and his comrades heard the airstrikes
Monday evening, they were
excited.
We hoped they would stay
and offer air cover so we could
move forward. But they just
hit a couple of targets and
left, he said.
Mr. al-Mani said Islamic
State fighters were using what
seemed like endless mortar
rounds and snipers to slow
their offensive.
We dont have sufficient
U.K. Lawmakers Blast EU on Migrant Crisis

LONDONBritains government should do more to resettle Syrian refugees and
strengthen border controls to
clamp down on the smuggling
of migrants, an influential
committee of U.K. lawmakers
said in a report to be published Wednesday.
The cross-party panel also
criticized
the
European
Unions handling of the migrant crisis, saying the EU
failed to anticipate and tackle
the crisis and has done too
little, too late, according to
an advanced copy of the report by the Home Affairs Committee, which examines the
U.K.s interior ministry.
Europes efforts to address
this colossal refugee crisis has
been lamentable, said Keith
Vaz, a member of the opposition Labour Party, who heads
the panel. While it has no formal powers to compel the government to act, the committees high-profile role can
shape political debate.
In the U.K., committees
comprising lawmakers publicly
scrutinize the workings of dif-
ROB PINNEY/ZUMA PRESS
BY ALEXIS FLYNN
Graffiti adorns the site of a camp near Calais, France, from which migrants hope to cross to the U.K.
ferent government departments, providing oversight
and advice.
The reports publication
comes in the wake of the U.K.s
vote to leave the EU in June.
Unease about the rise of immigration in Britain has fueled
anti-EU sentiment in recent
years and polls showed that

anxiety played a big part in
the referendum result.
Despite these concerns, Mr.
Vaz said it was imperative
that the new British government stick to a commitment
by former Prime Minister David Cameron to house 20,000
Syrians by 2020 as part of a

program to relocate refugees
from camps to the U.K. Mr.
Cameron had wanted the U.K.
to stay in the EU and resigned
after the referendum. He was
succeeded by Theresa May.
According to the report, approximately 1,602 Syrian refu-
gees have been processed under the program since Mr.

Cameron made the pledge
in September. Most have been
resettled in Scotland and
northern England.
In the report, the lawmakers added that the U.K. would
need to continue to work with
the EU to tackle the migrant
crisis and that they expected it
to be a key point of the U.K.s
exit negotiations for exiting
the block.
Among the challenges set
out by the committee was
maintaining Britains longstanding agreement with
France to carry out U.K. border checks on French soil.
Policing of the U.K.s borders needs to be improved urgently, said the report, noting
that the country only has five
vessels to patrol more than
7,000 miles of British coast.
While eight more boats have
been ordered, the report said
only four extra craft will be
deployed within the next 18
months.
The number of Border
Force vessels in operation appears to be worryingly low,
the committee said.
Britains Man in Brussels Gets Antiterror Role

BRUSSELSEuropean Commission President Jean-Claude
Juncker is set to task Julian
King, the U.K.s proposed new
commissioner, with implementing the European Unions
security plans, the EUs executive said.
The move puts the new
British
commissioner
in
charge of a high-priority issue
just as the U.K. prepares to
leave the bloc. But by creating
a new portfolio focused on implementing existing plans, Mr.
Juncker avoided giving the
new commissionerwho will
have to step down once the
U.K. exits the blocresponsibility for any major new EU
initiatives.
The move also lets Mr.
Juncker avoid having to reshuffle any other posts within
the EUs executive arm. Mr.
King will report to the commissions senior Vice President
Frans Timmermans.
Mr. Juncker said in a letter
Tuesday that Mr. Kings new
portfolio would have three priorities: tackling terrorism and
preventing radicalization, disrupting organized crime, and
implementing a strategy to
combat cybercrime.
The U.K. is entitled to have
a commissioner until it for-
mally leaves the EU. Britains

previous commissioner, Jonathan Hill, stepped down in
mid-July having resigned in
the aftermath of the U.K.s
June 23 referendum vote to
leave the bloc.
Mr. King is currently the
U.K.s ambassador to France.
The U.K. and France are seen
as having the most advanced
security services in the EU,
and cooperation between London and Paris has been a key
part of the blocs response to
the rising terror threat from
Islamist militant groups.
Mr. Kings brief will include
measures to counter the threat
posed by returning terrorist
fighters, reinforcing the blocs
strategy for protecting critical
infrastructure and soft targets
and upgrading Europes counterterror center to more efficiently exchange security intelligence and information. Mr.
King will work with a task
force of experts at his disposal, the commission said.
Mr. Juncker informed new
British Prime Minister Theresa
May late Monday of his choice,
the commission said.
Ms. May has cited cooperation on security, including
sharing information on the
movement of terrorists and
organized criminals, as one of
the reasons she campaigned
for the U.K. to stay in the EU.
Since becoming prime minister, she has repeatedly said

that the U.K. and the EU will
continue to cooperate on security issues once the U.K. leaves
the bloca point she stressed
on a visit to Paris last week.
The U.K. will continue to
fulfill our rights and obligations as a member state until
we leave the EU and the prime
minister has been clear that
we will be an active player, a
spokesman for Ms. May said
Tuesday. Security is a vital is-
sue for all member states and

cooperation across the EU can
help to better protect us all
from the range of threats we
face.
The EU has moved slowly to
pass a series of blocwide initiatives to sharpen its counterterror threat since the start of
2015, when attacks in France
and Belgium became more frequent and serious. Slowed by
concerns about civil liberties
and political disputes in some
member states, the bloc even-
THOMAS SAMSON/AGENCE FRANCE-PRESSE/GETTY IMAGES
BY LAURENCE NORMAN
AND VALENTINA POP
Julian King, right, meeting with French officials in Paris in June
tually agreed on measures including the registry of passenger name records and tighter
controls on the sale and registration of firearms.
The EUs foreign-policy
chief Federica Mogherini has
also set out ambitious plans
for tighter cooperation among
European governments in responding to terror threats and
sharing resources to combat
the problem.
Mr. Kings appointment still
has to pass through a hearing
in the European Parliament
and be formally endorsed by
the other 27 EU governments
before coming into effect. The
Parliament, which cant veto
the choice but can recommend
against it, is expected to hold
the hearing in the early autumn, according to officials.
Until he is confirmed, Mr.
King wont attend the regular
meetings of the European
Commission executive. Each
member state holds one of the
posts in the commission.
One of the key questions
facing Ms. May is when to
trigger the start of formal negotiations with the EU on the
terms of Britains exit from the
bloc. She has indicated that
won't happen until early next
year. That will open a twoyear window for negotiations.
Jenny Gross in London
contributed to this article.
support to move forward

safelyWith the right air cover,
we could take Sirte this week.
Capt. Davis said the U.S. expects the final recapture of
Sirte to take weeks rather
than months, though he declined to put a definitive timeline on the operation.
Capt. Davis cautioned that
the recapture of Sirte wouldnt
mean that Islamic State would
be scrubbed from Libya permanently. But he said the campaign against the city has significantly reduced the number
of Islamic State fighters in and
around Sirte to hundreds from
thousands.
The U.S. airstrikes targeted
Islamic States heavy weaponry in Sirte. Robyn Mack, a
spokeswoman for U.S. Africa
Command, said on Tuesday
that five airstrikes on Monday
took out an Islamic State
fighting position, two tanks
and other vehicles. Strikes on
Tuesday hit a rocket launcher
and an excavator, according to
Capt. Davis.
On Tuesday, Ahmed Mesmarri, a spokesman for Gen.
Haftars forces, the Libyan National Army, denounced the
U.S. airstrikes and claimed the
Pentagon had no permission,
even under the cover of fighting extremism.
The interim government in
the west, however, confirmed
that it had requested the U.S.
airstrikes.
U.S. defense officials have
been drawing up plans to rout
Islamic State from Libya for
months.
Carol E. Lee in Washington
Thousands
Attend
Funeral for
Slain Priest
BY NICK KOSTOV
Thousands of people attended the funeral of the Rev.
Jacques Hamel, the Roman
Catholic priest slain by Islamic
State followers in an attack
that has cast a dark shadow
over France and heightened
tensions with its Muslim minority.
The crowd squeezed into
the 12th-century Gothic cathedral in the northeastern city of
Rouen an hour before the ceremony began. Hundreds more
watched on a big screen outside despite rainy weather.
Many festivals and

events across France
have been curtailed
or canceled.
The scene of unity contrasted with the gruesome attack that two 19-year-old
FrenchmenAdel Kermiche
and Abdel-Malik Nabil Petitjeancarried out last week.
The men entered a church in
the nearby parish of Saint-Etienne-du-Rouvray, forcing the
priest to kneel near the
churchs altar before cutting
his throat with a knife.
Tuesdays liturgy took
place amid heightened security, and as both Catholics
and Muslims have moved to
heal divisions in the wake of
the attack.
On Sunday, hundreds of
Muslims attended Catholic
Masses across France and beyond in a show of solidarity
following the gruesome killing.
Dozens
attended
Father
Hamels funeral on Tuesday.
Archbishop Dominique Lebrun acknowledged the presence of Protestant, Jewish and
Muslim believers, saying that
they had all been very affected and determined to
unite to say never again.
Many traditional festivals
and cultural events, including
fireworks displays, open-air
cinema shows and an air show,
have been curtailed or canceled altogether because of security fears following the
church attack and the July 14
truck attack in Nice that killed
84 people.
Were in a state of war,
Defense Minister Jean-Yves Le
Drian said. At times we have
to cancel events if security
norms are not met.
HK JP
KO ML
SI
IN UK
FR
MN PR
WORLD NEWS
Bond Buying Loses Allure

A tool used by Bank of
England during the
financial crisis might
be less effective now
LONDONSome investors
expect the Bank of England to
dust off its long-dormant
bond-buying program as soon
as Thursday to support the
U.K. economy after the Brexit
vote, but others have doubts
about how effective it would
be.
At issue is whether quantitative easing, which became a
critical part of central bank
tool kits during the chaos of
the financial crisis, works as
well when financial markets
are functioning smoothly and
interest rates for households
and businesses are already
very low. The U.K.s vote to
exit the European Union hasnt
triggered the kind of chronic
market volatility that characterized the financial crisis, and
hasnt noticeably pushed up
the cost of finance.
A broader question is
whether monetary medicine is
the right response when the
prime challenge facing the
British economy is uncertainty
over the U.K.s relationship
with its biggest trading partner.
Since the referendum on
June 23, the BOE has trimmed
bank capital requirements to
encourage lending, lined up
billions of pounds in cheap
loans for lenders to draw on if
needed, and telegraphed that
an interest-rate cut is among
measures being considered.
Firm data on the economys
performance wont be available for months, but surveys
have pointed to a postreferendum slowdown in July.
Economists and investors
widely believe that the central
bank is, at the very least, preparing to reduce its benchmark interest rate on Thursday to 0.25%, which would
BY PAUL HANNON
PAUL HACKETT/REUTERS
BY JASON DOUGLAS
AND CHRISTOPHER WHITTALL
Factory Prices
In Eurozone
Pick Up Pace
The Bank of England may restart its bond-buying program as early as this week.
bring it to a new low in the
banks 322-year history.
A rate cut by the Bank of
England is nailed on; the question is what else they do, said
Mike Riddell, a portfolio manager at Allianz Global Investors. He has been buying U.K.
government bonds, known as
gilts, partly in the expectation
that the BOE soon revives QE,
which involves printing money
to buy assets.
During the financial crisis,
the U.K. central bank bought
375 billion ($500 billion) of
assets, mostly gilts, over three
years ended in 2012, before
most of the banks current
nine-member Monetary Policy
Committee was in place. The
Federal Reserve also engaged
in several rounds of purchases
after the financial crisis hit.
And currently, central banks in
Europe and Japan are buying
bonds to fuel inflation.
The effectiveness of QE is
disputed. Its aims include lowering long-term interest rates
and encouraging investors to
pile into riskier assets, both of
which are supposed to support
spending in the economy and
generate inflation.
But the policy has been
criticized for driving up asset
prices without fueling as much

investment as promised. Research by former BOE policy
maker David Miles found QE
appeared most effective when
financial
markets
were
stressed.
Its not clear that QE does
what its meant to do, said
Jonathan Gibbs, an investment
director at Standard Life Investments.
Borrowing costs are lower
now than when the BOE was
last buying bonds. In early
March 2009, the yield on the
10-year gilt was 3.6%, according to Thomson Reuters. Now
it is 0.81%, up slightly from a
record of 0.68% on Friday.
The yield, which falls as
prices rise, was 1.37% before
the Brexit vote. The low yields
in part reflect a tepid outlook
for global growth and inflation. Average interest rates for
corporate and household borrowers are also low.
Mike Amey, head of sterling
portfolio management at Pacific Investment Management
Co., said this means the BOE
would probably get less bang
for its QE buck than it did in
2009. He nevertheless thinks
the BOE will make an extra
50 billion of gilt purchases in
the coming months, and believes easier central-bank policy will aid the economy in
other ways.
A lot of this is messaging.
Part of the job of the authorities is to reassure consumers
and the general public that the
economy is still on a sound
footing, Mr. Amey said.
Yet such assurances go only
so far. BOE Gov. Mark Carney
has been stressing since the
Brexit vote that the U.K. is entering a period of economic
adjustment that the central
bank cant fully offset, despite
the many tools at its disposal.
For many economists, the
onus is squarely on the government to dispel some of the
uncertainty that is clouding
the economic outlook and
keeping a lid on spending.
Government ministers may
also need to revisit their tax
and spending plans to give the
U.K. economy more room to
grow, perhaps by investing in
infrastructure.
The Brexit vote puts more
pressure on the government
itself to improve the structural
workings of the economy,
said David Owen, chief European economist at Jefferies
Group LLC.
The prices of goods leaving

the eurozones factory gates
rose at their fastest clip in almost four years during June, a
sign that higher energy prices
are set to lift inflation from
recent lows.
Still, there are few signals
that inflationary pressures are
building outside of the energy
sector, which could mean that
any energy-driven boost to inflation will prove short-lived.
The European Unions statistics agency said Tuesday
that producer prices rose 0.7%
from May, and were down 3.1%
from June 2015. That was the
second straight monthly rise
in prices, and the largest since
August 2012. Economists surveyed by The Wall Street
Journal last week had estimated that prices rose by
0.5%.
The increase in producer
prices suggests that the eurozone is poised for a sustained
move out of deflation. Figures
released Friday showed consumer prices rose 0.2% yearover-year in July, having been
below their year-earlier levels
as recently as May.
The pickup in producer
prices is likely to be welcome
news for policy makers at the
European Central Bank, who
are no closer to meeting their
inflation target of just under
2% than they were when
launching the first of a series
of stimulus packages in June
2014.
Policy makers expect consumer-price inflation to pick
up toward the end of the year
as energy prices steady, and to
rise further in 2017 and 2018.
However, in a news conference last month, ECB President Mario Draghi said those
forecasts were subject to
downside risks, and in par-
RIO
Figures also released Friday

showed the eurozone economy
slowed in the three months to
June, while the jobless rate remained at 10.1%.The Organization for Economic Cooperation
and Development on Tuesday
said the annual rate of inflation across its 34 members
picked up in June for the first
time since January, rising to
0.9% from 0.8% in July. Among
members of the Group of 20
largest economies, the annual
rate of inflation was unchanged at 2.3% for the fourth
straight month.
Excluding a 2.4% increase
in energy charges, producer
prices rose by just 0.2% on the
month, the same rate as recorded in May.
The eurozone isn't alone in
experiencing a long period of
very low inflation. But there
are some signs that inflation
rates may be picking up as energy prices stop falling.
BY ROGERIO JELMAYER
Customers snap up Olympic merchandise in Rio; tourists from California, below, pose in front of the citys Christ the Redeemer statue.
undecided, Mr. Dezem said.
The Brazilian Hotel Industry Association of Rio de Janeiro last week reported that
close to 93% of the citys hotel
rooms were booked. Properties in Rio de Janeiros popular South Zone, home to
famed beaches such as Copacabana, are reporting few vacancies. Demand is also strong
at luxury hotels in the western
neighborhood of Barra da Tijuca, where the Olympic Village and several athletic facilities are located.
But properties in less
sought-after neighborhoods
arent reaping the Olympic bonanza many had hope for.
Hospitality executive Thais
Perfeito said the International
Olympic Committee, or IOC,
recently canceled every room
it had reserved at a brand-new
Rio hotel that her company
works with, citing lack of demand. The IOC had booked the
more than 200-room hotel almost solid for the entire
Games for its members and
their guests, said Ms. Perfeito,
who declined to name the hotel or the neighborhood. The
IOC declined to comment.
Ms. Perfeito said a hotelbuilding binge in Rio has put
the heat on operators.
Room supply has doubled
to 56,000 since 2009 when Rio
won the bid to host the
Games, according to the hotel
association. Most of the new
Outside the energy

sector, inflationary
pressures remain
weak, however.
New Arrests
In Brazils
Car Wash
Probe
DADO GALDIERI/BLOOMBERG NEWS (TOP); SEBASTIAN KAHNERT/ZUMA PRESS

sky, president of the International Society of Olympic Historians who has studied the
Games.
Mr. Wallechinsky pegged
spectacular ticket sales in Beijing and London to unique factors, including Chinas massive
population and Englands
wealth, its proximity to the
rest of Europe and its love for
all types of sports. Most
Olympic tickets in any host
country, typically around 75%,
are sold to locals.
In contrast, travel to Brazil
requires a major investment
of time and money for foreigners, while Brazilian fans
are largely devoted to a single
sportsoccer.
Rio organizers are counting
on last-minute demand from
locals, as well as some regional and international buyers, to bolster ticket sales. Total revenue stands at $304
million, about 95% of the target. But some travel experts
doubt whether Rio can make
up much more ground.
Whoever was coming from
the outside already made up
their mind, either to come or
not, said Erich Beting, a director at So Paulo-based
sporting consulting firm
Mquina do Esporte. At this
point it will be hard for Rio to
beat London.
Olympics hotel bookings
and airline reservations are
weaker than some had anticipated.
So Paulo-based Latam
Travel, one of Brazils largest
travel operators and a Rio
2016 sponsor, recently reported that its hotel bookings
were 30% below its initial expectations. On Thursday, the
company launched a half-off
sale on 12,000 hotel room
nights aimed at locals.
Marcelo Dezem, executive
director for Latam Travels
Brazil operations, said the nations deep recession has
weighed on domestic sales.
Unemployment in Brazil now
tops 11%, while the economy is
expected to contract by more
than 3% this year. Global
headlines about terrorism and
concerns about Brazils Zika
epidemic have hurt as well, he
said.
The spate of bad news had
an impact on those who were
ticular the threat that the

U.K.s decision to leave the European Union could weaken
growth and inflation.
Mr. Draghi also said policy
makers are open to providing
additional stimulus should the
U.K. vote appear likely to
throw its efforts to boost inflation off course, but said it
was too early to judge
whether that would be the
case.
Outside the energy sector,
inflationary pressures remain
weak, a reflection of the sluggish pace of the eurozones
economic recovery and stillhigh rates of unemployment.
inventory has come onto the

market in just the past 18
months.
The number of hotels
opened in Rio was surreal,
said Ms. Perfeito, an asset
manager at So Paulobased
hospitality consulting and
management firm Hotel Invest. Besides, competition
from Airbnb is not helping.
Airbnb, meanwhile, reported that its bookings are
above projections. As of August 1, some 66,000 visitors
had confirmed reservations
with property owners listing
their Rio-area homes or apartments on the website, according to Leonardo Tristo, general director for Airbnb in
Brazil.
Mr. Tristo said the number

of Rio-area places advertised
on the rental platform doubled
in the last 12 months to more
than 38,000 rooms, houses or
apartments. Airbnb wouldnt
disclose what percentage of
its listings remained unbooked for the Olympics period.
Demandcontinues
to
grow, Mr. Tristo said.
Airlines, too, are reporting
mixed results.
Scott Kirby, president of
American Airlines Group Inc.,
said last month that he expects the Rio Olympics to give
the carrier a boost.
Ordinarily, large sporting
events and conventions are
bad for airlines profits be-
cause they tend to scare away

lucrative business clients. But
Mr. Kirby said that business
travel to Brazil has plunged so
severely due to the nations
recession that he expects a
net gain from the Games from
leisure travelers.
It will be a positive because Brazil has fallen so
much, he said.
American, the largest U.S.
operator to Latin America, began reducing its capacity to
Brazil in 2015 after the economy tanked. Mr. Kirby now estimates its capacity is down
35% to 40% from what it offered in 2014.
But Brazilian airlines with
routes to Rio arent registering the Olympics gains they
had been counting on, according to Ronaldo Jenkins, operations and security director at
the Brazilian Association of
Airline Companies, or Abear.
The groups members include
TAM, Avianca, Azul and Gol.
Mr. Jenkins says he is skeptical of recent rosy reports
from Rio tourism officials
about a full house for the
Games.
I dont know how these
people are getting to Rio, Mr.
Jenkins said. What we hear
in our meetings is that demand for airline tickets has
been below expectations.
Susan Carey and Drew
FitzGerald contributed to
this article.
SO PAULOFederal police
rearrested two former top executives of construction company Queiroz Galvao as part of
the investigation into alleged
corruption at state-run oil
company Petrleo Brasileiro
SA, or Petrobras.
Police detained the builders
former president, Ildefonso
Colares Filho, and the ex-director of its oil and gas division,
Othon Zanoide Moraes Filho,
on allegations they tried to impede investigations, a police
spokesman said Tuesday.
It was the second time they
had been arrested as part of
the so-called Operation Car
Wash probe at Petrobras.
Neither the company nor
lawyers for men returned calls
asking for comment or clarification.
Judge Sergio Moro, who is
overseeing the investigation,
said that the two had denied
the charges.
The men were arrested in
November 2014 on allegations
of corruption, fraud and
money laundering. Both were
released five days later after
Judge Moro decided more investigation was needed to justify their detention.
Both men had left their positions at Queiroz Galvao in
2012, Judge Moro said in legal
documents released Tuesday.
But he added that there is evidence the two continue to
have ties to the company.
Federal police on Tuesday
also raided the offices of
Queiroz Galvao in So Paulo,
Rio de Janeiro and other Brazilian cities. A company
spokesman confirmed the police operation earlier Tuesday
and said the company is cooperating with authorities.
Queiroz Galvao is Petrobrass third-most important
building contractor, with the
value of its outstanding contracts with the oil company
rising to 20 billion reais ($6.2
billion) in recent months, according to prosecutors.
WORLD NEWS
Japan Expresses Alarm Over Neighbors

Defense review points
to threats at sea from
China, nuclear danger
from North Korea
TOKYOJapan criticized
Chinas maritime ambitions in
East Asia, saying Japanese aircraft were scrambling more often in response to Chinas activities, and expressed alarm
over North Korean progress in
miniaturizing nuclear weapons.
The assessments, contained
in Japans annual defense
white paper, came during rising tensions in the South
China Sea, where China has
been building up military facilities, and continuing disagreement over islands in the East
China Sea that are held by Tokyo and claimed by Beijing.
The paper from Japans Defense Ministry describes
Chinas actions in the disputed
waters as highhanded and
says Beijing is making steady
efforts to turn these coercive
changes to the status quo into
a fait accompli.
Chinas Defense Ministry
said the Japanese document
was filled with hostilities to
the Chinese military, according to the state news agency
Xinhua.
The paper distorts Chinas
justified and reasonable defense
construction
and
heightens regional tensions,
ministry spokesman Wu Qian
was quoted as saying. It stirs
up trouble between China and
JUN DUMAGUING/EUROPEAN PRESSPHOTO AGENCY
BY CHIEKO TSUNEOKA
Crew members on the deck of a Japanese destroyer at the Subic port in the Philippines during a routine visit in April.
its neighbors, and deceives the
international community, he
said, adding that the military
had made its concerns known
to Japan.
Xinhua also slammed a security law passed last year
that permits Japanese troops
to work more closely with al-
lies in conflicts outside its territory.

For a country which is reluctant to face up to its ignominious wartime history
squarely, its attempts to beef
up military power will pose a
serious threat to world peace,
Xinhua said. The real purpose
of the document is to tarnish

Chinas image.
The white paper also expressed concern about North
Koreas nuclear and missile
ambitions, including that nations nuclear test in January.
North Korea may have
achieved the miniaturization
SingaporeLeaderProdsU.S.onTPP
BY BYRON TAU
AND CAROL E. LEE
INDONESIA
Asian Nations Agree

On Hot Pursuit
Indonesia, Malaysia and the

Philippines agreed to allow each
others maritime forces to pursue suspected criminals into
their waters in a bid to stem a
surge of hostage-takings by Islamist militants.
Defense ministers of the
three Southeast Asian neighbors, meeting for the third time
since May to give shape to
plans for joint patrols in the waters off the southwestern Philippines, said Tuesday that they
were discussing protocols that
would allow security forces to
enable so-called hot pursuit
across land borders as well.
We are still discussing that,
because there are some constitutional hindrances, Philippine
Defense Secretary Delfin Lorenzana told reporters. We still
have to consultif we will allow
hot pursuit on land.
empowered to serve as a
check on presidential power
was a challenge in getting the
agreement passed.
It is not so easy to do
things, he said, but added it
also made it harder for things
to get completely messed up.
We are near the finish line
and we hope the countries,
particularly the U.S., will be
able to ratify the TPP as soon
as possible, he added.
Mr. Lee said that not only
was the economic impact of
the trade agreement at stake,
but also Americas leadership
status in the world.
In terms of economic benefits, the TPP is a big deal. I
think in terms of Americas
Mr. Lorenzana and his counterparts, Ryamizard Ryacudu of

Indonesia and Hishammuddin
Hussein of Malaysia, said joint
sea patrols already had begun
but declined to say what kind of
naval forces had been deployed
or to provide other details.
Indonesian President Joko
Widodo proposed joint patrols in
late April after a surge in piracy
and kidnappings of local seafarers and Westerners by the Abu
Sayyaf militant group, which
claims ties to Islamic State.
Ben Otto
faces several more hurdles before a recall vote can be approved. It must request permission from the electoral council to
hold the referendum. If that request is approved, opposition
leaders would then have to collect nearly four million signa-
tures, representing 20% of the

electorate, over a three-day period chosen by electoral officials
and submit the petition for approval again.
Tibisay Lucena, head of the
National Election Council, said
the opposition had successfully
Mr. Lee, waving, with Mr. Obama at the White House on Tuesday.
MalaysiasEmbattled
NajibDemandsRespect
Malaysian Prime Minister
Najib Razak, facing a loss of
international standing as he
wrestles with global investigations into alleged domestic
corruption, on Tuesday urged
countries not to meddle in his
nations affairs.
which Mr. Najib founded in

2009 to promote growth.
The forum is the first big
international event Mr. Najib
has attended since the U.S.
Justice Department filed a
civil lawsuit July 20 seeking to
seize assets that it said were
bought with $3.5 billion misappropriated from 1MDB.
The lawsuit doesnt name
Mr. Najib, but there are 32 references to Malaysian Official
1, who allegedly received hundreds of millions of dollars in
funds siphoned from 1MDB.
People close to the investigation have said Malaysian Official 1 is Mr. Najib.
Mr. Najib has been embroiled in scandal since The
Wall Street Journal reported
more than a year ago that
hundreds of millions of dollars
that
originated
with
1MDB flowed into his personal
bank account. Several countries have since launched investigations.
Mr. Najib has said he did
nothing wrong and is the target of political smears. The
Malaysian attorney general
has cleared him of wrongdoing, saying the funds that
went into Mr. Najibs account
were a legal political donation
from Saudi Arabia and that
most of the money was returned. 1MDB has also denied
wrongdoing.
Celine Fernandez
By Sara Schonhardt
in Jakarta
and Yantoultra Ngui
in Kuala Lumpur
I have always been a proponent of openness to the
world and collaboration, but
we must insist on respect for
our own sovereignty, our own
laws, and our own democratically elected governments,
Mr. Najib said at the opening
of a summit on Islamic finance
in Indonesia.
Mr. Najib has struggled for
more than a year in a scandal
centered on state investment
fund 1Malaysia Development
Bhd. He used a keynote address to the World Islamic
Economic Forum to restate
his countrys importance in
Asian trade and security arrangements and as a counterbalance to Islamic extremism.
The remarks amounted to a
pointed statement of Malaysias traditional role as an investment-friendly, moderate
Muslim mainstay. That role
has been overshadowed in the
past year by a steady stream
of bad news around 1MDB,
prosecutors to investigate over

1,000 signatures that didnt
match the voters fingerprints. It
was unclear if that would jeopardize the validity of the overall
recall process.
Anatoly Kurmanaev
collected and validated the mandatory 1% of registered voters

signatures. The opposition presented 1.8 million signatures in
May, nine times the minimum
needed. However, Ms. Lucena injected uncertainty into the process by saying she would ask
CHINA
Typhoon Nida Hits

Southern China
VENEZUELA
Maduro Recall Effort

Passes a Key Test
Venezuelas electoral authorities approved the first of two

petitions needed to hold a referendum to depose President Nicols Maduro, handing a modest
win to opposition leaders who
accuse him of presiding over an
economic collapse.
The National Election Councils decision was far from a sure
thing, as the opposition has alleged it is staffed with government supporters and the ruling
party had accused the opposition of submitting 10,000 signatures of dead people.
The opposition alliance now
XINHUA/ZUMA PRESS
World
Watch
opposition on the presidential

campaign trail this year.
Though Mrs. Clinton praised
the agreement while serving
in the Obama administration,
she has run a campaign opposing it. Mr. Trump has made
opposition to TPP, the North
American Free Trade Agreement and outsourcing a central part of his campaign.
Mr. Lee said he hopes Mr.
Obama will prompt Congress
to act on the trade deal, an effort that has stalled. It could
be taken up in the lame-duck
session of Congress after Election Day but before the new
president is sworn in.
Mr. Lee noted that the U.S.
system featuring a Congress
MANUEL BALCE CENETA/ASSOCIATED PRESS
WASHINGTONPresident
Barack Obama, after meeting
Tuesday with Singapore Prime
Minister Lee Hsien Loong, said
the two leaders were still
committed to the Trans-Pacific
Partnership trade deal, despite
increasingly long odds of U.S.
approval this year.
Speaking at a joint news
conference, Mr. Obama said
the 12-nation trade pact levels the playing field for our
workers and helps to ensure
countries abide by strong labor and environmental rules.
The president acknowledged the challenges of a U.S.
political environment in which
many voters have turned
sharply against globalization
and international trade, as
well as the fact that previous
trade agreements have cost
jobs. But he said that he had a
better argument on the
trade deal than its detractors,
which include both Democratic
presidential candidate Hillary
Clinton and Republican candidate Donald Trump.
Theres a real problem but
the answer is not cutting off
globalization. The answer is
how do we make sure that
globalization, technology, automationthose things work
for us, not against us. TPP is
designed to do precisely that,
said Mr. Obama.
The TPP has emerged as an
unexpected area of bipartisan
engagement of the region, you

have put [your] reputation on
the line. It is the big thing that
America is doing in the Asia
Pacific [region] in the Obama
administration, Mr. Lee said.
Your partners, your friends
who have come to the table,
who have negotiated, each one
of them has overcome some
domestic political objection,
some sensitivity, some political cost to come to the table
and make this deal. If at the
end, waiting at the altar, the
bride doesnt arrive, I think
that people are going to be
very hurt.
The appearance was part of
a state visit by Mr. Lee that included a lunch at the State Department hosted by Vice President Joe Biden and an
elaborate dinner Tuesday evening in the East Room.
Mr. Lee was welcomed with
a formal arrival ceremony at
the White House, followed by
a meeting with Mr. Obama in
the Oval Office.
This marks the first official state visit by a Singaporean prime minister in over 30
years. It celebrates the 50th
anniversary of diplomatic relations between our two nations. And it is a reflection of
my friendship and partnership
with Prime Minister Lee over
the last eight years, Mr.
Obama said in brief remarks at
the White House. He joked
that the hot, muggy Washington temperatures were Singapore weather.
of nuclear weapons and recent launch tests suggest it

has made progress in its ballistic missile program, the paper said.
U.S. military officials also
believe that North Korea has
made progress in its nuclearweapons program, including
possibly making a nuclear

bomb small enough to mount
on a long-range missile that
could threaten the U.S. and its
allies.
Pyongyang claims that it
has mastered the technology
but it is extremely difficult for
outsiders to definitively gauge
progress.
At 484 pages, this years
defense paper is 60 pages
thicker than last years. The
ministry said that was partly
because of various incidents
that took place around Japan.
In one event in June, a Chinese frigate entered a contiguous zone around the disputed
East China Sea islands, just
outside their territorial waters, the paper said. Other Chinese ships have entered the
contiguous zone, but it was
unusual for a warship to do so.
The islands are known as the
Senkakus in Japanese and Diaoyu islands in China.
Chinese military aircraft are
expanding their activities
closer to those islands, the
white paper said.
In the year ended March 31,
Japanese jet fighters scrambled 873 times, of which 571
times involved Chinese aircraft, up from 464 China-related scrambles the previous
year, it said.
The white paper set aside a
new chapter to discuss the
new security law, which Prime
Minister Shinzo Abe characterized as a response to rising
instability in the region.
Te-Ping Chen in Beijing
and Alastair Gale in Seoul
HIGH RIDER: China is road-testing a giant elevated bus. The 72-foot-long, 25-foot-wide vehicle can
accommodate up to 300 passengers in a raised compartment that allows cars to pass underneath.
Typhoon Nida blew across

southern China on Tuesday,
bringing high winds and heavy
rain but no immediate reports of
deaths or destruction.
The storm made landfall near
Hong Kong and was expected to
churn across the manufacturing
center of Guangdong province,
gradually weakening as it
moved into the neighboring
Guangxi region.
Flights, ferries and ground
transport were heavily disrupted
in Hong Kong on Tuesday morning and schools canceled classes.
The Hong Kong observatory
recorded maximum gusts exceeding 128 kilometers per hour
(80 miles per hour).
Large parts of China have
seen heavier than usual seasonal
rainfall this summer, leading to
widespread flooding and scores
of deaths.
Associated Press
FROM PAGE ONE

democratic transition.
Mr. Chiloane, 48 years old,
spent his youth taking part in
protests, including a 1989 sit-in
on a public bus reserved for
white students. Now, Mr.
Chiloane said, the African National Congress, the antiapartheid movement that Mr. Mandela enshrined as South
Africas ruling party, has
strayed far from its revolutionary mandate to bring about a
better life for all.
The school system now is
set up to produce ANC votes,
not to prepare learners for the
job market, Mr. Chiloane said.
During his morning class,
two dozen 11th-graders shared
a handful of tattered textbooks.
They struggled with a vocabulary lesson that used a passage
by British-Indian author Jamila
Gavin to absorb such words as
extricate, demur and modesty.
These learners are not motivated at all, Mr. Chiloane
said. They are not seeing any
fruits of getting education.
Prospects for Orlando West
students and other young people entering South Africas postapartheid economy are grim:
Two-thirds of South Africans
in their 20s are jobless. Productivity is plunging. And the
crash in commodity prices
along with Chinas slowdown
have depressed trade, income
and hiring.
As a result, millions of students from underperforming
schools are trying to find jobs
in a globalized economy that
is ever more demanding of
workers.
South Africa has made progress. The literacy rate has
climbed over the past two decades from just over 90% to
99%. Kindergarten attendance
rose from under a third to
about three-quarters of children. The government has
brought electricity and toilets
to thousands of schools neglected under apartheid.
Yet only half of first-grade
students reach their senior year
of high school, according to the
South African Institute of Race
Relations. About two-thirds of
black students pass their graduation exams, compared with
99% of whites.
A World Economic Forum
survey last fall asked business
leaders to rank the quality of
education in 140 countries:
South Africa was second to
last.
Student achievement is falling even as education spending
has climbed to a fifth of South
Africas budget, a larger share
than defense or health care ex-
Long history
Orlando West High School
is in decline, but the surrounding neighborhood has made
strides. Streets are smoothly
paved around blocks of brick
homes, including many built
by the government and given
away to residents.
The ANC-led government
has built 3 million houses nationwide and created a welfare
net that keeps more than 17
million people from extreme
poverty. Black urban elites have
climbed to wealth and power;
many have chosen to stay in
Soweto, building upscale homes
and filling the new malls, gyms
and restaurants.
Tourists seek out the nearby
house where Mr. Mandela lived
before his imprisonment in
1962. Placards mark turning
points in the protests that galvanized the antiapartheid
movement in 1976.
A museum memorializes a
Sibonelo Hadebe, left, and Mandava Thato take a break from a tutoring session. Below, a class at Orlando West High School.
12-year-old boy, Hector Pieterson, who was fatally shot by
police outside the iron gates of
Orlando West during protests
and became a symbol of apartheid brutality.
Eunice Modiboa, who began
teaching at Orlando West a
few years later, said students
of that generation saw education as a powerful weapon
against oppression. Many became leaders in business, athletics and politics.
In 1994, finally freed from
the apartheid state, Orlando
West received a wave of funding, and school officials anticipated a new age of freedom and
rising student performance. Mr.
Mandelas ANC government
made education its priority in
plans to reduce South Africas
gaping inequality.
Ms. Modiboa, now in her
36th year teaching at the
school, said the new investment and enthusiasm never
yielded a successful strategy
for students.
Orlando West was supposed to be a model, she said.
Now, some students tell her
they aspire to be bank robbers
or gangsters. Students dont
know why they should study,
she said, because after they
graduate theres nothing to do.
The roughly 100 Orlando
West seniors seeking to graduate need to score just 30% in
some subjects, an easing of
standards by the government in
recent years to ensure a majority of students complete high
school.
Even with looser requirements, Orlando Wests graduation rate last year dipped to
79% from 94% in 2014. That
was better than national graduation rates of 71% among enrolled seniors last year.
Orlando West High School
principal Joseph Malindi said
many parents of his students
are unemployed and despondent, too overwhelmed to keep
their children on track.
My biggest challenge I
dont know how to overcome is
the issue of drugs, he said,
shouting over the din of students outside who had skipped
class.
Mr. Malindi echoed the
warnings of law enforcement
and health officials here who
said growing numbers of jobless youths find escape through
alcohol and home-cooked opioids. Its huge, he said.
In one of Sowetos rougher
neighborhoods, students at
Lavela Secondary School said
teachers were absent for days
at a time, sometimes for training. Without substitute teachers, they said, they spent their
and fewer are graduating from

high school
as they face an economy with

high unemployment.
Percentage of failing twelfth

graders
Percentage of 15- to 64-yearolds who are unemployed*
40%
28%
30
26
20
24
10
22
CHARLIE SHOEMAKER FOR THE WALL STREET JOURNAL (2)
SCHOOL
penditures. The country spends

a greater percentage of its
gross domestic product on education than either Switzerland
or Japan.
Were pouring money into a
giant hole, said Nomalanga
Mkhize, a history lecturer at
Rhodes University in the Eastern Cape, South Africas most
impoverished province, where
some public schools failed last
year to produce a single highschool graduate.
Representatives of South Africas President Jacob Zuma
and the ANC didnt respond to
requests for comment. Teachers union representatives also
didnt respond to requests for
comment.
Joel Netshitenzhe, an adviser to former President
Thabo Mbeki, who succeeded
Mr. Mandela in 1999, said government intentions to improve
education have been hobbled
by ineffective policies and the
ANCs reluctance to challenge
unions that helped defeat
white-minority rule. Accountability declined, he said, while
education spending surged.
Theres been a massive
opening of opportunity, but
quality is poor, he said. One
of the ironies of South Africa is
that if education is the great
liberator, it is precisely in those
poor areas where you need that
education that teaching and
learning are at their weakest.
Now, a sense of diminishing
prospects is pushing many
young South Africans toward
populist parties that promise
to seize mines and whiteowned farmland. The ANC for
the first time could lose control of major cities, including
Johannesburg, in Wednesdays
municipal elections.
Education spending as a
percentage of GDP
6.5%
25%
6.0
Tenth
20
Eleventh
15
Ninth
10
Grades
1-12
5.5
Twelfth
5.0
4.5
2005
0
07
09
11
13
2009
0
11
13
2008
cially with his two young children who are always stuffing
his cargo shorts pockets. The
pockets function for men like
purses do for women, he said.
Travis Haglin, who has
worked in the retail industry for
more than 15 years, including at
Ralph Lauren and J. Crew, said
he has never felt comfortable
wearing cargo shorts because
they dont look cool enough.
Men want to be like James
Bond, Mr. Haglin said. Bond

never wears cargo shorts.
Sales of cargo shorts have
fallen over the past year for the
first time in a decade, according
to market-research firm NPD
Group. Still, it says retailers sell
more than $700 million worth
of cargo shorts every year in
the U.S. At Wal-Mart, a pair can
be bought for $8.50, while Neiman Marcus sells linen cargo
shorts for $995 a pair.
20
10
12
14
*As of March 31 Sources: World Bank (spending); South African Institute of Race Relations (students repeating, failing); Statistics South Africa
SHORTS
shorts were not one of them.
Fashion historians believe
cargo pants were introduced
around the 1940s for military
use. In the U.S. Air Force, narrow cockpits meant pilots
needed pockets in the front of
their uniforms to access supplies during flight. British soldiers climbing or hiding in high
places found pockets on cargo
pants more effective than utility
belts for storing ammunition.
They exploded into mass
fashion in the mid-to-late 1990s,
coinciding with the popularity
of teen retailers like Abercrombie & Fitch, which became famous for filling its catalogs
with shirtless men wearing only
cargo shorts. The pockets filled
a utilitarian need as cellphones
became ubiquitous.
Those teenagers are now
married, and they dont get rid
of their clothes. They dont
evolve, said Joseph Hancock,
a design and merchandising
professor at Drexel University,
who wrote his Ph.D. thesis
about cargo pants.

Around 2010, slimmer
mens shorts started to replace
baggy silhouettes. By then, the
backlash against cargo shorts
was well under way.
Fashion guru Tim Gunn said
in a 2007 interview with Reuters that cargo shorts were the
least fashionable item of clothing in his closet. British tabloid Daily Express called cargo
shorts a humiliation for any
man over 21 that should be
sold only after proof of age
has been presented.
Many upscale golf courses
have banned cargo shorts in recent years. In 2012, Michael
Jordan was playing golf in
cargo shorts at a Miami country
club when he was asked to
change his pants, according to
news reports at the time. He reportedly refused. His agent released a statement afterward
saying Mr. Jordan had previously worn cargo pants at the
club without incident.
Jen Anderson, a 45-year-old
freelance writer in Brooklyn,
N.Y., said she used to tease her
husband gently about his fashion choices, until he made a
purchase that crossed the line:
denim cargo shorts. That was

just too far, she said.
Through what Ms. Anderson described as strong
mocking, she convinced him
to return the shorts. She said
she doesnt like the idea of being seen in public with her
husband when hes wearing
cargo shorts, which make him
look like a misshapen lump.
Its a reflection on me, like
How did she let him out the
door like that? she said.
GQ magazine last summer
wrote that cargo shorts with
slim pockets are acceptable, but
not if they look anything like
the ones you picked up at the
mall when you were trying to
dress like a cool kid in middle
school. Nostalgia is one reason
why many men cling to the
shorts, style experts say.
Its quite difficult to let go
of what was cool when you
were younger, said Gareth
Hopkins, a 36-year-old illustrator in Essex, England.
Despite persistent comments
from his wife whenever he
wears cargo shorts, Mr. Hopkins said hes past the point of
worrying about whether his
clothes are fashionable, espe-
2008
10
12
14
BETTMANN ARCHIVE/GETTY IMAGES
a growing percentage of
students are repeating grades
Getting ahead
Orlando West junior Sibonelo Hadebe has learned to
sidestep his schools problems
with hundreds of hours of after-school tutoring.
I believe I will be the first
black botanist in Soweto, said
the 18-year-old student, expressing the ambition many
hoped would drive students in
postapartheid South Africa.
Sibonelo worries that
classes at Orlando West arent
sufficiently rigorous to secure
him a spot in one of South Africas few undergraduate botany programs. Most days its
more hanging around than
learning, said the teenager,
who has a meticulous faded
Afro and wears black pearl ear
studs.
He and like-minded students
rely on Nonhlanhla Gamede, an
Orlando West student during
the late 1980s and a teacher
there in the 1990s. Over the
past three years, Ms. Gamede
has provided free after-school
tutoring.
On a recent afternoon in her
dining room, a block from the
schoolyard, Ms. Gamede helped
student Siphiwe Xaba plan
meals he could practice cooking: He hopes to become a chef.
South Africa's Slipping Grades

Despite increased spending on
education
free time gambling pocket

change.
Members
of
powerful
teacher unions that had long
ago helped the ANC organize
against the white-minority government are now all but unaccountable to students and
school administrators.
It worries me a lot, said
Banele Ntshanga, a 10th-grade
student and aspiring beautician
who must first pass the exams
to enroll in beauty school. Our
school isnt a place to learn.
Gen. Dwight D. Eisenhower in 1944. Cargo pants were introduced

around the 1940s for military use.
Sibonelo, meanwhile, copied a diagram of the organs of

a petunia from a textbook. His
mother died eight years ago,
leaving him an orphan, and he
moved with four brothers to
the Soweto home of an aunt, a
retired baker.
He said Orlando West is
much better than his old village
school. The long brick buildings
are clean and comfortable. Students last year began using tablet computers in some classes.
The school also sparked his
professional dream. In 2013, on
a field trip to botanical gardens
outside Johannesburg, Sibonelo
said, he was overcome with a
new sense of vocation. If
youre around plants youre
around fresh air. My place is
around trees, in the garden.
During a study break at Ms.
Gamedes house, after a snack
of chips and soft drinks, Sibonelo and Siphiwe climbed a
rocky outcrop behind Orlando
West that some residents call
Beverly Hills because of the
relatively tony corner of
Soweto it overlooks.
As the evening sun broke
through clouds separating
Soweto from the distant Johannesburg skyline, the teenagers
pointed out the homes of Archbishop Desmond Tutu and Winnie Madikizela-Mandela, Mr.
Mandelas wife when he lived
here half a century ago.
Thank you, Madiba!
Siphiwe cried with his arms
outstretched, half in jest, calling Mr. Mandela by the clan
name that has become his
popular honorific.
Sibonelo, as usual, was
more circumspect than his
quick-to-smile friend.
Mandela, the ANC, they
made things better, he said,
looking at the horizon. But not
enough. The rest is up to me.
Tom Lommel, a 46-year-old
actor in Los Angeles, said he
loves wearing cargo shorts because theyre like socially acceptable sweatpants, referring
to their lightweight nature. He
says theyre more breathable
than tight Bermuda shorts.
His wife, however, isnt a fan.
Mr. Lommel, who often works
from home, seizes opportunities
when his wife is away at work
to wear his cargo shorts.
Every time I put them on,
I am conscious of the fact that
I am now being disobedient in
my marriage, he said.
Mr. Lommels wife, Lyndsay
Peters, disputes the idea that he
tries to wear cargo shorts only
when shes not around. I wish
that were the truth, she said.
If he was only wearing them
when I could not look at him,
that would be perfect.
There is some good news for
cargo shorts advocates. Style
experts say the cyclical nature
of mass fashion means cargo
pants will almost certainly become trendy again. Everything
will return, said Dr. Hancock,
the design and merchandising
professor. I dont think cargo
is ever going to go away.
U.S. NEWS
HurdlesforDemocratsHousePush Obama:
BY MICHELLE HACKMAN
Democrats are hoping for big
gains in House elections this fall,
driven by the younger, more diverse voters who turn out in a
presidential year, demographic
shifts in suburban areas, and
what they see as a backlash
against Donald Trump.
But many analysts believe
shortfalls in recruiting and
money, due in part to the unusual amount of attention being
absorbed by a chaotic presidential race, will leave the Democrats shy of the 30 seats they
need to retake the House.
Leaders of both parties say
the Democrats are fielding a
solid crop of challengers, especially against the most vulnerable Republicans. But for a landslide or wave election,
Democrats also must win in
places where victory seems remote, and they are less well positioned in such areas.
Democrats placed good
candidates in winnable districts
to the extent they could, said
Dave Wasserman, who follows
House races for the nonpartisan
Cook Political Report. Where
they fell short was really expanding the playing field beyond
the 25 or so most vulnerable Republican seats.
Democrats always faced a
steep climb retaking the House
this year. Republicans control of
many statehouses enabled them

to redraw House districts after
the 2010 census, giving them a
tight hold on the majority.
But figures suggest Democrats are facing challenges beyond that. In 2010, when Republicans captured 63 seats and
control of the House, they
fielded candidates in 433 of the
435 House districts; this year
Democrats are fielding 403, according to Ballotpedia.
Also in 2010, 102 Republican
challengers each had at least
$100,000 in the bank at the end
of the second quarter, while this
year 45 Democrats have that
amount, according to the Cook
Political Report. That sum is
generally considered the minimum needed for a viable campaign, given the high costs of
advertising and fieldwork.
Theyve got some talented
people running, said Rep. Greg
Walden (R., Ore.), who heads the
National Republican Congressional Committee, which spearheads House GOP campaigns.
But to make the claim that
youre going to retake the House,
youve got to have more than
two or three or four or five toptier candidates.
Rep. Ben Ray Lujan (D., N.M.),
who chairs the Democratic Congressional Campaign Committee,
which coordinates the Democratic campaigns, was optimistic
but stopped short of predicting a
Democratic takeover.
The DCCC took smart, aggressive steps to expand our
battlefield this cycle into districts that we knew were trending in Democrats direction, and
Donald Trump means that strat-
Trump Is
Unfit for
President
STEVE REMICH FOR THE WALL STREET JOURNAL
Shortfalls in recruiting
and money could
hamper partys efforts
to retake chamber
BY CAROL E. LEE
AND BYRON TAU
Josh Gottheimer, an attorney and speech writer, is challenging Republican Rep. Scott Garrett in
New Jerseys 5th congressional district. Democrats need 30 seats to gain control of the House.
egy will bear even more fruit,
Mr. Lujan said.
Democrats say 80 incumbent
Republicans will face Democratic
challengers this fall, and of those
races, 65 could be competitive.
The DCCC points to several
recruiting successes in suburban
Republican districts that are
proving resistant to Donald
Trump. Among them is Josh
Gottheimer, a young attorney
and speech writer in New Jersey
who is challenging Bergen
County-area Rep. Scott Garrett.
Mr. Garrett, who was first
elected in 2002, is considered a
formidable incumbent. But recent developments, including his
refusal to pay NRCC dues because he said the committee was
actively recruiting homosexual
candidates, have made him a
new Democratic target.

But Democrats have failed to
recruit top-tier candidates in
some races where Republicans
won narrowly in 2012 and 2014.
Analysts point to several districts, primarily on the East
Coast, where the DCCC either
backed candidates who lost their
primaries or failed to field
strong candidates to begin with.
In Staten Island, N.Y., GOP
Rep. Daniel Donovanwhom the
DCCC called a seat warmer in
2015, when he won a special
election following his predecessors resignationappears in a
strong position after the Democrats failed to field a qualified
challenger, leaving them with local activist Richard Reichard,
who has about $10,000 in cash
on hand.
In Pennsylvanias Delaware
County, the DCCCs preferred
candidate, Bill Golderer, lost by
nearly 50 points in the primary.
Democrats privately admit
that their recruitment effort,
paired with a lack of enthusiasm
for either presidential candidate,
puts their likely gains between
10 and 20 seats.
Still, Nathan Gonzales, editor
of the Rothenberg & Gonzales
Political Report, cautioned
against writing off the Democrats recruitment entirely.
It might be easy to downplay some of these Democratic
candidates and look at them as
failed recruits, Mr. Gonzales
said. But theres still time for
the dynamic of the election to
change, and those recruits could
become members of Congress.
Candidates Get a Head Start on Transition
U.S.
Watch
ECONOMY
Consumer Spending
Rose Again in June
Consumer spending increased

steadily for the third straight
month in June, suggesting
Americans have the capacity to
remain the primary driver of
economic growth this year.
Personal consumption, which
measures how much Americans
spent on everything from haircuts to cars, rose 0.4% in June
from a month earlier, the Commerce Department said Tuesday.
Incomes rose more slowly, increasing 0.2% for the month.
Economists surveyed by The
Transition planning for the next occupant of the White House, shown above, is already under way.
didates for staff positions. To
avoid a repeat of 2008, the
new playbook calls for the
leadership of each agency to
be selected and nominated as
a team.
The Partnership for Public
Service, founded in 2001 by a
former Justice Department official, set out to help formalize
the transition practice about a
decade ago. The group has
helped champion three bills
through Congress on transition reforms over the past
eight years, and over 30 other
bills on broader government
reform efforts over the past 15
years.
A bipartisan consensus on
the need for an orderly transition has only grown stronger
after the 2001 terrorist attacks.

After Sept. 11, there was a
recognition by both political
parties that transitions are a
vulnerable time and there has
to be a fluid passage of power
between the twono matter
whether its a same-party or
change-of party transition,
said Martha Joynt Kumar, director
of
the
White
House Transition Project,
which studies and advises policy makers on transition issues.
In the midst of Mr. Obamas
2009 inauguration, White
House officials got intelligence
that there was a potential terrorist threat against the
eventprompting serious con-
cerns about who would be in

charge if an attack occurred
during the handoff of power.
The transition effort for
both parties is expected to
swell to hundreds of staffers
even before Election Day.
Sharing the same quarters, the
two transition teams will begin separate but parallel efforts to prepare their candidate to assume office if
elected in November. Classified briefings for both candidates are also expected to begin shortly, perhaps as soon as
this week.
Whoever is elected president in November will have a
short window to prepare to
assume the reins of a $3.8 trillion organization that employs
Wall Street Journal had expected

personal spending to rise 0.3% in
June. Income was projected to
increase at the same rate.
Consumer spending rose 0.4%
in May and 1% in April. Each of
those gains outpaced income
growth. Household spending accounts for more than two-thirds
of economic output in the U.S.
Eric Morath
and Josh Mitchell
Miranda will be leaving the DNC,

the committee said Tuesday.
Their departures follow on
the heels of Chairwoman Debbie
Wasserman Schultz, who resigned last month after hacked
emails appeared to show staffers at the DNC conspired
against Vermont Sen. Bernie
Sanders in the late days of his
Democratic primary race against
Hillary Clinton.
The exits mark a major leadership change in the party going
into what is expected to be a
hard-fought general election
campaign against Republican
candidate Donald Trump.
Byron Tau
partment James ONeill, city officials familiar with the matter

said Tuesday.
Under the terms of his resignation, the 68-year-old Mr. Bratton will stay on the job until
September, the people said. After that, he plans to return to
the private sector, officials said.
Mr. Bratton has had a long
career in public life that included
stints leading police departments in Boston and Los Angeles. He also served as police
commissioner under former New
York Mayor Rudy Giuliani, a Republican, from 1994 to 1996,
when he was fired.
Mr. Bratton and Mr. de Blasio,
a Democrat, have sometimes
broken publicly on issues. Mr.
Bratton has come under scrutiny
for his broken windows system
of policing, under which officers
target low-level offenses in an
attempt to stem larger crimes.
Pervaiz Shallwani
and Josh Dawsey
PRESIDENTIAL ELECTION
Three More Depart

Democratic Group
Three more top Democratic

National Committee officials announced their departure, the latest fallout from an email-hacking
scandal that has engulfed the
Democratic Party, including the
organizations chief executive officer and finance head.
CEO Amy Dacey, Chief Financial Officer Brad Marshall and
Communications Director Luis
NEW YORK
Police Head Bratton

Plans to Step Down
New York City Police Commissioner William Bratton plans

to announce he is resigning and
will be replaced by Chief of De-
nearly three million civilians

and controls the most powerful military on the planet.
The new president will have
only 73 days between Election
Day and inauguration to put in
place key cabinet secretaries
and staff. Ultimately, 4,000
presidential-appointed positions will need to be filled, including about 1,000 that will
require Senate confirmation.
The White House held a
meeting in March led by chief
of staff Denis McDonough involving cabinet officials and
White House senior staff to
discuss the transition. Since
then, cabinet agencies have
been asked to begin transition planning.
Two bodies, the White
House Transition Coordinating Council and Agency Transition Directors Council, met
for the first time in June.
Representatives of Mr. Trump
and Mrs. Clinton received a
call from Mr. McDonough, inviting them to begin participating in those council meetings after they become their
partys nominees.
The peaceful transfer of
power is a bedrock principle
of our democracy, and the
president has made clear that
a smooth transition between
administrations is one of his
top priorities, said White
House spokeswoman Brandi
Hoffine.
Many presidential candidates have been sensitive
about being seen as presumptuous, fearful of being accused
of measuring the drapes in the
Oval Office before voters have
had their say. In addition, political campaigns are usually built for winning elections, with governing often an
afterthought.
JUSTIN LANE/EUROPEAN PRESSPHOTO AGENCY
WASHINGTONThe campaigns of Donald Trump and

Hillary Clinton are at work
on transition planning from
the administration of President Barack Obama, aided by a
series of laws passed in recent
years that give candidates a
head start on the process.
Starting on Monday, transition teams for Mr. Trump
and Mrs. Clinton had access to
a workspace in a nondescript
government office building
near the White House.
Its the largest, most complicated takeover of any organization on the planet, said
Max Stier, president and CEO
of the Partnership for Public
Service, a nonprofit that is
working with the White House
and the campaigns to professionalize the transfer of power
between a sitting president
and his elected successor.
In the past, transitions
were done in a much more informal way. The process was
rife with risks and inefficienciesmost notably, waiting
until after Election Day to begin vetting and selecting officials for top jobs.
The results too often were
top positions that went unfilled for months. Mr. Obamas
first treasury secretary, Timothy Geithner, went months
without key deputies, even
though the country was in the
midst of the worst recession
since the Great Depression.
The new transition process
gives candidates a significant
head start. Both campaigns
can now begin moving their
transition teams into government office space and hiring
staff to begin planning a legislative agenda and vetting can-
AL DRAGO/CONGRESSIONAL QUARTERLY/ZUMA PRESS
BY BYRON TAU
WASHINGTONPresident
Barack Obama skewered Donald Trump on Tuesday over his
criticism of the parents of a
Muslim U.S. Army captain
killed in Iraq and said the Republican presidential nominee
is unfit to succeed him in the
White House.
Mr. Obama, responding to a
question at a news conference,
also called on GOP leaders to
revoke their endorsements of
Mr. Trump rather than simply
denounce his comments.
The Republican nominee is
unfit to be president, Mr.
Obama said.
The notion that he would
attack a Gold Star family that
made such extraordinary sacrifices on behalf of our country,
the fact that he doesnt appear
to have basic knowledge
around critical issues in Europe, in the Middle East, in
Asia means that hes woefully
unprepared to do this job, the
president added.
In a statement, Mr. Trump
linked his opponent, Democrat
Hillary Clinton, to the presidents record. Hillary Clinton
has proven herself unfit to
serve in any government office, Mr. Trump said. She is
reckless with her emails, reckless with regime change and
reckless with American lives.
Our nation has been humiliated abroad and compromised
by radical Islam brought onto
our shores.
Mr. Obama was asked about
the spat between Mr. Trump
and the parents of Capt. Humayun Khan, who was killed in
Iraq in 2004, after their appearance last week at the
Democratic National Convention.
Khizr Khan, Capt. Kahns father, criticized Mr. Trump over
his proposed plan to temporarily bar Muslims from entering
the U.S., saying the GOP nominee has sacrificed nothing
and no one.
Mr. Trump responded by
speculating that Mr. Khans
wife, Ghazala, who had accompanied her husband onstage at
the convention, wasnt allowed to have anything to say.
The Khans say she was too distraught to speak about her
sons death.
Some Republicans, including Arizona Sen. John McCain,
criticized Mr. Trump over his
remarks, but stopped short of
withdrawing their endorsements.
Mr. Obama said of Republicans who criticize Mr. Trump
but continue to support him:
What does this say about
your party that this is your
standard-bearer? he said.
There has to come a point at
which you say, Enough.
Mr. Obama has said before
that Mr. Trump lacks an understanding of world affairs,
particularly after the nominee
suggested South Korea acquire
nuclear weapons, called on
Japan to pay for the U.S. troop
presence there and threatened
to make Americas support for
allies in the Northern Atlantic
Treaty Organization contingent on their financial contributions to the alliance.
New York Police Commissioner Bill Bratton said he would step

down. He earlier was head of police in Los Angeles and Boston.
PERSONAL JOURNAL
Chip Card Nightmares? Heres Help

Chip cards are slowing
down checkout in the U.S.:
Time to pay with mobile
Picking Your Payment Poison

Chipping away at our in-person payment options
Average time:
BY JOANNA STERN
Chips vs. Swipes

Paying with the magnetic strip
on your card has been as secure as
locking your front door with a
piece of masking tape.
A swipe of the strip sends unchanging data to financial institutions to confirm your card account
number, expiration date and other
information. If criminals access
that sensitive data, they can use it
to make a counterfeit card and
fraudulent purchases until the card
6 seconds
Security: Weak
The Swipe
It always transmits the same

info. If intercepted, it can easily
be used again until the card itself
is cancelled.
13 seconds
Security: Strong
DREW EVANS/THE WALL STREET JOURNAL
Heres what its like to buy

something at a store these days:
1. Swipe card.
2. Get scolded by cashier to use
the chip reader.
3. Insert chip and cancel all
foreseeable plans.
4. Wait.
5. Wait some more.
6. Celebrate once you hear that
joyless Remove card sound.
Next time you experience this, I
want you to remember that its not
you. Its the
banks, credit card
companies, merchants, payment
processors, terminal manufacturers
and many others that have created
this checkout catastrophe. But
theres a ray of hope: Your smartphone.
After pulling out the stopwatch
for over 50 transactions at various
retailers in recent days, I can confirm that it takes twice as long to
pay with a chip card than with a
card swipe or mobile paymenton
average, 13 seconds versus 6 seconds.
If you made two purchases every day for a year with a chip card,
instead of a swipe or smartphone,
youd spend 85 extra minutes at
the checkout counter. Thats nearly
an hour and a half of your time, to
give someone your money.
It is completely understandable
to think the U.S. transition to more
secure chip-based credit cards
years after the rest of the world
is the worst thing to ever happen
to our payment system. Except I
now believe its the best thing.
The technology that supports
chip cards is also laying the
groundwork for the death of all
plastic cards. Smartphones will replace our wallets once and for all.
The Chip
EMV technology transmits

encrypted one-time-use data.
Its virtually impossible to
counterfeit, says Visa.
6 seconds
Security: Stronger
The U.S. is moving to more secure chip-based credit cardsyears after the rest of the
world. Only 28% of merchants support the new payments.
is canceled.
Things are more secure with
chip cards, aka EMV cards, named
after the companies that originally
developed the technology: Europay, MasterCard and Visa. Once inserted in the slot, the small, metallic square chip offers up a unique
string of numbersor a cryptogramthat goes to the financial
institutions to verify account info.
Since its different for each transaction, a criminal couldnt steal it
to use again.
So why the hubbub? For all that
to happen, stores need to purchase
high-tech terminals which must be
upgraded with software, then certified by various parties, including
all the accepted payment brands
(Visa, MasterCard, American Express, ETC.). Not only is this process costly, but for larger chains
with complicated systems, it can
take up to six months.
Then theres the transaction itself: Since it generates more data
than just a swipe, it takes (a lot)
longer.
Only 28% of the total merchant
population in the U.S. support the
payments, according to Visa. As of
last October, any retailer that
doesnt take chip cards is responsible for paying back counterfeit
transactions once paid by banks.
This liability shift stirred
some to action. Megaretailers such
as Target, Home Depot and Wal-
Mart jumped on board, but Starbucks, Dunkin Donuts, Subway

and others are slow to put an end
to swiping. (At my local Starbucks,
I can get my latte by paying with a
chip at one terminal, or swiping at
another.)
Many dont yet take EMV because the longer lines tend to be a
much greater hit than the fraud
that theyd have to pay for, says
Joseph Koenig, a technology manager at Index, a company that implements software in point-of-sale
terminals.
Hardware makers and creditcard companies are owning up to
their role in this card-pocalypse,
and are working to speed up
check-out times. With new quicker
chip options, instead of leaving the
card in the terminal during the entire transaction, you can pull it out
after two seconds and put it away.
This week, New Leaf Community Markets, a small grocery
chain in Santa Cruz, Calif., is expected to be first in the country to
update registers with the faster
system. In a live video demo, it
worked as promised. Just a few
seconds until you see a glorious
Please Remove Your Card.
The fix, however, just like the
original installation, is a process
involving multiple steps and parties. The credit card companies expect it to roll out to more retailers
by the end of the year.
The Phone
Apple, Android and Samsung Pay

also use EMV authentication, but
a ngerprint sensor or PIN
conrms the card's owner.
Source: WSJ reporting (processing times); the companies
Meanwhile, terminal makers

such as Ingenico and VeriFone
have started updating their software to process regular chip payments faster, too.
Chips vs. Smartphones

Still, given the choice to use the
fastest chip option or pay with my
smartphone, Ill pick smartphone
every time.
Apple Pay, Samsung Pay and
Android Pay were all twice as fast
as current chip cards in my testing. Hold up your phone, press on
the fingerprint sensor to confirm
its you and six to seven seconds
later, youll hear that pleasing ding
that youre done. In some cases, I
even hit four seconds. Paying with
a debit card was slower, since you
still have to input your PIN.
These services can be faster because they use the same EMV process as chip cards, but with fewer
steps. Theyre also more secure,
because they require a second
form of authenticationa fingerprint or PINto confirm you are
you. In other countries, chip cards
require a PIN, too. U.S. banks
opted against it for credit cards
since they feared an even tougher
transition for merchants and card
holders.
Paying with store-specific apps
that use QR codes like the ones
from Starbucks, Chick-fil-A and
Subway is just as speedy. They can

earn you points and coupons, too.
However, if the future is having 50
different store apps on my phone,
count me out. Thats where Apple
and Android Pays integration of
loyalty cards comes in. Stores such
as Walgreens make the whole process incredibly easyyou pay and
log your Balance Rewards points
at the same time.
Apple, Google and Samsung
confirm that they don't collect any
information about your shopping
habits.
EMV-supported terminals are
the kick in the pants that merchants needed to start adopting
smartphone payments.
The huge benefit of upgrading
to the new EMV terminals is that
there is now the hardware in place
to support mobile payments, says
Randy Vanderhoof, director of the
U.S. Payments Forum, which has
led the transition to EMV.
The bad news? Many merchants have had to get through
chip-card EMV certification first,
and that has taken priority over
mobile implementation.
Youre not as helpless as you
feel. While the industry continues
to shuffle its deck of plastic cards,
were going to push the mobile
payment revolution ahead.
So do your part: Next time you
see that chip-card terminal, ask,
Can I pay with my phone?
Scientists Seek to Put Red Wines Benefits in a Pill

Scientists on opposite sides of
the globe appear to be getting
closer to harnessing one of red
wines most elusive health-giving
ingredients and putting it into a
pill.
The ingredient, resveratrol, has
been touted for years for its ostensible powers to prolong life and
protect against a range of ailments
including heart disease, diabetes
and Alzheimers disease. Studies
pointing to those benefits have
been performed in laboratories on
yeast, worms, fruit flies and mice,
among other organisms.
Testing those benefits in humans has proved more complex.
Resveratrol occurs naturally in red
wine at such low concentrations,
and in combination with so many
other substances, that studying its
health benefits among wine drinkers isnt practical. And purified
resveratrol is broken down in the
liver so quickly that it must be
given at very high concentrations
to prove effective.
A recent human study that suggested resveratrol could slow the
progression of Alzheimers used a
daily dose equivalent to the
amount in about 1,000 bottles of
red wine, says Scott Turner, director of the Memory Disorders Program at Georgetown University
Medical Center, who led the study.
Such high doses can lead to side
effects such as nausea, vomiting
and diarrhea.
Such side effects have caused
previous efforts to tap the health
benefits of resveratrol to founder.
GlaxoSmithKline PLC shelved a
project to develop a resveratrolbased pill in 2010 after some clinical-trial patients developed kidney
problems. The company, which had
hoped to develop the drug as a
treatment for a type of blood cancer, concluded that while resveratrol didnt directly cause those
problems, its side effects led to dehydration, which could exacerbate
underlying kidney issues.
Scientists now hope to over-
CLOCKWISE FROM TOP: DR BAT-ERDENE JUGDER; JESSICA PARFAIT; PAOLO MONTI
BY DENISE ROLAND
Unlocking wines secrets: Dr. Nady Braidy of Australia, above; Dr. Alberto
Bertelli of Italy, below left; Christer Rosn, below right, heads a Florida biotech.
come that problem by increasing

the potency of resveratrol at more
moderate doses. Researchers at
the University of New South Wales,
near Sydney, suspect the substance
is more effective when accompanied by other ingredients found in
red wine, which somehow promote
its activity. They are developing a

pill that combines purified resveratrol with other compounds in wine
in an effort to mimic the drinks
naturally occurring synergies.
Jupiter Orphan Therapeutics
Inc., a closely held biotech company in Jupiter, Fla., is taking a
different approach. It says it has

developed a formulation of synthesized resveratrol that it believes
protects the molecule from being
broken down by the liver.
Alberto Bertelli, a professor in
the department of biomedical sciences for health at the University
of Milan, says what happens to
resveratrol in red wine when it enters the body is sort of a mystery, but he believes alcohol could
help it get into the bloodstream
more effectively.
In his past research, Dr. Bertelli
found that concentrations of resveratrol in the blood of rats given
red wine were higher than when
animals were given purified resveratrol. Dr. Bertelli has switched
his focus from red wine and is currently investigating beneficial compounds found in white wine.
Unfortunately for oenophiles,
that doesnt mean doctors recommend drinking red wine. A mounting body of evidence suggests that
the harms of alcohol consumption
outweigh any beneficial effect of
resveratrol and other compounds.
Resveratrol, which is also found
in some berries and dark chocolate, is currently available as a dietary supplement. But there is no
convincing evidence that resveratrol supplements work, says Andy
Gescher, emeritus professor of biochemical toxicology at the University of Leicester in the U.K.
Such products are regulated as
foods rather than drugs, and manufacturers arent required to run
clinical trials to prove that their
pills work, a Food and Drug Administration spokeswoman says.
At the University of New South
Wales, researchers have combined
resveratrol with two other components of red wine: antioxidants and
chelating agents, which have separately been shown also to have
health benefits. Nady Braidy, a
neuroscientist in the universitys
Centre for Healthy Brain Ageing,
says the aim is to mimic the synergistic effect that is found in a glass
of red wine without the negative
effects of alcohol. He says the for-
mulation allows researchers to use

a dose of less than 25 milligrams
of resveratrol, or the equivalent of
that found in about 13 bottles of
red wine.
The researchers recently tried
the combination in a small trial involving 50 people and found it increased activity of a substance
called NAD+, which plays a key
role in maintaining healthy cells.
They hope to test it in Alzheimers
patients, on the basis of experiments in mice showing that higher
levels of NAD+ protect nerve cells
from damage.
Jupiter Orphan Therapeutics
says its resveratrol product appears to slow the substance from
being broken down in the body.
The concentration of resveratrol in
the blood of mice who took Jupiters product, called Jotrol, was 17
times as high as in those on regular purified resveratrol, says Christer Rosn, Jupiters founder and
chief executive. He says the company is currently seeking patents
for the product.
Murdoch Childrens Research Institute, in Melbourne, Australia,
says it has agreed to test Jupiters
formulation in patients with Friedreichs ataxia, a rare disease that
causes people, mostly children and
teens, to gradually lose control of
their limbs. An earlier, 24-person
study suggested that a high dose
of resveratrol could improve movement but also led to gastrointestinal side effects.
The institute was co-founded by
the mother of Rupert Murdoch, the
executive chairman of News Corp.,
which owns The Wall Street Journal.
Dr. Turner, of Georgetown University, says his research team also
plans to test the Jupiter product in
a follow-up study to its Alzheimers trial.
Until scientists someday succeed in packaging resveratrol for
people, the best vehicle for the
substance appears to be the oldest
one. The only reliable source,
says Dr. Bertelli, is a glass of red
wine.
ARTS & ENTERTAINMENT
Gold-Medal Documentary
EVERY MODERN OLYMPICSeven the first,

in Athens in 1896has been recorded on
film. Some of the most famous documentaries inspired by the Games include Leni
Riefenstahls Olympia, her record of the
1936 Berlin Games (released in 1938), and
David Wolpers Visions of Eight (1973), in
which eight filmmakers (one of whom is
Kon Ichikawa) picked an event to cover at
the 1972 Munich Games. But the goldmedal standard of Olympics films is Ichikawas Tokyo Olympiad (1965). Which
doesnt mean that the Japanese directors
documentary of the 1964 Games is by any
means a typical sports film.
Ichikawa was born in southeast Japan in
1915 and died in Tokyo in 2008 at the age of
92. As a boy he loved samurai movies and
cartoons, particularly Walt Disneys Silly
Symphonies (animated shorts produced
from 1929 to 1939). He once called Disney,
along with Charlie Chaplin, the greatest influence on my films. He started out as an
animator but moved to directing when the
studio he was working for closed its animation department.
In 1948 he married Natto Wada, a translator for the studio, who would turn to
screenwriting and collaborate with him on
an incredible series of films, mostly dramas, many literary adaptations. Two of
their more remarkable films were antiwar
tales, The Burmese Harp (1956; remade in
1985) and Fires on the Plain (1959),
which tells the story of a starving Japanese
soldier suffering from tuberculosis trapped
behind American lines in the Philippines. I
would unhesitatingly call Fires on the
Plain the greatest waror antiwarfilm
ever made. The New Yorkers Pauline Kael
wrote, Cautious as I am about superlatives, I think the term masterpiece must be
applied to Fires on the Plain. It has the disturbing power of great art.
Ichikawa was not the Japanese governments first choice for Tokyo Olympiad.
That was Akira Kurosawa, his contemporary and countryman, who quit because the
International Olympic Committee wouldnt
allow him to direct the opening ceremonies. Kurosawa, Im fairly certain, would
have focused on the Games epic and triumphal moments. Ichikawa, as the writer
George Plimpton put it, pays great attention to matters of small moment.
Using handheld cameras with telephoto
lenses, Ichikawa and his crew looked at the
GETTY IMAGES
REVIEW
ALLEN BARRA
A pole vaulter in Kon Ichikawas Tokyo Olympiad (1965).

events from odd angles, showing us the
chalk-covered hands of a pole vaulter, the tortured gasping face of a marathon runner, the
bleeding, blistered feet of a sprinter. The boxing competitions (in which a young Joe Frazier, seven years before his epic confrontation
with Muhammad Ali, won the heavyweight
gold) are spurts of action punctuated by
freeze frames. They are shot in stark blackand-white.
In one startling sequence, Ichikawa
presents female hurdlers lurching from
their starting positions at the sound of a
gun and then running their race in total silence. In the single most amazing sequence
Ive ever seen in a sports film, a game but
hopelessly undertrained long-distance run-
ner, Karunananda from Ceylon, staggers

across what he thinks is the finish line, realizes that he has one more lap to go, and
finishes the last lap to the shouts and
cheers of the ecstatic crowd.
And in the single saddest moment Ive
ever seen in a sports film, Ahamed Isa, a
runner from Chadone of only two Olympic
athletes from his countryis seen eating
alone in a cafeteria after failing to advance
to the finals in his event. Ichikawa devotes
more time to the mans story than to any of
the medal winners.
Ichikawas great film isnt about medals
or teams or world records; its simply about
the athletestheir occasional triumphs and
how they console and overcome their sor-
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rows in defeat.
The opening scene shows a bright red
sun, an obvious symbol for Japan, followed by another symbolic circlea
wrecking ball smashing into condemned
buildings to clear the way for the national
stadium where the Games would be held.
The city of Tokyo appears startlingly fresh
and new, particularly when one realizes
that less than two decades earlier much of
its infrastructure was destroyed during
World War II.
If there is one unequivocal winner in
Tokyo Olympiad, then, its the city itself.
Mr. Barra writes about sports and the arts
for the Daily Beast and Truthdig.
OPINION
REVIEW & OUTLOOK
The Donald J. Trump Referendum
ith the party conventions wrapped let any criticism pass without lashing back in
up, the contours of the final 100 days ad hominem fashion. Thus Mr. Trump has spent
of the U.S. general election are be- the past three days trading insults with Khizr
coming clearer. America
and Ghazala Khan, whose son
Democrats figure they was an Army captain killed in
wants change, which should
help Republicans. But Demo- can bait the Republican
Iraq in 2004; Mr. Khan spoke
crats are confident that Hilagainst Mr. Trump at the
lary Clinton will win if they into blowing himself up. Democratic convention. Mr.
can make the election about
Trump could have shown
Donald Trump, and Mr. Trump
statesmanship and made an
seems happy to oblige.
expression of sympathy and gratitude for the
Democrats revealed in Philadelphia that Khans sacrifice. If he had to make a political
theyve decided not to make the campaign a point, he could have mentioned that Mrs. Clintypical left-right ideological battle. Instead, ton voted for the Iraq war and then turned
they will try to disqualify Mr. Trump as temper- against it when the going got rough.
amentally and morally unfit for the Presidency.
Instead, Mr. Trump made himself look small
From now until November, expect to hear a lot and hurt his own claim to be Commander in
about 3 a.m. phone calls and nuclear winter Chief. Mitch McConnell and Paul Ryan were
and on the occasional lighter note, Mr. Trumps compelled to issue statements distancing
well-documented vulgarity.
themselves from Mr. Trump by commending
President Obama put this strategy crisply Humayun Khans service to the nation. John
when he noted that what we heard in Cleve- McCain was even blunter. Memo to Trump
land last week wasnt particularly Republican Tower: Hillary Clinton isnt trying to rebut Paand it sure wasnt conservative. For eight years tricia Smith, who blamed the Democrat at the
the worst thing Mr. Obama could say about GOP convention for her sons death at the U.S.
somebody is that hes a Republican. So calling mission in Benghazi.
Mr. Trump worse than a conservative RepubliMrs. Clintons other advantage is that Mr.
can is, for him, really harsh.
Trump knows little about the world and cant
The public desire for change is nonetheless be bothered to learn. In an interview with ABCs
real and growing, and Democrats know that George Stephanopoulos on the weekend, Mr.
Mrs. Clinton is the least convincing change Trump seemed to suggest that Russian proxies
maker in American politics, to quote her hus- had not invaded Crimea. Hes not going to go
bands phrase. But they have built formidable into Ukraine, all right? You can mark it down.
money and organizational advantages, and they You can put it down, Mr. Trump blustered. Last
figure they can win with even a candidate as week he floated the prospect of officially recogflawed as Mrs. Clinton as long as 2016 is a refer- nizing Russias annexation.
endum on Mr. Trump, not on the Clinton-Obama
A two-page briefing document could have
agenda or the last eight years.
acquainted Mr. Trump with the Crimean realMeanwhile, Donald Trump seems thrilled ity, but that would have required doing a high
that Democrats are trying to make the election schoolers amount of homework. Maybe it
about his favorite subjectDonald J. Trump. could have even instructed him that a RepubliWere he as shrewd a politician as he claims to can who wants to win an election cant let a
be a businessman, hed explain how Clinton- Democrat look more hawkish toward U.S. adObama policies have failed and why his would versaries like Vladimir Putin.
be superior. Above all, hed work overtime to
Mr. Trumps indiscipline managed to drown
reassure undecided voters that he is a risk out Fridays dismal economic report and anworth taking. He cant tap into dissatisfaction other burst of Clinton dissembling about the
with the status quo if Americans cant imagine classified material on her private email server.
him sitting in the Oval Office.
In rookie candidate school, theyd called this
But thats not the Trump way, and he cant political malpractice.
seem to help himself. The New Yorker is as easy
Mrs. Clinton appears to be getting a bounce
to read as the giant Trump signs he puts on his from her convention and by next week may have
buildings, and Democrats have figured out they solidified her lead in the polls. She and Democan bait him into self-destructive behavior.
crats must be amazed that theyve drawn an opMr. Trump is so thin-skinned that he cant ponent who so easily plays into their hands.
Obamas Latest Libyan War
resident Obamas campaign against Is- Libyas unity government, which is recognized
lamic State has been marked by hesita- by the United Nations and has been trying to
tion and gradual escalation, and on assert control over more of the country. Militias
Monday it expanded to the
loyal to the government have
The U.S. conducts
would-be caliphates Libyan
been gaining some ground
front. U.S. planes conducted
along the Libyan coast and
air strikes against
airstrikes against Islamic
have taken parts of Sirte. U.S.
Islamic State in Africa. special forces are known to be
State vehicles and a tank in
the coastal city of Sirte, which
operating in Libya, and no
has become the Libyan headdoubt one of their tasks is coquarters for the terror group.
ordinating the air strikes with the needs of local
Its about time. Forces loyal to the Libyan forces on the ground.
government have long sought more U.S. miliThe Libyan effort is crucial to the larger
tary assistance to stop the spread of Islamic anti-Islamic State campaign, especially as
State, and U.S. generals have supported it. Mr. pressure grows on the terror groups strongObama has resisted for reasons that are hard holds in Iraq and Syria. If the jihadists are
to understand, unless the President simply forced to flee Mosul or Raqqa, they would love
hasnt wanted to publicly acknowledge that the to be able to raise their black flag over cities
terror group has expanded its reach.
in Libya. Islamic States appeal depends on its
A U.S.-led coalition deposed Moammar Gad- ability to hold territory to pretend its a state.
hafi in 2011 but then the U.S. more or less left It also needs areas where it can train recruits
Libyans to their own chaotic devices. Islamists without fear of U.S. air strikes.
and other militias filled the vacuum, and IsMr. Obamas anti-Islamic State campaign has
lamic State has become the most ruthless in been picking up the pace as the election nears
trying to establish another sanctuary for its and the end of his Presidency approaches.
murderous brand of Islam.
Whatever his motivation, the sooner the caliphThe U.S. strikes in Sirte were requested by ate is rolled up, the better.
Democracy in Tunisia
unisia has ousted its Prime Minister, governing momentum, and pushing proHabib Essid. If you missed the news, growth reforms against labor-union and leftist
consider it as further evidence that the opposition looked daunting.
North African country reHence President Beji Caid
An Arab parliament
mains the sole democratic
Essebsis call for the formasuccess story to emerge from
of a new government
votes to oust a premier. tion
the Arab Spring.
last month, which triggered
No bloodbath follows. the weekend no-confidence
Mr. Essid, who came to office last year, lost a no-confivote Mr. Essid lost. Under the
dence vote by a wide margin
constitution, the parties have
in Parliament over the weekend. The discon- 30 days from the vote to form a new administent stemmed from Mr. Essids failure to boost tration, and party leaders are meeting
economic growth and improve security. Lo, Wednesday to begin negotiations.
the U.S.-educated Mr. Essid graciously left his
The new government will have no time to
office as in a Western democracy.
waste getting to grips with Tunisias considerTunisias political stability is all the more able challenges. External security is the Presiremarkable given the challenges the country dents purview, but the next cabinet should
faces. Jihadist atrocities have decimated Tu- enhance coordination among domestic-secunisias tourism industry, and Islamic States rity agencies, take up subsidy reforms and inifoothold next door in stateless Libya is a tiate a fresh round of privatization of statechronic danger (see the editorial nearby). owned enterprises.
The jobless rate has remained above 15% for
As those debates continue, recall how reyears, in part because the state still plays far markable this is for an Arab state. Mr. Essids
too large a role in the economy. Consumer peaceful ouster follows a number of recent
subsidies that arent sustainable drain the milestones, including a secular constitution,
public fisc.
a spirit of comity among the countrys major
One complaint against Mr. Essid was that parties, and the decision earlier this year by
he remained aloof from the retail politics and one of those parties, Ennahda, to jettison its
consensus building necessary to implement Islamist identity.
reforms. More than a year since the Islamist
Mr. Essid hailed the no-confidence vote
shooting at the Bardo National Museum that against him for consecrating Tunisias naleft 20 foreign tourists dead, Mr. Essids gov- scent democracy. He received a standing ovaernment had failed to draw up an effective, tion as he stepped down, and Tunisia once
comprehensive counterterror strategy.
again demonstrated its political promise in a
The feeling inside his own Voice of Tunisia region full of military dictatorships, Islamist
party, moreover, was that Mr. Essid had lost theocracies and failed states.
The Go-Along
Republicans
Theres an old saying
that in politics there
are no permanent victoriesand no permanent defeats. Barry
Goldwater was crushed
in 1964 but the ideas
GLOBAL
that animated his canVIEW
didacy found new life
By Bret
in the Reagan RevoluStephens
tion of 1980. Bill Clinton declared the era of
big government over in 1996 and 14
years later we got ObamaCare.
The inevitable turning of the policy
wheel should comfort conservatives unnerved by the prospect of a Hillary
Clinton presidency. Liberals overreach.
Statist solutions fail. Voters tire of oneparty rule. To govern is to own, and the
next president will own the next recession, the next foreign-policy fiasco, the
next Veterans Affairs scandal. If Mrs.
Clinton is everything Republicans say
she isan opportunistic, dishonest, incompetent left-wing ideologuethey
can at least look forward to a one-term
presidency. I know I do.
But to say there are no permanent
victories or defeats in politics doesnt
mean there is no permanent dishonor.
Huey Long, Charles Coughlin, Alger
Hiss, Joe McCarthy and Bull Connor are
the foul names of Americas 20th century, and always will be. And those who
supported and excused them will always be tainted by association.
This is where Republicans now find
themselves with their presidential
nominee. Of all of Donald Trumps vile
irruptionsabout Sen. John McCains
military record, or reporter Serge
Kovaleskis physical handicap, or Judge
Gonzalo Curiels judicial fitnesshis
casual smear of Ghazala Khan is perhaps the vilest.
This isnt simply because Mrs. Khan
is a bereaved mother. Bereavement
alone does not place someone above
criticism, especially when it comes to
political differences. Nor is it because
Mrs. Khans son, U.S. Army Capt. Humayun Khan, died heroically to protect his
troops in Iraq. The special deference
given to Gold Star parents is, at bottom, a social convention.
No: What makes Mr. Trumps remarks so foul is their undisguised sadism. He took a woman too heartbroken
and anxious to speak of her dead son
before an audience of millions and
painted a target on her. He treated her
silence as evidence that she was either
a dolt or a stooge. He degraded her.
She was standing there. She had nothing to say, Mr. Trump told ABCs
George Stephanopoulos. She probably,
maybe she wasnt allowed to have anything to say. You tell me.
In this comment there was the full
unmasking of Mr. Trump, in case he
needed further unmasking. He has, as
Humayuns father Khizr put it, a black
soul. His problem isnt a lack of nor-
mal propriety but the absence of basic

human decency. He is morally unfit for
any office, high or low.
This is the point that needs to
dawnand dawn soonon Republican
officeholders who pretend to endorse
Mr. Trump while also pretending, via
wink-and-nod, that they do not. Paul
Ryan has tried to walk this razors
edge by stressing how much he disagrees with Mr. Trumps ideas. On
Sunday the speaker issued a flabby
statement extolling the Khan familys
sacrifice and denouncing religious
tests for immigrants without mentioning Mr. Trump by name.
Mr. Ryan is doing his personal reputation and his partys fortunes no favors with these evasions. The central
issue in this election isnt Mr. Trumps
ideas, such as they are. Its his character, such as it is. The sin, in this case,
is the sinner.
Memo to Paul Ryan: Trumps

problem is his character,
not his ideas.
It will not do for Republicans to say
they denounce Mr. Trumps personal
slanders; his nativism and protectionism and isolationism; his mendacity
and meanness and crassness; his disdain for constitutional protections
and still campaign for his election.
There is no redemption in saying you
went along with it, but only halfway;
that with Mr. Trump you maintained
technical virginity. To lie down with
him is to wake up with him. Its as
simple as that.
Thats a thought that ought to
frighten Republicans. The Khan slander
was not Mr. Trumps first and will not
be his last or worst. As one wag on
Twitter put it, the man always finds a
new bottom. Nor are we likely done with
new disclosures about Mr. Trumps business practices and associations. Conservative die-hards may try to hold fast to
the excuse that Hillary Clinton was, is,
and always will be worse, but the argument cant be sustained indefinitely.
Mrs. Clinton is not the apotheosis of
evil. She may be a corner-cutter and a
liar, and shell almost surely appoint liberals to the Supreme Court. But at least
shes not a sociopath.
Politics is mostly the business of
maintaining popularity in the here and
now. Not always. Come January, Mrs.
Clinton will likely be president.
Whether there is a GOP that can still
lay a claim to moral and political respectability is another question. Mr.
Ryan and other Go-Along Republicans
should treat the Khan episode as their
last best hope to preserve political
reputations they have worked so hard
to build.
Write bstephens@wsj.com.
LETTERS TO THE EDITOR
Trump, Trade, Technology and U.S. Jobs

Regarding Mary Anastasia
OGradys Wharton Grad Trump
Fails Economics (Americas, July
26): I farm in Iowa and provide consulting services to agribusiness companies at home and abroad. I recall
that most basic of Economics 101
lessons about the gains from
trade. It amazes, shocks and disappoints me (and many of us in agriculture in the Midwest who depend
on exports) that so many of our politicians are ready to tear up trade
agreements and erect trade barriers. Have any of these people, including Donald Trump, ever heard of
the Great Depression?
For the pork industry, Nafta and
the Mexican market demonstrate a
classic case in point. Before Nafta,
U.S. pork producers had virtually
zero market in Mexico. Today, the
U.S. pork industry exports about one
quarter of its production, around $6
billion a year, and thanks to Nafta
Mexico is now our No. 1 market in
volume and No. 2 market in value.
The Trans-Pacific Partnership represents another exciting opportunity
for U.S. agriculture to continue to
grow exports of American food, feed
and fiber.
Its truly disheartening to hear the
presidential candidates disavow the
benefits of trade to the American
economy. Ms. OGradys piece is spoton by pointing out that it is technology that is putting people out of
work, not trade agreements.
BRIAN M. FOSTER
Hampton, Iowa
The move of our company, California Cedar Products Co., to China had
nothing to do with advances in technology. We are a manufacturer of
slats for the subsequent manufacture
of pencils. Our company (with about
1,500 employees including six sawmills) was the last slat factory to produce in the U.S. We were the last one
here because we survived due to our
advanced technology using very thin
saws to increase the yield from wood.
But the saving in wood wasnt enough
to offset the cost of labor.
China began selling finished pen-
cils in the U.S. in the late 1980s at

prices lower than our slats. We
moved our factory to China, even after negotiating a 14.8% decrease in
wages and benefits in 1998. After the
move our labor costs in China decreased 90%. The problem was that
by then the Chinese had taken a
large share of our business.
The Chinese were selling pencils
below cost: therefore a tariff would
have been the proper temporary solution. Perhaps the American consumer can buy pencils cheaper now
that there are hardly any manufacturers left here but think of the economics and buying power of employing the 15,000 or so former U.S.
pencil-making workers in our society. Luckily were still in business,
but we have only about five employees in the U.S.
Before we moved we even contacted President Clinton and California Sen. Dianne Feinstein. The former
completely ignored our petition and
the latter canceled an appointment
the day before she was supposed to
attend a big factory meeting with our
employees. So dont rely on the government to do anything except tax
you to death.
PHILIP C. BEROLZHEIMER
Stockton, Calif.
As one of the analysts crunching
the numbers, I can absolutely assure
Ms. OGrady that the reason why the
company I worked for moved over
7,500 manufacturing jobs from the
U.S. to Mexico was 100% due to the
ability Nafta afforded the company to
take advantage of lower Mexican
wages. The technology used in the
U.S. plants was all shipped to the
Mexican ones.
FRANK VIOLA
Jenkintown, Pa.
Letters intended for publication should
be addressed to: The Editor, 1211 Avenue
of the Americas, New York, NY 10036,
or emailed to wsj.ltrs@wsj.com. Please
include your city and state. All letters
are subject to editing, and unpublished
letters can be neither acknowledged nor
returned.
OPINION
By Alan S. Blinder
an you remember the second

day of the Republican National Convention? That was
supposed to be economics
night, with the advertised
theme Make America Work Again.
Awkwardly put, yet the phrase suggests that America suffers from mass
unemployment and that Donald
Trumps braggadocio would bring the
jobs back. Both notions are false.
The unemployment rate, which
peaked at 10% in the aftermath of the
Great Recession, has been at or below
Its Hillary Clinton, not

Donald Trump, who offers
serious policy proposals
designed to boost incomes.
5% all year. The American job machine has created more than 14 million net new jobs since employment
bottomed out in 2010. Yes, jobs remain scarce for some people, in some
places and in some occupations. And
the labor-force participation rate
could be higher. Still, more Americans
are working than ever before.
The real problem American workers face today is getting decent pay
for their labor: They need a raise.
Or, more precisely, the bottom 99%

of workers do.
The median inflation-adjusted
hourly wage grew only 5.7% from
1973 to 2015, according to astonishing data compiled by the Economic
Policy Institute. That comes to 0.1% a
year. Worse yet, wage gains have
been even more meager for workers
below the median. If you want to
understand why the typical American
worker is angry, start here.
Real wages did better higher up
the wage ladder. But even at the lofty
95th percentile, the cumulative gain
was only 45% over 42 years, or about
0.9% a year. Meantime, wages for the
top 1% rose about 180% over the same
period. The next presidents top goal
should be to raise wages for the other
99% of Americans. But how?
Last year, Mr. Trump evinced
deep concern over low wages by
opining that our wages are too
high. Too high for whom? Though
he has occasionally paid lip service
to increasing the minimum wage,
his actual views on wages remain
enigmatic. Scanning the Republican
platform, I found two suggestions
for raising wages: limit immigration
and lower the corporate-income tax.
If you listen to the candidate rather
than the platform, youll pick up a
third: trade protection.
In contrast, Hillary Clinton has
presented an extensive list of policies
that would raise wages, starting with
GETTY IMAGES/ISTOCKPHOTO
Making American Wages Grow Again
a higher minimum wage. While raising it would affect directly only the
very lowest wage earners, evidence
suggests that raising the wage floor
pushes up other low wages as well.
Mrs. Clinton also advocates widespread profit-sharing as a way to
put more money into workers pockets. She would promote that goal
both by using the presidential bully
pulpit and by providing tax incentives for businesses that share profits. Since the scholarly evidence
suggests that profit-sharing raises
productivity, such tax breaks will
partly pay for themselves.
Increased vocational training and
apprenticeships for the non-college-
bound are also major Clinton policies. The standard response to the
huge wage gap between workers
with and without a college degree is
to send more students to college and
get more of them graduating. Thats
fine, but not everyone is a good candidate for a college degree, and many
well-paying jobs dont require one.
The U.S. can increase its productivity
and reduce inequality by ensuring
that the right people get vocational
training and apprenticeships.
And then there is what may be the
surest way to raise wages over the
long run: providing pre-K education
for all American children. Mrs. Clinton
has promoted this idea for decades.
By now, an extensive body of research

shows that children who receive highquality pre-K education perform better in school, are less likely to be incarcerated later in life, and generally
go on to earn higher wages. Only
shortsightedness has prevented the
policy from being adopted: It takes 15
to 20 years to realize the payoff from
educating a 3-year-old.
Finally, let me add one policy that
President Obama and House Speaker
Paul Ryan already agree on: increasing the now-paltry Earned Income
Tax Credit for childless workers. This
tax credit is a wage subsidy, but it is
tiny for those without children. Only
wage-earners are eligible, so even
those concerned about takers
mooching off makers should like
the idea. The EITC has enjoyed bipartisan support since it was started
during the Ford administration.
Add it all upa higher minimum
wage, profit-sharing, vocational education, apprenticeships, pre-K for all,
and a more generous EITCand you
have a policy package that, while no
miracle, is almost guaranteed to give
American workers a raise. Its a lot
better than bluster.
Mr. Blinder, a professor of economics and public affairs at Princeton University and former vice chairman of the Federal Reserve, is an
informal policy adviser to the Hillary
Clinton campaign.
Donald Trump on the Offensive

For Donald Trumps
critics, its not just
that they disagree
with the man and his
policies. Its more
that they find him
offensive.
MAIN
Theres a reason
STREET
for this: Mr. Trump
By William
is a man who is perMcGurn
petually on offense.
Think of him as
the Kevin Kelley of politics. Mr. Kelley coaches football for Pulaski Academy in Little Rock, Ark. Hes gained
national fame as the coach who almost never punts. Coach Kelley believes that keeping possession of the
ball is more important than trying to
deny an opponent field position.
So he goes for it on fourth down
even in his own territory. As a result,
Mr. Kelley gives his offense four plays
to gain 10 yards instead of three. Just
as important, his all-offense approach
gives his Bruins a psychological edge.
The strategy isnt without its risks.
Though Mr. Kelley says the math
bears him out, his approach means
opponents will sometimes score or
intercept when they might not have
otherwise. Backfires can be messy.
Mr. Trump is playing the same

game. Not only is he always on the
attack, he hardly ever backs down
even when hes demonstrably wrong.
The result has been a number of
busted plays, whether its declaring
that John McCain was not a hero because he was captured by the North
Vietnamese, questioning the impartiality of an Indiana-born federal
judge because the jurist has Mexican
blood, or his campaign teams initial
denials that Melania Trump had
cribbed some lines in her convention
speech from Michelle Obama when
the theft was clear and obvious.
Mr. Trumps critics are quick to
suggest these kind of things make
him unfit for the Oval Office. Especially on the right, they frequently go
on to add that any Republican or conservative who doesnt publicly pronounce him anathema will forever
bear the mark of Cain.
It should be noted that his critics
on the right are also invested in a
big GOP defeat. If Mr. Trump loses
by two or three points, they will be
blamed for contributing to that defeat. If, by contrast, Mr. Trump
loses by a landslide, they will look
like prophets.
For the larger Republican Party,

however, theres a catch. If it turns out
Mr. Trump loses by a narrow margin,
Republican senators and congressmen
still have a chance of keeping their
seats. A blowout defeat for Mr. Trump,
on the other hand, would likely translate into massive Republican losses in
Always on the attack,

rarely backing down,
even when hes wrong.
both the Senate and House. Even so,
its a price the NeverTrump movement
appears more than willing to pay to
make their point.
Hillary Clintons dilemma is somewhat different. And it points to the
great X Factor of the 2016 election:
Never before have Democrats faced a
Republican nominee who is so relentlessly on offense.
They havent quite figured out
how best to respond. At their convention in Philadelphia, Democrats tried
presenting the repellent Mr. Trump
as a break from all those decent Republicans of the past.
Hmmm. Anyone remember election year 2000, when the NAACP ran
an ad implying George W. Bush was
OK with lynching? It exploited the
brutal murder of an African-American in Texas who had been beaten,
chained to the back of a pickup truck
and then dragged through the
streets. In a voice-over, the murdered mans daughter says, So
when Governor George W. Bush refused to support hate-crimes legislation, it was like my father was killed
all over again.
Where were the keepers of public
respectability then, warning that anyone who didnt immediately renounce
the NAACP for this smear would be
forever tainted?
And while were on the subject of
smears directed at Sen. McCain, in the
2008 campaign Georgia Rep. John
Lewis said the tone of the McCain/Palin campaign reminded him of another destructive period in American
history. Just to underscore his point,
Mr. Lewis noted that while George
Wallace never threw a bomb or fired
a gun, he created the atmosphere of
hate that led to the murder of those
innocent girls.
Again, hard to recall a chorus of
disapproval, much less the suggestion that Mr. Lewis and his followers
had forever fouled themselves.
Likewise the attacks on Mitt
Romney. In 2012 Sen. Majority
Leader Harry Reid falsely accused
Mr. Romney of failing to pay his
taxes; the deputy manager of the
Obama campaign suggested he was
a felon; and a pro-Obama super PAC
ran an ad blaming Mr. Romney for
the cancer death of a woman whose
husbands steel plant had been shut
down in a Bain Capital restructuring
years earlier.
The truth is that Mr. Trumps offense is in good part a creature of the
campaigns Democrats have run
against Republicans for decades.
Sooner or later it was inevitable that
voters, tired of both political correctness and playing defense, would opt
for a Republican nominee who would
give as ugly as he got.
Unlike Mr. Kelley, who has a string
of state championships and an impressive win-loss record, Mr. Trump
has not yet proved his strategy will
put him over the goal line come the
fall. But hes sure taken Coach Kelleys point about offense.
Write to mcgurn@wsj.com.
Let Cyprus Embody the Principles of the European Union

By Josef Ackermann
he U.K. referendum result to

leave the European Union has
been a major shock for the U.K.
But it has also shaken the EU and has
reignited the debate about how best
to achieve the objectives of the European project. The potential reunification of Cyprus offers an opportunity
for the EU to demonstrate its ideals
and the value of its policy and institutional framework.
The fears and disappointments
that motivated vulnerable groups in
the U.K. to vote Leave are shared by
many of their EU counterparts. Perhaps more so, if taking into account
the EUs weak economic performance
after the global financial crisis, the
austerity policies in response to the
eurozone debt crises and the EUs
proximity to the turbulence in the
Middle East.
While views within the EU differ
on the way forward, there is nonetheless a general agreement that more
convergence and solidarity are
needed. The question is how this is to
be achieved. Thats where the EU approach to Cyprus comes in.
Cyprus has recently completed,
with the support of the European
Central Bank, the European Commission and International Monetary

Fund, a three-year economic-reform
program to address its banking and
fiscal crises. Bank shareholders, bond
holders and uninsured depositors for
the two major Cypriot banks took
Good progress has been

made on a reunification
plan. Its everything that
the EU stands for.
harsh write-offs; confidence in the
banking system has been restored;
capital controls have been lifted; bank
deposits are rising again; the banks
record-high nonperforming loans
have begun to be cut back; public finances have been strengthened; and
strong growth has returned. Challenges, of course, remain on a number
of fronts, as the momentum of reforms needs to be maintained.
In parallel, the Greek and Turkish
Cypriot political leaders have resumed
negotiations for the political reunification of the island on the basis of establishing a two-zone, two-community
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federal state. The leaders have indicated that a broad agreement is likely
by the end of the year, after 42 years
of being a divided countrythe EUs
only such case of this kind.
However, while progress is being
made, there remain considerations of
property, territory and security that
still need to be settled. A final agreement is to be put to a referendum.
The viability of any prospective solution would entail large financing
needs to address the reconstruction efforts and the necessary property-compensation plans. But a successful
agreement would offer the chance for
major potential benefits to both communities. To help, the EU could start by
providing firm political and technical
support to the negotiating process.
A viable and well-balanced solution
would unify a divided EU member
state and have economic, political and

security benefits for the countries in
the area and the EU itself. It would remove the principal cause of the disputes between Cyprus (and Greece)
and Turkey, and help lift Turkeys embargo restricting ships registered under the Cypriot flag or managed by EU
ship-management firms based in Cyprus from accessing Turkish ports.
Already the Greek and Turkish Cypriot leaders have agreed to adhere to
the EU arrangements for the single
market, the banking system, the eurozone, public finances, and development and social issues. This is a remarkable and tangible recognition of
the value and usefulness of the legal
and institutional framework developed
by the EU in recent decades.
Once the Cypriot people endorse a
solution, the EU should pledge that it
will stand ready to provide appropriate financial assistance. For starters,

this could take the form of low-cost
loans from the European Investment
Bank and higher development assistance. But much more will be needed.
Consideration should be given to special grants from EU states, as well as
loans with long maturity, low interest
and long grace periods from special
agencies such as the European Stability Mechanism.
EU support for Cypruss potential
reunification would clearly make a
difference to Cyprus, but also demonstrate that the policy, institutional
and legal framework that the EU has
painfully built can provide the basis
for uniting the peoples of Europe.
Mr. Ackermann is the chairman of
the board at the Bank of Cyprus.
A Birthday Wish for France

By Michael Judge
s the nightmare in Nice was

unfolding last month, a childhood dream of mine was coming true. The French Revolution and
I share a birthday, July 14, and it
had long been a wish of mine to
visit Paris for the fireworks on Bastille Day.
My wife, Masae, our son, Max, my
brother, David, and I arrived a few
days early. On my 50th birthday, we
met some friends to share a meal,
drink wine and watch the fireworks.
It wasnt until after the display that
we learned of the horror in Nice
the families, the children; innocents,
allmurdered in a savage act unthinkable to a civilized mind.
Much has been made of Prime
Minister Manuel Vallss statement
that his countrymen must learn to
live with terrorism. But I dont
think he meant it in terms of surrender. I like to think that the attacks
that have claimed so many lives in
France130 in Paris in November, 12
at Charlie Hebdo in early 2015, 84 at
Nicehave only increased the
French peoples commitment to defeating those who would purposely
steer a truck toward children. The

French motto of libert, galit, fraternit ought to be a potent rallying
cry against the toxic cocktail of misanthropy, misogyny, homophobia
and anti-Semitism swallowed by
those who pledge allegiance to the
black flag of Islamic State.
Ren Char, the French poet and
Resistance leader, fought to free his
country from Hitlers demented
dream of a third Deutsches Reich,
or German empire. Chars poetry is
about the struggle in the heart and
mind of civilized man, the pull
away from and push toward the
kind of barbarism witnessed in Hitlers Europe in the 20th century
and the kind seen in Nice on July
14. Yet instead of turning a blind
eye, like so many did at the time,
Char took up arms and led a Resistance unit in the French Alps, fighting under the nom de guerre Captain Alexander.
Chars war diary, Feuillets dHypnos (Leaves of Hypnos), chronicles
his time with the Resistance through
aphorisms, anecdotes and fragmentary prose pieces written between
operations against the Nazis. A single
line from the book sums up Chars
stoic, warrior mind-set: I will write

no poem of acquiescence.
One Char poem, titled Line of
Faith, stands out for its hopefulness
and determination. It came to mind
when I first heard of the madness in
Niceafter the fireworks, with my
family and loved ones safely by my
side. One can almost hear his voice,
the true poet-hero, writing by campfire, alongside his fellow Resistance
fighters, dreaming of victory, and
with it, peace. The grace of the
stars, he writes, resides in their
compelling us to speak, in telling us
we are not alone.
A few nights after the Nice attack, before leaving Paris, we dined
at Le Dme, a favorite restaurant of
French and expat writers and artists
of the 1920s, mentioned by Hemingway in A Moveable Feast. Our
waiter was a gentleman in his 60s, a
professional with grace and style. As
we were leaving, he said, in his best
English, Thank you for visiting
France. His kind words and demeanor compelled me to say, in my
best French: Vive la France.
Mr. Judge writes about culture
and the arts for the Journal.
SPORTS
Well, everybody, what are you

going to watchthe big debate or
the football?
Will you watch the football live,
and DVR the debate? Or, will you
watch the debate liveand DVR
the football?
Im just kidding: Only lunatics
and serial killers DVR football.
But if you DVR the debate, do
you watch it right after
the football, or do you
save it for later? Do you
let your no-good football
pals stay at the house to
watch both?
JASON
Another important
GAY
question: Can you eat
wings during a debate?
A more important
question: Does that mean youre
eating wings twice that night?
This was inevitable, wasnt it? In
this historically madcap election
season, it is only fitting that the
presidential race would collide with
Americas other overbaked newshogging national spectacle: football.
Two of the three scheduled debates between Donald Trump and
Hillary Clinton will clash in prime
time against the NFLone debate
versus an Atlanta-New Orleans
Monday Night Football game, and
another lined up against a Sunday
evening Green Bay-New York Football Giants contest.
Trump, in particular, is crabby
about the conflict, saying he got a
letter from the NFL calling it ridiculous. (The NFL says it never sent
Trump a letter on the matter.)
If youre a space alien watching
this American election season from
a faraway planet, youre probably a
little confused. How is this even a
controversy? How could anyone
possibly prioritize football over a
presidential debate?
To which I say: Allow me to introduce you to America. People in
this country reschedule their own
weddings in response to the NFL
schedule. They induce labor to avoid
a showdown with the Super Bowl.
On Thanksgiving they actually sit
down with people they love and try
to watch the Detroit Lions.
Football is our true national
mania, our only shared religion,
other than being rotten to each
other on Twitter.
Im not going to tell you how to
TIM CLAYTON/CORBIS/GETTY IMAGES (TOP); EVAN VUCCI/AP (TRUMP); PAUL SANCYA/AP (CLINTON)
Can We Mix the Presidential Debates and the NFL?
Green Bays matchup with the New York Giants is one of the games that will clash with the scheduled debate between Donald Trump and Hillary Clinton.
decide here. You know whats more
important to your life: who is going
to lead the free world for the next
four years, or the Falcons in Week 3.
But amid the clamor, I think
were all missing a brilliant compromise: Hold the presidential debates
during the games. Combine footballand politicsinto the mustsee television event of our lifetimes.
Heres how it can be done:
1. When theyre not playing football, go to Donald and Hillary. Everybody knows theres a lot of down
time in pro football games. A
looottt of down time. Fun fact about
football: Its mostly people standing
around. Perhaps the best-known
sports story ever produced by the
Journal calculated that, on average,
there is just 11 minutes of action in
a three-hour NFL game. Eleven minutes! In terms of pace, an NFL game
makes curling look hectic.
All that downtime is a golden
opportunity for the people at the
RNC and DNC. Put Trump and Clinton on personalized football carts in
opposite end zones, and every time
theres a break in the action, drive
the candidates to midfield and go

right into the debate. Two minutes
of domestic or foreign policy: Go!
As soon as the football is ready
to return, motor Trump and Clinton
right off the field. Or, if you want to
make it really exciting, leave them
both on the field.
2. Take advantage of awful instant replay delays. Theres no more
agonizing moment in a football tele-
Weather
The WSJ Daily Crossword | Edited by Mike Shenk
Shown are todays noon positions of weather systems and precipitation. Temperature bands are highs for the day.
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Honolulu
Houston
Istanbul
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London
Los Angeles
Madrid
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Melbourne
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Orlando
If you cant
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HEARING ALL SIDES | By David Steinberg
Ice
Tomorrow
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31 26 c
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32 25 s
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22 13 pc
31 22 pc
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Today
City
Hi Lo W
Ottawa
31 18 pc
Paris
27 17 pc
Philadelphia
29 20 pc
Phoenix
38 29 c
Pittsburgh
31 20 pc
Port-au-Prince
36 22 pc
Portland, Ore.
27 15 pc
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23 20 c
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45 32 s
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31 21 s
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35 19 s
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32 26 pc
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20 14 c
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25 14 pc
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22 14 pc
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32 25 s
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27 14 s
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exclusive news and analysis on nancial regulation and its impact,
to networking events and email alertsWSJ Pro Financial Regulation
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60 Dortmund
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31 Like many
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67 Before I forget...
68 Green land
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Solve this puzzle online and discuss it at WSJ.com/Puzzles.
63 Going by, in the

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Previous Puzzles Solution
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2016 Dow Jones & Co. Inc. All rights reserved. 6DJ3313
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cast than when the action stops and

the officials order coffee and spend
18 minutes trying to sort out a
mundane out-of-bounds play.
This is another huge chance to
bring out Trump and Clinton, and
get their positions on the Supreme
Court, health care and military action abroad. If the moderator runs
out of topics, simply go to Trumps
and Clintons thoughts on the ruling
on the field, and whether it should

or shouldnt stand. You may think
its ridiculous that an election could
be decided on determining whether
the Packers completed a pass, but
elections have been decided over
more trivial matters.
3. Bag the halftime show. Everybody knows that unless they employ
Charles Barkley, halftime shows are
the pits, so surrendering that time
to the debate would not be a great
loss. Bring on Clinton and Trump to
talk about the issues. Give them bonus points if they can deliver useless NFL gossip. Imagine a candidate carrying Ohio because they
broke a Bengals quarterback change!
You might think this is an obnoxious proposal, one that doesnt confer enough respect on the seriousness of a presidential race. To which
I say: I think this proposal confers
exactly the right amount of respect
upon this presidential race.
Besides, the ratings would be
huge. Huge!
Dont act above it all. Dont act
like you wouldnt watch. Politicians
come and go, but football is football.
C
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INSTAGRAM TRIES TO CATCH UP TO SNAPCHAT TECHNOLOGY | B3
Euro vs. Dollar
BUSINESS & FINANCE
1.1226 s 0.56% FTSE 100
6645.40 t 0.73% Gold
1364.40 s 0.96% WTI crude
39.51 t 1.37% German Bund
yield -0.033% 10-Year Treasury
1.16
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45
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As of 4 p.m. ET
Energy Executives Face Clawback

Riverstone Holdings
officials are on the
hook for more than
$300 million of profits
BY RYAN DEZEMBER
Top executives at Riverstone Holdings LLC, one of the
worlds largest energy investment firms, are on the hook for
more than $300 million of profits they made from investments
before the oil bust erased those
gains, according to securities
filings and people familiar with
the matter.
The money is related to an
incentive formula employed at
private-equity firms in which
executives earn a cut of profits
above a certain threshold for
each fund.
In Riverstones case, profits
in some of its funds shriveled
after U.S. oil prices plunged to
below $27 a barrel earlier this
year from more than $100 in
mid-2014. That decline reduced
the value of some companies
owned by Riverstone, eliminating paper gains and could require some executives to return
profits in a so-called clawback
if the investments dont regain
value before the funds that hold
them are liquidated.
David Leuschen and Pierre
Lapeyre Jr., who founded Riverstone and remain its majority
owners, are the primary recipients of its portion of deal profits, known as carried interest.
Through a spokesman, Messrs.
Leuschen and Lapeyre declined
to comment.
David Leuschen is one of the

founders of Riverstone.
While most private-equity
funds usually keep details of
their fund performance and
structure private, industry executives say clawbacks are rare.
Most firms want to avoid having to recall payments made to

executives, some of whom may
have left the firm or already
spent the cash.
Whats more, diversified private-equity firms make investments across a number of sectors that balance a funds
results; losses on one deal can
be offset by profits on another.
But funds that focus on oil and
gas, which exploded in popularity since the start of the shale
boom, have become particularly
vulnerable to big swings in performance because their profits
are highly susceptible to
changes in energy prices.
David Fann, chief executive
of TorreyCove Capital Partners
LLC, which vets private funds
for investors, said clawbacks in
energy funds are becoming
European markets fell further as banking shares led the

way, while the Dow Jones Industrial Average was on track
for its longest losing streak in
nearly a year as
TUESDAYS oil prices exMARKETS
tended losses.
The Stoxx
Europe 600 fell
4.39 points, or 1.3%, to 335.47
as European banks deepened
declines in the aftermath of
Fridays stress-test results.
Investors concerns have
mounted over the health of
Italian banks, the potential
need for more capital raising
and a general lack of profitability in lenders across the
region.
Whether its Italy, Spain or
more common as low oil prices

continue to pummel investments made when prices were
much higher. Its the new normal for investors in oil funds,
he said. Theyre realizing the
challenges of oil volatility.
A clawback is a feature of
private-equity funds intended
to assure investors they will
earn a minimum return, often
8%, before the fund managers
take their share of the profits
and that fund investors wont
be left holding the bag if investments lose value after fund
managers cash out of early successful deals.
The mechanics vary from
firm to firm, but many pay out
deal profits as they are earned
and dont repay them until the
end of a funds life, which is ofPlease see PROFITS page B2
Firms Try
To Apply
More Logic
To Salaries
ERIC RISBERG/ASSOCIATED PRESS
BY LAUREN WEBER
The city council in Oakland, Calif., recently voted to block coal exports through a new terminal on an old army base, shown in May.
U.S. Port Plans for Coal Bog Down

BY TIMOTHY PUKO
AND ERICA E. PHILLIPS
Western coal producers
once saw exports to Asia as
their future. For many, that
dream is fading.
A global glut has flooded
overseas markets that were
once expected to buy coal
produced along a belt
stretching from Utah to Montana that includes the Powder
River Basin. The industry is
also losing long-sought shipping outlets on the West
Coast, where local communities have blocked construction of coal terminals amid
concerns
about
climate
change and pollution.

Of seven West Coast export terminals proposed in
the past five years, which
combined could have handled
over 125 million tons of coal
annually, not one has opened.
The coal companies defeatsunder pressure from
environmental groupsshow
the limits of miners sway
over authorities as cheaper
natural gas and tighter emissions standards have slashed
demand for the fuel. With
three of the four largest U.S.
producers in bankruptcy and
others hampered by debt, the
retrenchment has been swift.
It looks discouraging,
said Oystein Mathisen, president of Frontier International Shipping Corp., a ship

brokerage. Mr. Mathisen is
abandoning plans to hire
staff and charter more ships
to carry coal to China, Japan
and Korea. The lobbying
against it is very strong. And
politically its nothing popular at all.
Late last month, the city
council in Oakland, Calif.,
gave final approval to a rule
blocking coal exports through
a new terminal on a decommissioned army base. The future of the $500 million projectbacked in part by $53
million of Utah tax reve-
nuesis uncertain, according

to a spokesman for the Oakland Global Trade and Logistics Center project.
Arch Coal Inc., the nations second-largest coal
producer after Peabody Energy Corp., sold a 38% stake
in
Longview-Wash.-based
Millennium Bulk Terminals
in June, four years after it
had originally hoped to start
sending coal from the port.
Arch paid $25 million for the
stake and received no cash
compensation for giving it
up, though the company acquired the right to ship coal
through the terminal.
Please see COAL page B2
Banks Lead Europe Down; Dow Falls With Oil

BY RIVA GOLD AND AKANE OTANI
Wednesday, August 3, 2016 | B1
BFA
The money markets are

screaming about a global
shortage of dollars. Financial
stress indicators are flashing
yellow. The Bank of Japan on
Friday took special measures
to help its banks access
greenbacks, and interbank
borrowing rates for dollars
are at the highest level since
2009.
In the 2008 and 2011-12
panics, the money markets
acted as a warning of a credit
crunch, as trust between
lenders and
borrowers
broke down.
This time,
though, the
signs of
STREETWISE stress are a
JAMES
result of
MACKINTOSH something
else: The
campaign by
governments to direct financing to themselves, limiting
access by the private sector.
In the U.S., there are legal
changes under way in the
money markets, which is
prompting money to shift
from prime funds, which
buy short-term debt issued
by companies, to instead buy
short-term debt issued by the
U.S. Treasury.
This is merely the latest
example of what academics
call financial repression, a
broad category of government policies adopted to encourage or require savings to
be lent cheaply to the government. Repressive policies
were the norm in Western
markets for decades following World War II. That was
until the financial liberalization was begun by Margaret
Thatcher in the U.K. and
then-President Ronald Reagan in the U.S.
New rules since the Lehman Brothers failure have
again tightened the screws on
lending to the private sector,
while favoring government financing in multiple, complex
ways, most obviously through
exempting banks from holding capital against government debt.
There are, of course, good
reasons for most of the restrictions on the financial
sector, including on money
funds. Dont forget that, after
Lehman, the U.S. government
bailed out the money markets
with a guarantee against
losses.
The aim of the overhauls
is to prevent a repeat of the
panic selling of prime funds,
akin to a bank run. The most
eye-catching rule will stop institutional funds from offerPlease see FUNDS page B2
Sources: Tullett Prebon; SIX Financial
2016 Dow Jones & Company. All Rights Reserved.
Repressive
Policies
Circle
The Globe
yield 1.537%
Portugal, that nonperforming

[loan] issue just filters across
the European banking sector,
said Dean Enyon, equity market maker at Peel Hunt, noting
that recent downbeat forecasts
from lenders and close calls on
the stress tests have exacerbated concerns about the sector.
Shares of Italian bank UniCredit dropped 7.2% on Tuesday after a suspension in trading,
while
Germanys
Commerzbank became the
latest lender in the region to
warn on profit as negative interest rates took their toll.
Shares fell 9.2%.
As a result of declining
market capitalization, Stoxx
Ltd. announced late Monday
that Credit Suisse Group and
Deutsche Bank would be re-
moved from the Stoxx Europe

50 Index, effective Aug. 8.
Shares of Credit Suisse fell
6.2%, while shares of Deutsche
Bank lost 4.8%.
In the U.S., the Dow industrials fell 90.74 points, or 0.5%,
to 18313.77, marking a sevensession losing streak. The S&P
500 fell 0.6% and the Nasdaq
Composite lost 0.9%.
Its possible a bit of the
softness were seeing today
might just be a reflection that
weve had a good earnings
season, and the upside catalyst
is more behind us than ahead
of us at this point, said David
Lefkowitz, senior equity strategist at UBS Wealth Management Americas.
Many investors have been
wary of the stock markets
rally, expressing concerns that
major indexes climbs to records have been driven by continued support from central
banks, as opposed to robust
growth in corporate earnings.
But some, noting that U.S.
economic data has on the
whole been upbeat, saw the
recent losses as a temporary
dip.
We still see a lot of skepticism out there, said Scott Colyer, CEO of Advisors Asset
Management, which has $16.5
billion in assets under management. But that actually
gives us confidence that
theres probably more new
highs in the future.
Shares of consumer-discretionary companies, which have
underperformed other sectors
throughout the year, were
among the worst performers
on Tuesday. Cruise operator

Royal Caribbean Cruises fell
6.3% by late afternoon after
the company cut its 2016 earnings outlook.
U.S. crude-oil prices, which
slid in July as concern about a
supply glut increased, fell 1.4%
to settle at $39.51 a barrel. A
decline Monday brought oil
into a bear market, leaving the
price more than 20% below its
recent peak in early June.
Earlier, stocks in Japan fell
1.5% after Prime Minister
Shinzo Abes cabinet approved a
28 trillion ($273 billion) stimulus package that many traders
considered disappointing.
Shares in Australia fell 0.8%
after the countrys central
bank cut interest rates to a record low, as widely expected.
The Shanghai Composite In-
Here is the truth about your

salary: When it comes to pay,
most companies are making
things up as they go.
Only 38% of employers have
a formal compensation structure or philosophy guiding
their pay decisions, according
to PayScale
MANAGEMENT Inc., which
ex a m i n e d
data from
some 7,600 firms, mainly from
the U.S., Canada and the
United Kingdom. The issue is
especially acute in salaried
roles, say compensation experts, because managers have
more leeway to put a figure on
an employees skill, experience
and performance than they do
with hourly positions.
Yet as the labor market improves, and as fair-pay laws in
California and elsewhere put a
spotlight on corporate pay
practices, firms are starting to
rethink the way they set salaries. Among employers with no
formal strategy in place, PayScale found that 34% are developing one.
Some companies are taking
a hard look at their pay practices, partly because they realize employees want to trust
the organization and that
Please see PAY page B5
Notice to Readers
Business & Finance now
features more stories and
columns about markets and
finance on its section front.
Please send your comments
to wsjcontact@wsj.com.
Battered Banks
Credit Suisse and Deutsche
Bank have fallen harder than
the Stoxx Europe 50.
Year-to-date performance
0%
Stoxx Europe 50
10
20
Deutsche Bank
30
40
50
Credit Suisse
60
2016
Source: FactSet
dex rose 0.6%, while trading in

Hong Kong was suspended due
to a typhoon.
B2 | Wednesday, August 3, 2016
INDEX TO BUSINESSES
A
Allergan.......................B4
Apple...........................B3
Avon Products ............ B3
General Motors...........B4
GlaxoSmithKline.........A8
Google ......................... B5
GTIS Partners.............B9
National Bank of Greece

.....................................B7
New York REIT..........B10
Nissan Motor..............B4
B
Banco Santander ...... B10
Biogen ......................... B4
Blackstone Group ....... B9
BMW ......................... B10
Brazil Hospitality Group
.....................................B9
C
Cloud Peak Energy B1,B2
Commerzbank ............. B6
Conference Board ....... B5
D
Didi Chuxing Technology
.....................................B3
E
Eurobank Ergasias......B7
Exxon Mobil................B2
F
Facebook......................B3
Ferrari..........................B4
Fiat Chrysler
Automobiles ............. B4
Ford Motor..................B4
Frontier International
Shipping....................B1
Honda Motor...............B4
1Malaysia Development
.....................................B7
Intesa Sanpaolo........B10
J
JBG............................B10
JHSF Participacoes.....B9
Peabody Energy..........B1
Piraeus Bank...............B7
Procter & Gamble.......B2
KKR..............................B7
Riverstone Holdings...B1
Royal Bank of Scotland
Group.......................B10
L
Lloyds Banking Group
...................................B10
M
Marriott InternationalB9
McDonald's..................B5
Merck...........................B4
Millennium Bulk
Terminals..................B1
Mitsubishi Motors......B4
Mitsubishi UFJ Financial
Group.......................B10
Molson Coors Brewing
.....................................B3
Morgan Stanley.....B1,B2
S
Samsung Electronics..B3
Shire............................B3
T
Toyota Motor..............B4
U
Uber Technologies ...... B3
V
Volkswagen.................B4
W
Wal-Mart Stores.........B5
INDEX TO PEOPLE
A
Hayes, Arthur...........B10
Archer, Howard...........B6
Aso, Taro.....................B6
Aziz, Riza....................B7
Schuster, Jeff ............. B4

Shen, Meng.................B6
Silbert, Barry............B10
Sinapis, Yannis ........... B7
Steele, Anne...............B4
Systrom, Kevin ........... B3
C
Cotton, Billy................A2
Kalanick, Travis...........B3
Kuroda, Haruhiko........B6
LaNeve, Mark..............B4
Low, Jho......................B7
Diggle, Paul.................B6
E
Engels, Stephan..........B6
G-H
Golden, Ken.................B2
Gu, Weiyong................B6
Hall, Matthew.............B6
Matsukawa, Tadashi...B6
Mohatarem, Mustafa . B4
Mori, Nobuchika..........B7
T
Taylor, David...............B2
Tombs, Samuel...........B6
Tonello, Matteo .......... B5
Voorhees, Erik...........B10
Reinhart, Carmen ....... B2

Robinet, Michael.........B4
Zuckerberg, Mark ....... B3
Exxon Official Calls Ban

On Fossil Fuels Unrealistic
BY DAN MOLINSKI
SAN ANTONIOAn Exxon

Mobil Corp. official on Tuesday dismissed the growing
calls by some nations to
sharply curtail the use of fossil
fuels, or even ban them altogether, as unfeasible.
They can sit around in the
dark and talk about how it
worked out, Ken Golden,
commercial adviser for Exxon,
said from the podium at an oil
conference in San Antonio.
He prefaced his comment
by saying it was his personal
view, and that it wasnt
Exxons official response.
Mr. Golden was giving a
speech at the Unconventional
Resources Technology Conference that looked at Exxons
energy outlook to 2040, detailing long-term energy trends.
He said Exxon is concerned
about the risks climate change
poses and that it encourages
the use of renewable and
other alternative fuels. But he
said, for example, that even
while the use of wind and so-
PROFITS
Continued from the prior page
ten 10 years or more.
It isnt clear how much, if
any, cash Riverstone executives
personally have had to surrender back to the fund. They
could hold off until the fund is
liquidated, hoping that oil
prices bounce back and their
debts are erased. The firm typically holds a portion of its deal
profits in escrow to avoid having to ask executives to repay
large sums should investments
lose value, according to a person familiar with the matter.
Riverstone isnt alone in having profits slip away in the oil
bust. Private investment funds
focused on oil and gas lost
roughly 22% of their value in
2015, a crushing year that has
negated several prior years of
gains, according to investment
adviser Cambridge Associates
LLC. For the five years ended
Dec. 31, such funds have an annualized loss of 0.06%, after
fees, Cambridge says.
Riverstone was founded in
2000 by the two former Goldman Sachs Group Inc. energy
bankers as the shale boom was
taking off. One of the New York
investment firms early funds,
launched in 2002, produced annualized profits of about 55%
after fees, according to public
pension records.
Money poured into subsequent funds from pensions and
other institutional investors eager to get in on the shale boom
and renewable energy, one of
Riverstones other specialties.
Riverstone became a landing
spot for former Goldman bankers as well as former oil company CEOs from firms like Anadarko Petroleum Corp. and BP
lar power will rise faster than

any other energy source
through 2040, those two still
will amount to less than 3% of
total energy use.
There are billions of people who need to read, need to
learn, need to improve their
standard of living, he said.
You simply cannot do this
without fossil fuels.
The fossil fuels of oil, coal
and natural gas are expected to
provide about 80% of global energy through 2040, Exxon said.
Growing concerns over carbon emissions impact on climate change have made fossil
fuels more unpopular than ever.
Some climate activists have
been pushing for an eventual
total ban on the use of fossil
fuels, saying they should simply remain in the ground.
Exxon is involved in a
monthslong political and legal
fight over whether it has long
known about the dangers oil
poses to climate change and
the environment, but purposely misled the public or hid
its findings.
PLC. Even as crashing oil prices
rippled through its holdings,
Riverstone has continued to
raise billions of dollars for new
funds. Riverstone has raised
$34.2 billion, since its inception, including some $7 billion
since oil prices crashed.
The firm initially teamed up
with Carlyle Group LP, which
helped the upstart raise money
and handle back-office functions in exchange for a stake in
Riverstones funds. That partnership lasted for several funds
before Riverstone struck out on
its own for a $7.7-billion fund it
raised in 2013.
Carlyle said in a securities
filing that as of June 30 it had
set aside $76 million in gains it
owes back to three funds it
manages alongside Riverstone
based on the investment pools
present value. Each of the three
Riverstone funds that Carlyle
says are subject to the clawback
remained profitable for investors as of June 30 but have
fallen below the minimum level
of profitability that entitles the
firms to a cut of the gains. They
are the only of Carlyles 34
funds in clawback, company filings show.
When Carlyle reported second-quarter results last week,
analysts asked executives why
another of its funds, which had
gained enough for the firm and
its shareholders to start taking
their cut, hadnt started paying
out. Carlyles executives said
they wanted to ensure the profits were permanent lest they
wind up having to return
money. Investors arent happy
with clawback, said Carlyle coCEO David Rubenstein, but the
professionals in our firm are
even less happy when we have
to claw back.
Dawn Lim
BUSINESS & FINANCE
P&G Says Sluggish Sales to Persist

BY SHARON TERLEP
Procter & Gamble Co. forecast another year of sluggish
sales as the consumer-products company has struggled to
sell enough razors, deodorant
and diapers to return to prerecession growth levels.
The maker of Tide and
Pampers predicted that organic salesa closely watched
metric that strips out currency
moves, acquisitions and divestmentswill increase 2% in
the fiscal year started July 1.
The uptick would be an improvement to the 1% growth
for the year ended June 30,
but well below P&Gs historic
gains.
We are very committed to
getting back to market
growth, and we recognize that
2% isnt market growth, Chief
Executive David Taylor said on
a call Tuesday with analysts,
one of whom pressed him to
explain
the
companys
muted forecast.
Mr. Taylor made the case
that P&Gs continuous costcutting will enable the company to invest more in new
products and advertising, thus
lifting sales.
The company has taken
The maker of Tide hasnt returned to prerecession growth levels.
FUNDS
Tightening the Screws

ing an unchangeable $1 net asset value for each dollar on
deposit. This is designed to reduce the psychological impact
of breaking the buck, or falling below $1, which can lead to
widespread withdrawals.
All money funds also will be
given an option to restrict or
impose a fee on withdrawals
when a funds easy-to-sell assets are depleted. This makes
explicit that in times of stress
it might be impossible to access ones money. This has
prompted assets in prime funds
to drop below $1 trillion for the
first time this century.
So far, so sensible. But there
is a wrinkle. Money funds that
buy government paper are exempt from the new rules, on
the basis that Treasury bills
are always easy to sell and
there is no risk of default. The
rule makers seem to have forgotten the near default in 2010
and the downgrade of the U.S.
debt rating, not to mention the
accidental failure to pay some
Treasury bills in April 1979 due
to paperwork backlogs.
The effect of the exemption
is that money has poured in to
government funds as investors
worry that they might not always be able to access cash in
prime corporate funds.
Carmen Reinhart, a finance
professor at Harvard Universitys John F. Kennedy School
of Government, says governments across the developed
world are interfering more
with private flows of cash as
their financing needs soar. Directing money to the state at
the same time as the central
bank keeps interest rates below
inflation to boost growth
amounts to a subsidy of the
government by savers, a hidden
tax.
COAL
Cloud Peak Energy Inc.,
the countrys No. 3 coal producer, said last month it was
exploring all options, including a sale of its stake in a
planned terminal about 100
miles north of Seattle, after
the U.S. Army Corps of Engineers in May blocked the
project. The Army Corps said
the terminal would have infringed on the fishing rights
of an American Indian group,
the Lummi Nation.
Oregon denied a permit for
a coal-export facility on the
Columbia River in 2014, and
another large terminal in
Washington has been under
review by the Army Corps for
four years.
Environmentalists
have
cheered the rejections. Communities arent going to let
this stuff get developed in
their backyards, said Cesia
Kearns, Western region director of the Sierra Clubs Beyond Coal campaign, which
has been fighting against the
development of coal terminals on the West Coast.
As Chinas growth slowed
recently, U.S. producers were
undercut by cheaper coal
from Australia and Indonesia.
RICHARD B. LEVINE/LEVINE ROBERTS/NEWSCOM/ZUMA PRESS
These indexes cite notable references to most parent companies and businesspeople
in todays edition. Articles on regional page inserts arent cited in these indexes.
heat from Wall Street for driving profitability through cost

reductions rather than sales
gains. Savings and sales
growth, reinforce and fuel
each other, Mr. Taylor said.
P&G released its financial
results for the quarter ended
June 30. The company booked
a profit of $1.95 billion, a jump
from the same period a year
earlier when the Cincinnatibased company earned $521
million after taking a roughly
$2 billion charge related to its
Venezuelan operations.
Revenue slipped 2.7% to

$16.1 billion.
Organic sales were essentially flat at three of its five
business segments, but sales
at its health care and grooming divisions rose 7% and 8%,
respectively.
Health care got a boost
from sales of its oral-care
brands such as Oral-B and
Crest, while grooming was
helped by demand for Gillette
Fusion razors in developing
markets. P&G has been slashing costs and raising prices for
staples from shaving cream to

paper towels.
Last quarter, the company
said it would be another six
months to a year before
greater volume, rather than
higher prices and cost cuts,
begins to drive profit increases.
The company said it is making progress in China, its second-biggest market outside
the U.S. and one of the biggest
problem areas in recent quarters. Finance Chief Jon
Moeller said P&G is paring
market-share losses and succeeding in winning customers
who are rapidly shifting to online shopping. Several of P&Gs
rivals, including Colgate-Palmolive Co. and Kimberly-Clark
Corp., reported sales declines
in China for the latest quarter.
Solid growth in China
fueled gains in P&Gs oral care,
hair care and skin and personal care categories during
the June quarter, the company
said.
P&G shares were up slightly
in Tuesday afternoon training,
having risen more than 9%
this year.
Anne Steele
contributed to this article
The money markets are looking stressed.

Search for Safety
Impending rules
have prompted a
switch into money
market funds that
invest in government
debt and out of
prime funds, which
lend to companies
and banks.
U.S. Dollar
3-Month Libor
This has increased
the cost of interbank
borrowing, pushing
Libor to the highest
level since 2009.
Government
Prime
$3 billion
2
1
0
2007
08
09
10
11
12
13
14
15
16
2007
08
09
10
11
12
13
14
15
16
14
15
16
6%
5
4
3
2
1
0
Japan Exposed
The scramble by
Japanese banks for
dollars has made it
more expensive to
swap yen for dollars,
measured by the
dollar/yen 1-year
basis swap.
0 percentage point
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2007 08
09
10
11
The way we have revamped

regulation has clearly favored
government debt, she said.
The regulation creates the
captive audience, and the monetary easing creates the tax.
Outside Iceland, Greece and
Cyprus, the West remains far
less financially repressed than
in the 1950s or 1960s, when
capital controls meant Britons
couldnt take more than 50
($66) out of the country, while
Americans were still forbidden
from investing in gold.
But subtle rules funnel more
bank and insurance-company
savings to government paper,

by assuming it is always easy
to buy and sell and will never
default. Accounting shifts have
encouraged corporate pension
plans out of volatile stocks and
into bonds, and several countries have grabbed assets from
state pension funds.
There is hope. Financial repression is on the rise, but savers still can avoid it. Prime
money-market funds might
look less attractive under the
new rules, but the economic reality of what they own remains
unchanged, as do the risks.
Thwarted Exports
Out of seven West Coast export terminals proposed in the past ve
years, none has opened
1 Cherry Point, Wash.
Critical permit denied by
11
Army Corps of Engineers over
violation of Lummi Nation's
treaty rights
Seattle
2 Grays Harbor, Wash.
Proponent dropped plans
3 Longview, Wash.
Proponents pulled their plans
55
Portland
Currently under environmental

review
4 Port of St. Helens, Ore.
WASHINGTON
22
OREGON
66
5 Port of Morrow, Ore.

Oregon Department of State
Lands denied a needed permit
6 Coos Bay, Ore.
100 miles
CALIFORNIA
Proponents let lease

agreement expire
7 Oakland Army Base, Calif.
Oakland City Council passed

ban on coal handling
Sacramento
N E VA DA
77
Western U.S. exports fell

to 306,714 tons in the first
quarter from a peak of 2.7
million tons in the second
quarter of 2014, according to
the U.S. Energy Information
Administration. Miners have
struggled to pay debt used to
buy billions of dollars in
mines that were supposed to
feed Asia.
12
13
Sources: Thomson Reuters (yen, libor); Investment Company Institute
Even with functioning export terminals, todays international prices would barely
cover the companies shipping costs. If one of these
ports got approved tomorrow, they could have the option of losing $10 a ton selling more coal, said Evan
Kurtz, analyst at Morgan
Stanley.
Just because a fund can now

suspend withdrawals or impose
a fee in a crisis doesnt mean
that under the old rules money
would have magically been
available.
Other options remain open,
too. While rates may be low everywhere, cash still can be sent
abroad and pays more in some
countries. Finally, anyone worried enough about financial repression to want to avoid government paper entirely can
switch into gold. So long as
that remains an option, financial repression isnt complete.
U.S. miners need to set
aside their export plans and
address their financial problems, said Matthew Gray, a
researcher at Highland Capital Management LP, which
manages $17 billion in assets,
including Arch debt. Miners
can rebound by shrinking to
match the smaller domestic
market and emerging from
bankruptcy with improved finances, he said.
Coal companies publicly
say they havent given up on
exports. Cloud Peak expects
Asian customers to start buying U.S. coal again as developing economies build more
coal-fired power plants, said
Tom Nelson, the companys
vice president of sales and
marketing. Several companies
maintain rights to ship coal
through these terminals.
We remain supportive of
the [Millennium] project and
will continue to engage with
[its owner], a spokeswoman
for Arch wrote in an email.
However, an executive at
one of the miners involved
one of the Washington terminals said the projects are
not dead, but barely on life
support. Meanwhile, the biggest terminal on Canadas
West Coast has spare capacity now that exports have
slowed and could handle an
uptick.
BY JONATHAN CHENG
SEOULFor the launch of
its latest premium smartphone, Samsung Electronics
Co. is sticking to its winning
playbook.
The smartphone maker introduced on Tuesday a refresh
of its large-size Galaxy Note
series that hews to the same
formula that made its flagship
Galaxy S7 a hit with consumers earlier this year: Add water-resistance and expandable
memory to a sleek metallic
curved-screen smartphone.
It also adds one new eyegrabbing featurean iris scanner that, in addition to the existing fingerprint scanner,
enables a user to unlock the
device, or access more sensitive content, with the blink of
an eye.
While other handset makers
have introduced iris scanners
in certain countries, Samsung
officials say the Galaxy Note 7
is the first to roll out an iris
scanner globally.
By adding these new features, Samsung aims to build
on the Galaxy S7s momentum,
rolling out another premium
smartphone in the brief window it has to lure consumers
before rival Apple Inc.
launches a new iPhone this
fall. That is crucial for Samsungs turnaround plans as it
seeks to revive its mobilephone business after two difficult years of falling profit and
market-share losses.
By introducing the Galaxy
Note 7 to consumers in early
August, Samsung is getting a
bigger head start than ever on
its Cupertino, Calif.-based rival.
Last year, Samsung held its
launch event for the Galaxy
Note in mid-August, and two
years ago, Samsung began
selling its Galaxy Note in early
October, two weeks after Apple began selling its iPhone 6.
The launch comes as the
South Korean technology giant
reported last week its most
profitable quarter in two
years, as operating profit from
its mobile division jumped by
57% from a year earlier, driven
largely by the success of the
Galaxy S7, which analysts estimate has sold nearly 30 million units since its launch in
mid-March.
At the same time, the companys stock has taken off,
putting its shares on the cusp
of a record highlast reached
at the beginning of 2013, at
the peak of Samsungs smartphone dominance.
By sticking to its formula,
Samsung is doubling down on
what it knows consumers
want: practical nuts-and-bolts
features such as a powerful
camera and longer battery life
in a sleekly designed frame.
But the company is also
risking a certain sameness in
its two premium smartphone
series. This years Galaxy S
and Galaxy Note smartphones
both revive water- and dustresistance features that were
removed last year to the consternation of consumers and
feature curved screens on all
four sides of the handset.
Both the Galaxy S and Galaxy Note, which share the
model number 7 this year
(Samsung skipped the Galaxy
Note 6 to achieve the brandname harmony), also feature a
new always-on display that
keeps the screen active even
when the phone is dormant.
While Samsung officials acknowledged limitations to the
iris scannerit wont work
with sunglasses or in some
bright-light settingsthey asserted that it was more secure
than a fingerprint scanner.
The Galaxy Note 7 will go
on sale Aug. 19.
BY RICK CAREW
HONG KONGJust over a
year ago, Uber Technologies
Inc. Chief Executive Travis Kalanick boasted to investors that
the ride-hailing startup was experiencing remarkable and
unprecedented growth in
China. Now, after a bruising
battle, Mr. Kalanick has swallowed his pride and surrendered to his Chinese rival.
The about-face came as big
investors amped up the pressure on the Uber chief to cut
mounting losses in its battle
with rival Didi Chuxing Technology Co., according to people familiar with the situation.
Both companies were spending
billions of dollars to win market share, offering lucrative
commissions to drivers and
deep discounts to riders.
It was nuclear warfare,
says a banker close to the parties. With the amount of
money raised by both sides, it
made it impossible for anybody
to win.
Still, the smart money figured Didifocused only on
Chinahad the financing and
connections to outlast Uber,
which had to fight fires across
the globe.
The road to the deal for Didi
to buy Ubers China operations
began in May, as several major
investors with big stakes in
Didi and Uber formed a backchannel to shuttle proposals
AGENCE FRANCE-PRESSE/GETTY IMAGES
Samsungs
Phone
To Get a
Head Start
Known for its ruthless

competitive tactics,
ride-hailing giant was
outmaneuvered by Didi
An Uber station outside a mall in Beijing. The company had aimed to capture the Chinese market.
between Didi in Beijing and
Uber in San Francisco to test
appetites for a negotiated
peace.
Didi executives werent interested, at least initially, the
people said. The company was
putting the finishing touches
on a $7.3 billion round of fundraising that would lead to a
sky-high valuation of $28 billion with deep-pocketed Apple
Inc. among the investors.
The fresh funds gave Didi a
$10.5 billion war chest to win
China. Uber, meanwhile, had
raised some money from Chinese investors, but was chiefly
tapping its global fundraising
machine for the battle. Uber
also needed its money for skirmishes across the globe
against foes including Ola Cabs
in India and Lyft Inc. in the U.S.
But there was no end in

sight to the cash burn for Didi
and Uber in China. As their
scale grew, so did the money
they needed.
By late June, a new dynamic
forced Didi to take another
look at an Uber deal. Lyft,
Ubers chief competitor in the
U.S., hired Qatalyst Partners LP,
the boutique investment bank
best known for helping tech
companies find a buyer.
In Uber, Didi and Lyft had a
common adversary. The possibility of an Uber-Lyft merger
gave Didi executives pause, giving them the impetus to pursue
a deal with Uber, according to
investors.
The whole deal turned
around in the past few weeks,
said one major Didi investor.
Indeed, it was Mr. Kalanick
who was initially bent on acquiring Didipursuing that as

early as mid-2014, according to
Didi Chief Executive Cheng
Wei, who said he spurned the
offer.
Undeterred, Uber moved
forward last year with a fullbore plan to capture the Chinese market. It expanded rapidly in the private-car-hailing
business.
Mr. Kalanick sent a letter to
investors in June 2015, seeking
money for his China campaign.
We have found a public that is
embracing Uber far beyond our
most bullish expectations, he
wrote.
The initial success came at a
high price. Long known for its
ruthless competitive tactics,
Uber met its match in China. In
spring last year, when Uber
splashed out heavy driver subsidies to grow scale, money

was siphoned off by quickadapting Chinese scammers
who used specialized software
to rack up fake rides and collect driver subsidies from Uber,
according to interviews with
drivers.
Didi suffered similar scams
as it followed Uber into the
private-car business, but its
backing from Chinese internet
giant Alibaba Group Holding
Ltd. seemed to help.
Ride scammers sold the fake
listings on Alibabas online
shopping site Taobao. Last
year, at the peak of the subsidies war, Taobao had few listings for fake Didi driver accounts, but still had hundreds
for Uber. Taobao said at the
time that it regularly removed
fake accounts.
Uber also found its official
accounts on Chinas ubiquitous
online messaging service
WeChat repeatedly deleted.
Tencent, which owns WeChat
and was the biggest investor in
Didi, declined to comment.
Competition in China
works differently, Mr. Kalanick
said at the WSJDLive conference in October. As a Western
company, these are the types of
things you have to get used to.
Or not. In the end, Uber became the latest in a long line of
U.S. internet companies that
decided the price to conquer
China was simply too high. It
walked away with a consolation prize of becoming the
largest Didi shareholder with
an 18% stake after the merger.
Greg Bensinger, Eva Dou
and Juro Osawa contributed
to this article.
Instagram Looks to Catch Up to Snapchat

BY DEEPA SEETHARAMAN
Instagram is ripping a page
from Snapchats playbook to
encourage its 500 million users to post more often. The
lure: photos that disappear.
The photo-sharing app, a
unit of Facebook Inc., Tuesday
unveiled Instagram Stories, a
feature that lets users post
photos that vanish after 24
hours. The move is an acknowledgment that many people, especially teenagers, reserve Instagram for their best
photos, while using rival Snapchat, an app where photos disappear, to post everyday moments.
Instagrams
new
feature is meant to alleviate
the pressure to perform.
We need to have a place
where you feel free to post
whatever you want without
the nagging fear of, did someone like that or not? said
Kevin Systrom, chief executive
and co-founder of Instagram,
in an interview.
The feature shares similarities with Snapchats Live Stories, introduced in 2014, that
allows users to post images
that remain visible for 24
hours in addition to ephemeral
mobile messages that disappear after a few seconds.
Snapchat declined to comment.
Instagram Stories appear in
a row at the top of a users
feed. Tapping a circle reveals
INSTAGRAM
The Samsung Galaxy Note 7

will be the first model to roll
out an iris scanner globally.
@wsjd | wsjd.com
U.S.s Uber Met Its Match in China
A new feature, called Instagram Stories, is intended to make it easy to share daily moments.
Business
Watch
AVON PRODUCTS
Cosmetics Firm
Sees Sales Fall
Avon Products Inc.s profit

rose slightly in the latest quarter, though sales declined as
the direct seller works through
continued shifts in consumer
trends in the beauty industry.
Our second-quarter results
came in slightly above our expectations, driven by operating
performance that was better
than anticipated. We also saw
some modest easing in foreign
currency pressure, said Avon
Chief Executive Sheri McCoy.
Ms. McCoy said the companys performance had improved with cost-cutting and
pricing discipline in an effort
to build the brand name.
Avon sells cosmetics, perfumes and accessories through
a network of roughly six million representatives worldwide. In March, after completing the sale of its North
an array of photos that other

users posted over the past 24
hours, from oldest to newest.
Instagram also allows users to
block some users from seeing
images posted as a story, a
feature not available in the
main feed. For now, Instagram
wont show ads within this
feature. Instagram shows ads
in its main feed.
Unlike the main Instagram
feed, there is no way to like
or comment on photos in
stories; a user only sees who
viewed these images, an attribute borrowed from Snapchat.
Not having feedback is im-
portant for Instagram because

it is a contrast to the highly
pressurized space of a feed
where its all about did this
get enough likes, is this good
enough? Mr. Systrom said.
The move comes as Snapchat is gaining traction, especially among teens. Snapchat
eclipsed Instagram in an April
Piper Jaffray survey of American teens. According to the
semiannual survey, 28% of
more than 6,530 teens polled
said the disappearing photo
app was their top social network, edging out Instagram
with 27%. Six months earlier,
33% of teens ranked Instagram

first and 19% favored Snapchat. The pressure to attract
likes on Instagram is so
great that teens often delete
photos that dont fare well.
One internal survey showed
some teens delete about half
the photos in their Instagram
feeds, according to a person
familiar with the data. Mr.
Systrom declined to confirm
the figure, but said deletions
are fairly high among Instagram users when photos dont
get enough likes or teens no
longer feel the photos reflect
their lives.
American operation to Cerberus Capital Management LP

for about $435 million, Avon
said it would eliminate about
7% of its workforce and move
its corporate headquarters to
the United Kingdom, the latest
step in a yearslong turnaround
of the struggling beauty company.
For the quarter ended June
30, the beauty-products maker
posted a profit of $33 million,
a rise from $28.8 million a
year earlier. On a per-share basis, earnings fell to 6 cents a
share from 7 cents a share a
year earlier.
Revenue fell 8.3% to $1.43

billion.
Brittney Laryea
and impairments, rose 48% to

$773 million, while revenue
climbed 56% to $2.4 billion.
That beat market estimates of
$677 million and $2.2 billion respectively.
Those results include around
one month of sales from Baxalta, giving investors a first
taste of the enlarged company.
The deal closed on June 3 and
will roughly double Shires revenue: Both companies reported
sales of around $6.1 billion for
2015.
While the acquisition is expected to give a large boost to
earnings and revenue in the
long term, it hurt the overall
bottom line in the second quarter. Shire reported a net loss of
$162.1 million for the period,
compared with a profit of
$159.6 million a year earlier,
largely due to a $363 million
cost relating to the acquisition
and integration of Baxalta.
Denise Roland
SHIRE
Baxalta Sales Give

Drug Maker a Boost
Shire PLC lifted its full-year

guidance and posted betterthan-expected earnings and
revenue in its first set of financial results after completing a
$32 billion acquisition of Baxalta.
Dublin-based Shire said nonGAAP net income, a measure
that strips out one-time gains
DANIEL ACKER/BLOOMBERG NEWS
NATHAN OLIVAREZ-GILES/THE WALL STREET JOURNAL
TECHNOLOGY
MOLSON COORS
Craft Brews Dent

Companys Results
Molson Coors Brewing Co. posted a decline in quarterly revenue.
Molson Coors Brewing Co.

reported revenue slipped less
than expected in the most recent quarter, though lower
world-wide volume, higher
Still, Instagram users have

been posting more photos and
spending more time in the app
in recent months, executives
say. Facebook Chief Executive
Mark Zuckerberg last week
said activity had increased after Instagram adopted an algorithmically driven feed.
The new feature is an attempt to promote even more
sharing. If users post one
photo a week on Instagram,
Mr. Systrom hopes they will
post five to 10 a day with Instagram Stories. In an interview in his conference room,
Mr. Systrom pointed to a
brown, Lucite coffee table embossed with the first photo
posted on Instagramof a
shaggy, stray dog in Mexico.
What I love about this
shot and the reason why its in
here front and center of every
single one of our product discussions is this shot had no effort to it, Mr. Systrom said.
Instagram used to be that
way when we were very small,
it would be you would just
post whatever you wanted.
But over the past year, he
said, even some Instagram employees felt the app was becoming a place where we
couldnt share as fluidly as we
wanted.
The new feature allows users to post rough, off-the-cuff
images that would be socially
less acceptable in the feed for
a lot of people, he said.
brand investments, and foreign-exchange headwinds continued to eat into the bottom
line.
The popularity of craft
brews and cocktails over domestic lagers have dented results for Molson Coors and its
U.S. venture, MillerCoors LLC.
Molson is planning to buy
the rest of the MillerCoors LLC
venture for $12 billion. Its
brands include Miller Lite,
Miller High Life and Blue Moon.
On Tuesday, Chief Executive
Mark Hunter said the company
has made substantial progress on the pending MillerCoors transaction, including integration planning and
completing the necessary financing at very attractive
rates.
Molson continues to plan
for a closing before the end of
the year.
During the June quarter,
Molson Coors said profit fell to
$172.3 million, or 80 cents a
share, from $229 million, or
$1.23 a share, a year ago.
Net sales slipped 1.9% to
$986.2 million, topping analysts expectations for $962
million. Molson Coors said
sales rose 1.2% excluding currency impacts.
Anne Steele
BUSINESS NEWS
Biogen Attracts
Takeover Interest
Biotechnology giant Biogen
Inc. has drawn takeover interest from drug companies including Merck & Co. and Allergan PLC, raising the possibility
of another huge deal in the
health-care industry.
DANIEL ACKER/BLOOMBERG NEWS
By Dana Mattioli,
Jonathan D. Rockoff
and Dana Cimilluca
A Ford dealerships showroom in Illinois last year. Fords U.S. sales declined 3% in July compared with a year earlier.
Car Sales Hit U.S. Plateau

Sales for the top three auto
makers selling in the U.S.
slipped in July, reinforcing the
view that the light-vehicle
market has plateaued after six
consecutive annual volume increases.
Declines at General Motors
Co., Ford Motor Co. and Toyota Motor Corp. overshadow
increases by smaller rivals, including Nissan Motor Co. and
Honda Motor Co. The sustained run of sales gains in the
U.S. since the financial crisis
has allowed most auto makers
to limit reliance on discounts
and keep inventories lean,
padding profits generated by
increased demand for trucks
and sport-utility vehicles.
Analysts say sales incentives and fleet sales need to
play a bigger role in the market to keep the current pace
afloat.
Overall sales likely increased modestly in July, leading the seasonally adjusted annual rate of sales to 17.4
million, according to an initial
estimate furnished by RBC

Capital Markets. While in line
with July 2015, last months
projected SAAR falls far short
of the 17.9 million that GM was
projecting and well below several months last year when
the pace exceeded 18 million.
The auto industrys recovery has been a bright spot for
the U.S. economy, with high
factory utilization spurring
new jobs, investment in American facilities and wage
growth for Detroits auto
workers. Car buyers spent $49
billion on light vehicles in
July, according to TrueCar
Inc., up 1% amid longer loan
terms and a boom in subsidized auto leasestrends that
keep monthly payments on par
with a decade ago even as
sticker prices go up.
Overall retail sales are a
trouble spot as purchases
made by individual customers
in showrooms have stalled this
year, down slightly for the
first seven months, according
to J.D. Power. Auto makers are
betting sales to government
agencies, rental-car firms and
commercial fleets will con-
VW Faces Ban on
Sales in South Korea
BY IN-SOO NAM
SEOULSouth
Korea
banned the sale of almost all
Volkswagen AG cars and
handed down heavy fines, one
of the severest punishments
the German auto maker has
faced globally over its deepening emissions scandal.
Korea is a relatively small
market for Volkswagen, but
authorities have pursued the
company aggressively since it
admitted last year to having
falsified U.S. emissions tests
on some diesel-powered cars.
They have accused Volkswagen of falsifying emissions
documents and manipulating
noise reports so vehicles
would be certified roadworthy
in Korea, and recently raided
company offices and indicted a
senior executive on charges of
submitting manipulated emissions datamaking South Korea the first country to indict
a VW executive in connection
with the scandal.
Several other executives
have been summoned for
questioning. Various government agencies have also indicated they would file criminal
charges against the auto
maker.
The Ministry of Environment on Tuesday revoked the
certification of 80 model variants sold in the country by
Volkswagen, its premium Audi
brand and its elite Bentley
branda decision covering

83,000 cars, sold and unsold.
The ministry also fined Volkswagen 17.8 billion won ($16
million) and said it might issue a recall order for any of
the affected cars already on
the road.
Obtaining
certification
with fake documents is a serious crime. Well deal with it
sternly, ministry director
Hong Dong-gon said at a news
conference.
Audi Volkswagen Korea Co.,
the Korean unit of the German
auto maker, said it is considering various options to resolve
the issue, including suing the
ministry to reverse its decision. It also plans to reapply
for certification so it can restart salesa process that
could take longer than the
usual three months, according
to Volkswagen and government officials.
The indicted senior executive hasnt been available for
comment.
Volkswagen last month suspended sales of cars whose
certification had earlier been
challenged by Korean authorities. That suspension, just
days before a toughened environmental-protection law took
effect last week, likely helped
it avoid even heavier penalties
under the revised law, Mr.
Hong said.
Among Volkswagen cars in
Korean showrooms, only five
tinue to grow.
At an industry conference
in Northern Michigan Tuesday,
GM Chief Economist Mustafa
Mohatarem said he is maintaining his view that 2016 will
set another record, meaning
sales will land north of 17.5
million for the year. Although
retail demand is soft, he says
fleet sales are still tracking
below historic trends and
could run higher if state or
municipal budgets loosen up.
Michael Robinet, an IHS
Automotive analyst, predicted
continued sales momentum in
2017, but his forecast comes
with a catch. He said sales
gains will need to be fueled by
robust sales incentives and
cheap credit. If those factors
collapse, demand will hit a rut.
Low gasoline prices are also
fueling the rally. A spike in
gasoline prices would also
leave car shoppers with less
money in their pockets, which
could lead to purchase deferrals or a flight to used cars.
Julys results follow the sober view Ford executives gave
last week when reporting second-quarter earnings, a tone
that led to a 13% decline in the

companys stock price since
the report came out last
Thursday.
Fords U.S. sales fell 3% in
July compared with the same
period a year earlier, including
an unexpected 1% decline in
pickup truck sales.
Its a more competitive
market than weve seen in the
last five or six years, Fords
U.S. sales chief, Mark LaNeve,
said during a conference call.
Nissan said its July sales
rose 1.2% to 132,475 vehicles,
while Honda logged a 4.4% increase to 152,799 vehicles.
Toyota said its sales fell 1.4%
to 214,233. Nissan, Honda and
Toyota are based in Japan.
Among German auto makers, BMW AGs U.S. sales fell
5% to 30,551 vehicles, while
Daimler AGs Mercedes-Benz
USA unit reported a 3.6% rise
to 28,523. Volkswagen AG
said its U.S. sales fell 8% to
28,758, and Audi AG, the luxury-car maker owned by
Volkswagen, said its July sales
in the U.S. rose 4% to 18,364.
Anne Steele
Bumpy Road
Volkswagen sales have slowed drastically in South Korea since its
emissions scandal but remain buoyant globally.
Number of vehicles sold
Sales, change from a year earlier
4,000
100%
3,000
50
2,000
1,000
50
100
2015
16
2015
16
Europe
Asia Pacic
North America
1H 2015*
South America
1H 2016
44%
45%
42%
41%
World-wide
World-wide
4.7
4.8
million
9.5%
million
5.6%
9%
4%
*Doesnt add up to 100% due to rounding

Sources: Korea Automobile Importers and Distributors Association (sales);
the company (deliveries)
models will escape the latest

ban, according to the car
makers website.
In November, the Korean
government fined Volkswagen
14.1 billion won and ordered
the recall of more than
125,000 diesel-powered cars
whose certifications had been
revoked because they were
equipped with emissionscheating software. Continuing
differences between the government and car maker have
prevented the recalls from getting under way.

Volkswagen has sold about
310,000 vehicles in Korea in
the past decade, and many
models count among the countrys most popular imported
carsthough local sales have
slid since the emissions scandal emerged.
Volkswagen posted a 33%
drop in first-half sales from a
year earlier, while Audi reported a drop of 10%.
Fuel-Economy Investigation Faults Mitsubishi

BY ALEXANDER MARTIN
TOKYOMitsubishi Motors
Corp. employees raised warning signs about a fuel-economy
scandal that rocked Japans
auto industry this year, but executives neglected to take action, a third-party panel report
said Tuesday.
The panel, comprising three
lawyers and a former director
of Toyota Motor Corp, spent
three months investigating
how Mitsubishi Motors came
to falsify data to improve fueleconomy readings and use unapproved testing methods on
certain models sold in Japan.
The report blamed a costcutting corporate culture in

which Mitsubishi engineers
and developers were overworked and pushed to hit unrealistic targets.
Employees who answered
an internal Mitsubishi questionnaire in 2011 raised issues
of data falsification, the report
said. The issue, however, didnt
come to light until Nissan Motor Co. last year noticed discrepancies in data used to calculate fuel economy.
Both the development
headquarters and compliance
department merely compiled a
report and did not take any
measures such as conducting

its own investigation, the report said. Questions over measurement methods for calculating driving resistance were
also raised during a company
event in 2005, but went unheeded, it said.
Mitsubishi has faced surging costs and falling sales, having admitted to falsifying data
on various models sold in
Japan, including two sold under the Nissan brand. Former
Mitsubishi President Tetsuro
Aikawa resigned in the weeks
after the revelations.
The report said management wasnt directly involved
in data manipulation, but set

competitive goals without debating their feasibility and had
low interest in the day-today work of developing new
cars. Each section also tended
to focus only on its own job, it
said. It advised Mitsubishi to
take preventive steps, including a review of its development process and greater
transparency.
The third-party report
comes as Mitsubishi looks to
close a deal on which its future
depends. In May, Mitsubishi
reached an agreement for Nissan to take a 34% controlling
stake for more than $2 billion.
To be sure, Biogens pipeline

of drugs in development is considered by some on Wall Street
to be highly risky. The company
has spent heavily on potential
treatments for Alzheimers, a
disease that has consistently
frustrated drugmakers.
But Biogens research
in Alzheimers and strength
in multiple sclerosis also make
it attractive to the likes of
Merck and Allergan.
One of Allergans top-selling
products is Alzheimers drug
Namenda. Biogens multiplesclerosis therapies would add
to Allergans portfolio of drugs
that treat central-nervous-system disorders.
Dublin-based Allergan has
been an active deal maker in
recent years, usually with
friendly targets, as it has
sought to leverage a low-tax
domicile and build a portfolio
that is among the industrys
fastest-growing.
To help rejuvenate its pipeline, Merck, based in Kenilworth, N.J., has been on a buying spree of late. Last year, it
bought Cubist Pharmaceuticals
for about $8 billion.
Ferrari Gets Lift

As Its Sales Rise
BY ERIC SYLVERS
Volkswagen passenger-car deliveries to customers from market
Merck and Allergan

have each sounded
out Biogen on a
possible takeover.
Ferrari NV said Tuesday

that its profit rose 28% in the
second quarter as the Italian
luxury sports-car manufacturer sold more vehicles and
paid a lower tax rate.
The financial results are the
first to be released since Chief
Executive Sergio Marchionne
took over in May. Mr. Marchionne didnt bring a strategic
revolution in the past three
months as he was already Ferrari chairman as well as CEO
of former Ferrari owner Fiat
Chrysler Automobiles NV, but
by taking the reins he highlighted his commitment to seeing Ferrari through a steady
increase in production.
Mr. Marchionne shook up
Ferraris longstanding strategy
of capping production at
roughly 7,000 vehicles a year
when in 2014 he first hinted of
his desire to push unit sales
higher. Volume has been
creeping up since, something
Mr. Marchionne has managed
without damaging Ferraris exclusivity appeal. The company
often keeps buyers on a waiting list for about a year before
they get their cars.
Ferrari on Tuesday confirmed plans to boost shipments this year to about 8,000
as it works its way toward a
goal of 9,000 in 2019. Shipments in the second quarter
rose 8% from a year earlier to
2,214, pushing the first-half

figure to 4,096.
Ferrari is seeking to tap
less-served markets such as
China,
where
shipments
reached 160 in the second
quarter. While that is still just
a fraction of the 774 sold in
the Americas and the 953 in
Europe, the Middle East and
Africa, the 26% increase in
Greater China far outstripped
the other regions.
Net profit rose to 97 million ($108 million) for the
three months through June
from 76 million in the same
period last year. Revenue
climbed 6% to 811 million as
the company shipped 2,214 vehicles, an increase of 8%.
Ferrari was taxed at 30.7%
in the second quarter, down
from 33.5% in the same quarter last year after the Italian
government lowered the nominal tax rate.
The auto maker, based in
Maranello, Italy, confirmed a
forecast to generate more than
3 billion in revenue and 800
million in adjusted gross operating profit this year.
The results beat analysts
expectations, helping push up
Ferraris stock price. Shares in
the company were up 2.6% at
$47 on the New York Stock Exchange on Tuesday afternoon.
Nine months after its initial
share sale, the company has
been unable to claw its way
back to its IPO price of $52.
REBECCA COOK/REUTERS
BY JOHN D. STOLL
AND CHRISTINA ROGERS
Merck and Allergan have

each sounded out Biogen on the
possibility of a takeover, people
familiar with the matter said.
The communications were informal and preliminary, and
they may not result in a deal
in part because Biogen may not
be interested, they added.
Biogen had a market value of
$68 billion on Tuesday afternoon. It isnt clear whether
other large drug companies
also are contemplating a purchase of the company, which is
in the process of searching for
a new chief executive.
Whether there is a deal or
not, the interest in Biogen
shows the hunger big pharmaceutical companies have for
new sources of growth.
After years in which their
pipelines were depleted, newdrug approvals are up. But the
companies have become so large
that adding a new blockbuster
drug in many cases isnt enough
to increase growth substantiallyespecially given pricing
pressures that they face. Merck
had a market value of $162 billion; Allergans was $101 billion.
Biogen had sales of $10.8
billion last year, up 11%. The
company, based in Cambridge,
Mass., dominates the lucrative
market for multiple-sclerosis
drugs, now worth nearly $20
billion a year. Its Tecfidera
treatment for the condition
had one of the best new-drug
launches after its 2013 approval, and Biogen stock has
roughly doubled since the beginning of that year, even after
a sharp recent drop.
Following The Wall Street
Journal report Tuesday, Biogen shares climbed 8.8% to
$328.40.
Biogen shares have dropped
from a high of nearly $500
they touched early last year,
amid worries about its growth

prospects. Tecfidera sales have
slowed as competitors like
Roche Holding AG develop rival treatments.
The decline in Biogen stock
may be seen as an opening for
prospective suitors who also
may view the company as vulnerable to a takeover because
it is in flux.
Last month, Biogen Chief
Executive George Scangos said
he would step down in coming
monthsjust as the company
topped second-quarter expectations, provided an upbeat
earnings outlook and unveiled
a $5 billion share buyback.
Biogen said it is searching for
a new CEO. It also is spinning
off its faster-growing but
small hemophilia-drugs unit.
Sergio Marchionne shook up a longstanding strategy at Ferrari.
MANAGEMENT
Whats the Best Way to Pay Workers?
$7,000
The average difference in pay

of women directors and their
fellow board members.
Matthew Souther and Adam
Yore, both assistant professors
of finance at the schools Columbia campus, analyzed the pay of
13,402 directors at 1,828 firms
from 2006 until 2013. They
found that overall, women and
minority directors outearn the
average director, largely because
highly visibleand high-paying
boards such as McDonalds
Corp. and Wal-Mart Stores Inc.
are more likely than other firms
to appoint diverse directors.
Within boards, however, the
picture changes. When researchers compared a female directors
pay to the average, the womans
pay fell short.
Rachel Feintzeig
work to bring logic to

compensation, but
exceptions abound
CHRIS GOODNEY/BLOOMBERG NEWS
Questions about pay equity

have been making waves in corporate offices. They may be
moving into the boardroom, too.
Researchers at the University
of Missouri have found that
among nonemployee corporate
directors, women and minorities
make less than their nondiverse
counterparts. Female directors
earn on average $7,000 less a
year than fellow board members,
while minorities come up $5,000
short, according to the research,
published in a working paper.
BY LAUREN WEBER
More companies are overhauling their pay practices as
they grapple with trends like
performance-based compensation and try to stay ahead of
concerns about gender pay
gaps. They also recognize that
employees have more information than ever as they swap
details with colleagues and access websites like that of recruiting firm Glassdoor Inc.
In this environment, the ad
hoc process of making salary
decisions based on factors like
a candidates competing offer
or the budget handed down by
a distant finance team is looking less tenable to a lot of human-resources executives.
Laszlo Bock, Googles departing

head of human resources
Google Inc.s departing human-resources chief, Laszlo
Bock, recently urged employers
to develop compensation policies to minimize discrimination.
Mr. Bock has said Google
pays for roles, not people. Managers are taught to ask about a
strong candidates prior salary
only as a way to gather intelli-
The Story of a Salary

Last year, GoDaddy, Inc. developed a new pay system that
uses factors such as location and skills to set individual
salaries. Here's a snapshot of how the web-services rm
determines what a software developer earns.
When GoDaddy has an open engineering job, the

hiring manager decides where the job will be located.
Arizona
Boston/LA/Seattle
Companies Likely
To Hold Back on
2017 Pay Raises
Sunnyvale/San Francisco
The manager selects the role he needs to ll.
Database Engineer
Engineering Other
Software Development Engineer

Quality Engineer
The manager selects the level of skill

and responsibility the role requires.
Software Dev V
Software Dev X
Software Dev IV
Software Dev IX
Software Dev III
Software Dev VIII
Software Dev II
Software Dev VII
Software Dev I
Software Dev VI
*Not a complete list of job titles
The manager and new hire discuss whether the

person's skills and experience warrant a salary in
the bottom, middle or upper zone of the range.
$101,000
$133,000
$165,000
Source: GoDaddy
2016 Dow Jones & Co., Inc. All rights reserved. 6DJ3890
Lower unemployment rates

usually lead to a rise in salaries.
But even as unemployment hovers near a six-year low, U.S.
companies say they have no
plans to make increases to the
money they set aside for pay
raises next year.
The finding is based on a survey of 461 companies commissioned by the Conference Board.
According to the report, companies plan to raise their budgets
for pay increases by a median of
3% in 2017, the same rate as in
each of the last six years.
The stagnation marks a shift
in the way companies choose to
reward workers, said Matteo Tonello, a managing director at the
Conference Board. Instead of
raises, Mr. Tonello said, companies are increasingly awarding
performance-based bonuses.
A study by HR consulting
company Aon Hewitt found that
bonuses jumped from 7.5% of
total compensation budgets at
U.S. companies in 1996 to 12.9%
in 2015.
It is possible, Mr. Tonello said,
that companies are avoiding
fixed costs to shield themselves
from a possible economic downturn. These alternative compensation vehicles offer more flexibility and do not commit cash
resources in advance and for the
long term, wrote Mr. Tonello in
an email.
The highest projected increases in salary budgets will be
in consulting and diversified financial services, the survey said.
Dahlia Bazzaz
Iowa
gence about how competitors

are paying, but that information is disregarded when it
comes to setting the new employees salary.
The company benchmarks
pay rates based on the value
of the role to Google and what
the local labor market pays for
those skills. As a result, female
hires at Google in 2015 received a 30% bigger raise over
their prior salary than male
new hires. This is because
women were being paid less,
on average, than men in their
previous roles. Consistently
using pay targets is one way
to correct for existing inequities, the company says.
For many firms, the first
step is to create a compensation philosophy that helps employees understand what the
companys mindset is and
whats valued there, said
Kerry Chou, a compensation
expert at WorldatWork, a nonprofit HR association focused
on pay and benefits.

Commonly, companies aim
for some version of marketbased pay, using an aggregation of salary data from many
employers, gathered and sold
by vendors like Mercer, Willis
Towers Watson and PayScale
Inc. These firms cluster data
by job title or duties and slice
it by variables such as location, experience and industry,
coming up with a range for a
position such as, say, junior
accountants in industrial firms
in the Chicago metro area.
Employers typically target
the 50th percentile and create
a spread of acceptable pay
around that.
That process may sound
straightforward, but exceptions
abound. Job titles arent always
comparable, and salary benchmarking data become stale.
At Mitre Corp., a not-forprofit engineering firm, HR
managers in 2014 developed
an intricate formula to make
the pay process more objective

and transparent. Supervisors
and work leaders assign each
employee a number to describe the complexity and responsibilities of that persons
role, then add or subtract
points based on the persons
results and behavior to arrive
at a range that reflects the
employees value. That range
is then overlaid on the market
curve for the job, so that a
high-scoring employee would
receive above-median pay, said
Julie Gravallese, head of HR.
Many in the trenches say setting compensation will always
be as much art as science. For
the employees at WorkWave
LLC, a New Jersey firm that develops software, CEO Chris Sullens consults market surveys
and targets pay within around
15% of the median. But the surveys dont always match what
he is seeing on the ground.
Unfortunately, theres no
magic bullet, he said.
PAY
Continued from page B1

someone is looking out for
their interests, said Steve
Gross, a senior compensation
expert at human-resources
consulting firm Mercer. When
pay decisions rely on imperfect data and gut instincts,
gender bias and other ills
creep into compensation decisions, human-resources managers say.
Salesforce.com Inc. has
committed to reviewing salaries regularly to excise gender
disparities, and Mission Produce Inc., one of the worlds
largest producers of avocados,
earlier this year implemented
a pay structure in response to
young employees requests to
take the mystery out of compensation, said HR chief
Tracy Malmos.
A look at how one company,
web-services firm GoDaddy
Inc., overhauled its pay structure illustrates how and why
employers are trying to bring
greater transparency and logic
to compensation. Until recently, GoDaddy, which has
headquarters in Scottsdale,
Ariz., and offices in Kirkland,
Wash., Silicon Valley and several other U.S. locations, was
like many companies when it
came to pay decisions.
The process was, what did
we pay the last person? Lets
pay the new person what the
last person was making, said
Matt Toeller, who arrived at
the company in July 2015 to
set policies to steer pay decisions for GoDaddys 5,000 employees. Some employees were
paid too little, while others
earned too much based on
their location or experience.
Firms that do have pay
guidelines typically aim to pay
at the median of the range that
similar employers pay for a
given role, with a spread of,
say, 20% on either side based
on a new hires experience and
skills, according to Mr. Gross.
Companies buy salary-benchmarking data from firms like
Mercer, PayScale and Willis
Towers Watson.
GoDaddy managers werent
CORNER OFFICE
MANAGEMENT MATTERS
MARK PETERMAN FOR THE WALL STREET JOURNAL
WORKAROUNDS
Salary Inequality
Poses a Concern
In Boardrooms, Too Corporate managers
Matt Toeller joined GoDaddy last year to help set pay policies.
using outside pay data until
shortly before Mr. Toeller
joined. The firm now pegs pay
at the 70th percentile of the
market rate for engineering
roles, he said. To better match
GoDaddys workforce to the
broader benchmarking data,
his team spent months mapping out job descriptions,
which they used to create levels for each titlesuch as software development engineer
to reflect the range of workers
skills and responsibilities.
Each level has a pay grade
with a wide salary range. For
example, a Software Developer
III in GoDaddys Sunnyvale, Calif., office could earn $101,000
to $165,000 a year, depending
on factors like performance
and depth of skills. Under the
new system, some 6% of GoDaddys workforce got automatic raises to bring them into
the correct pay grade.
Before the structure, pay
was really fast and loose,
said Leslie Phillips, a senior
communications manager who
started at GoDaddy in 2006 in
tech support. Now it makes a
lot more sense, and I wonder
why we didnt do it sooner.
She got a raise of about 15% at
her last performance review,
the result of a promotion, a
merit increase and an adjustment into the new pay scales.
One challenge: determining

the right degree of transparency. Mr. Toeller and other HR
staffers canvassed a swath of
employees, and received suggestions that ran the gamut
from total secrecy to total disclosure. Ultimately, the company decided to include level
and salary range on employees annual pay statements, so
they know where they stand.
The changes have eased
conversations about pay between managers and employees, said Arleen Hess, a manager in the companys digital
crimes unit. Its an emotional
and personal conversation, and
this lets us have that conversation constructively.
Elsewhere, a hot job market
is forcing employers to adjust
pay more often. New hires at
Threshold Group, a Seattlebased wealth manager with
about 50 employees, sometimes outearn employees hired
when the market was cooler.
To retain veterans, the firm
now adjusts salaries upward to
reflect the market and ensure
parity with newcomers. A lot
of companies get stuck in,
were paying this person what
we brought them in at and
theyre fine, so they dont
make those adjustments, said
Chelsea Giusti, who designed
Thresholds strategy last year.
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EXECUTIVE SUITE
TEAM LEADER
FINANCE & MARKETS
BY MAX COLCHESTER
LONDONU.K. bank shares
took a hit Tuesday after a
regulator proposed to extend
until 2019 a program in
which lenders must compensate customers who were improperly sold payment-protection insurance.
The Financial Conduct Authority said lenders that had
sold customers payment-protection insurance they didnt
need would continue to face
claims until June 2019, six
months later than the regulator previously proposed.
So far banks have forked
over 24.5 billion ($32.3 billion) to compensate people
who bought the insurance
product, which was sold to
cover mortgage, auto and
other loan payments if the
borrower lost a job or fell ill.
Many people didnt need the
insurance.
U.K. bank shares declined
following Tuesdays news, because of concerns that banks
will have to put aside hundreds of millions of pounds to
cover extra compensation.
Lloyds Banking Group PLC fell
1%, Barclays PLC dropped
3.6%, and Royal Bank of Scotland Group PLC slipped 1.7%.
For years banks have lobbied regulators to stop the
payouts. Last year, the FCA
said the deadline might be at
the end of 2018, but this has
now been pushed back. The
FCA on Tuesday confirmed it
will put in place a time bar
but will continue to consult
on how it should be applied.
A final decision is expected
in October.
Putting a deadline on PPI
complaints will bring the issue
to an orderly conclusion, said
Andrew Bailey, chief executive
of the FCA.
Lloyds said it was disappointed that a program to inform people of the claim-filing
deadline wont come into force
until 2017, adding that its
guidance for provisions remained unchanged.
Banks will also have to pay
extra compensation for not being transparent about the
commissions involved in product sales. A U.K. supreme
court ruled in November 2014
that a loan company unfairly
sold a PPI policy because it
didnt disclose the large commission it and a broker received. A rule on how that
compensation will be paid out
will be outlined by the end of
this year.
Beijing
Takes Aim
At Fund
Industry
Real Stake
British families have taken up debt in order to put most of their
wealth in real estate.
London U.K.
Houses are
getting more
10
expensive...
8
How much of a
rst-time buyers
6
income, in
4
multiples, it
2
takes to buy
0
a home
1987 90
...driving
households to
run decits...
Net acquisition
of nancial
assets as a
share of GDP,
seasonally
adjusted
10
2000
10
9%
6
3
0
3
6
1987 90
...and
accumulate
more debt.
Debt as a share
of GDP
2000
BY SHEN HONG
100 %
80
CHRIS RATCLIFFE/BLOOMBERG NEWS
FCA Plan
Hits U.K.
Banking
Shares
60
40
20
0
1987
90
2000
10
Sources: Nationwide Building Society (house prices-to-income), U.K. Ofce for National
Statistics (household decit), Bank for International Settlements (debt)
Activity in the housing market has definitely slowed.
Brexit Crystal Ball: Homes

Over 30 years, households in the U.K. have cut spending every time house prices have fallen
BY JON SINDREU
LONDONFor investors trying to gauge Brexits impact on
the U.K. economy, the housing
market may be the most important bellwether.
Most analysts believe the
vote to leave the European
Union will drive the British
economy to either flatline or
fall into a recession this
year. But property prices could
determine whether it would be
a temporary dip or prolonged
slump.
Few developed economies
are as influenced by housing as
is Britain, where prices dictate
consumer confidence after decades of steep gains. In the past
30 years, households in the U.K.
have cut spending every time
house prices have fallen. So
economists are paying particular attention to property prices.
Housing-market activity
and prices now look to be at
very serious risk of an extended, marked downturn,
said Howard Archer, economist
at IHS Global Insight.
Overall, economic indicators
have given a mainly negative
reading of Brexits effect on the
U.K. economy.
On Monday, the latest business survey from data firm IHS
Markit showed that economic
activity in the manufacturing
sector is contracting at its
fastest pace in three years.

The housing market held its
ground in July, according to
British lender Nationwide
Building Society. But impact
from the June 23 vote may take
longer to feed through, analysts
said. Polls of property appraisers suggest buyer interest was
falling even before the vote.
In pockets, prices already
are heading lower. House prices
in central London were down
0.6% in June from a year earlier, according to data from
property broker Knight Frank.
Marc Mozzi, an analyst at
French lender Socit Gnrale
SA, predicts houses in some
parts of London could lose up
to half of their value.
Activity in the housing market has definitely slowed, said
Matthew Hall, a portfolio manager who invests in small and
medium-size U.K. firms for Allianz Global Investors. Since the
referendum, Mr. Hall has cut
his holdings of house builders,
real-estate and home-appliance
companies.
Shares of sectors exposed to
housing all have fallen. Property broker Foxtons Group PLC
is now 35% below where it was
before the referendum. British
house builders Persimmon PLC
and Taylor Wimpey PLC have
lost 20% and 22% of their stock
value, respectively.
But the wider concern is that
falling house prices will push

nervous Brits to trim their
large debt piles and stop
spending. In the U.K., it is investment by households, not
businesses, that is the more important source of demand for
the economy.
Household debt amounts to
87.4% of GDP in Britain. By
comparison, debt-to-GDP in the
U.S. and the eurozone amounts
to 79% and 59%, respectively.
Most of this debt has been
used to buy houses, and the
value of these properties is a
large part of Britons wealth.
Property makes up 60% of U.K.
household assets once pensions
are excluded, official figures
show.
As long as house prices were
rising, consumers kept on taking on more debt and spending.
If house prices fall, these families may slice spending and
prolong any Brexit pain, economists say.
All of the last three recessions coincided with sharp rises
in the household saving
rate, said Samuel Tombs, an
analyst at Newcastle-based
Pantheon Macroeconomics.
High house prices mean that
the U.K. is particularly exposed.
The price of a house in the U.K.
is now 5.3 times the average
family income, Nationwides
data show. That is almost back
to the precredit crisis 2007 re-
cord-high of 5.4. In London, a

house now costs more than 10
times what a household earns,
compared with a 7.2-high before the crisis.
Still, analysts also identify
several factors that may ease
fears of an imminent fall in
house prices.
Ultralow interest rates could
prop up values, keeping mortgage payments cheap while also
easing the debt burden should
Britons start losing their jobs.
At the same time, the
pounds post-Brexit fall also
makes property cheaper to foreign buyers, who have been a
big part of the demand. An endemic lack of house building
also could limit the size of the
potential fall.
Paul Diggle, an economist at
Aberdeen Asset Management
PLC, predicts U.K. real estate is
likely to withstand the blast.
Still, he said the fate of the
housing market will shape the
face of the U.K. post-Brexit.
The property market leads;
the rest of the economy goes.
Delivering news and insight

on finance and markets
from London
Download on the App Store
Profit Warning Hurts Japan Yield Leaps Toward 0%

Commerzbank Stock
BY RACHEL ROSENTHAL
AND HIROYUKI KACHI
FRANKFURTCommerzbank AG warned on Tuesday

that it wont reach its goal of
keeping net profit stable for
the year, after revenue and net
profit declined in the second
quarter, set back by negative
interest rates and sluggish demand for the banks products
and services.
Managements outlook amid
broader jitters about eurozone
banks, primarily in Italy,
pushed shares in Commerzbank down 9.2% to new lows
in Frankfurt. The stock has
fallen 44% this year, reducing
the banks market capitalization to roughly 6.7 billion, or
about $7.5 billion.
German banks are particularly hit by negative interest
rates as they have a high deposit ratio, and we will update
the market on how to improve
profitability later this year,
the banks finance chief,
Stephan Engels, said on a conference call.
Commerzbank reported a
30% plunge in net profit last
week, when an unexpected decline in its core capital ratio
prompted an early release of
certain figures for the second
quarter.
The lender, Germanys second-largest by market value,
said Tuesday that revenue in
the quarter ended June
30 declined to 2.23 billion
from 2.44 billion. Revenue
RALPH ORLOWSKI/REUTERS
BY EYK HENNING
Stephan Engels
and net profit were roughly in
line with analysts estimates.
The bank also gave up its
goal of keeping full-year net
profit stable at slightly above
1 billion, a move analysts had
expected since Commerzbank
executives began calling the
target increasingly ambitious in recent months.
The interest-rate environment and persistent customer
cautionwill continue to
weigh on income. We therefore expect that operating
earnings and consolidated net
profit for the full year 2016
will be lower than the previous year, Commerzbank said.
Stress-test results published on Friday showed the
bank remains one of the weakest lenders in Europe, despite
progress it has made in selling
unwanted assets.
A selloff in Japans 10-year

government bonds sent these
negative-yielding assets within
a hair of positive territory.
Yields on the benchmark 10year Japanese government
bond rose Tuesday as high as
minus-0.025%the
highest
level since March 16compared with minus-0.145% Monday. They were around minus-0.06% in late afternoon in
Asia. Yields rise when bond
prices fall.
The 0.2-percentage-point
climb in yields over three sessions is the biggest move since
May 2013, a month after Bank
of Japan Gov. Haruhiko Kuroda
introduced his first bazooka
of monetary easing.
Japanese government-bond
prices have been falling since
Friday, when the central bank
announced what amounted to
modest policy tweaksdashing
expectations of an interest-rate
cut further into negative territory and an expansion of asset
purchases. The central banks
easing program has fueled a
spectacular run upward in
bond prices since it started
three years ago, so any hints
the BOJ might be losing its
punch has spooked bond investors.
Selling accelerated on Tuesday in the run-up to a government auction of 10-year bonds,
and continued when results
showed that demand remains
weak.
Beyond the pervasive sense
that the Bank of Japans monetary policy has reached its

limit, the market was rattled by
the central banks saying it
plans a comprehensive assessment of policy in September.
The rare bit of guidance has
stirred questions among investors and analysts about what
the BOJwith a rich history of
surprising marketscould be
up to.
What caught the market
off-guard and was shocking for
us was not that [the BOJ]
would postpone additional easing, but rather that they are reviewing the structure of the
current market, says Tadashi
Matsukawa, head of Japan
fixed income at PineBridge Investments in Tokyo, who manages 80 billion ($782 million)
in assets. That means that potentially [the BOJ] might
tighten rather than ease, and
thats a source of confusion.
What shape any tightening
could take is anyones guess.
One option, for example, would
be adjusting its 80 trillion annual asset-purchase target to a
range, and reducing its lower
boundary to 60 trillion but
raising its upper boundary to
100 trillion, says Shuichi Ohsaki, a rates strategist at Bank
of America Merrill Lynch in
Japan.
Limiting asset purchases
would damp the appetites of investors who have been buying
shorter-dated Japanese government bonds, despite their negative yields, with the expectation
of selling them later to the BOJ
at even higher prices.
BOJ Gov. Haruhiko Kuroda

suggested that market players
are mistaken if they expect the
comprehensive assessment to
lead to tightening. I dont
think it will produce such results, he told reporters following a meeting with Finance
Minister Taro Aso. There is no
change in our policy stance to
push down the entire yield
curve to stimulate growth and
generate 2% inflation.
On Tuesday, the market was
particularly tense ahead of a
Ministry of Finance auction of
more than 2 trillion in 10-year
bonds. Demand was weaker
than usual, but some market
participants were reassured
when it emerged that big Japanese banks bought up large
chunks of the issuance, a sign
of confidence that prices would
arrest their downward spiral.
Mitsubishi UFJ Morgan
Stanley Securities was the biggest buyer, snatching up 585
billion27% of the total issuanceaccording to Quick.
PineBridges Mr. Matsukawa
said the rise in 10-year yields
was an opportunity to buy,
though he would be stepping in
cautiously.
Earlier Tuesday, Japanese
Prime Minister Shinzo Abes
cabinet also approved a 28
trillion ($274 billion) stimulus
package, a widely telegraphed
action that analysts said had already been priced in.
Japanese crisis warning:
Dont make our mistake...... B7
Heard: Reason to worry over
Japanese bonds..................... B10
SHANGHAIChina has undertaken a major revamp of its

loosely regulated fund-management industry, revoking the
licenses of more than 10,000
firms in the past six months,
as Beijing escalates a campaign to clean up its speculative and irregularities-ridden
financial sector.
The move, which has eliminated close to 40% of the
countrys privately offered
funds, is the latest sign of a
policy shift by the Chinese
leadership toward boosting
regulatory oversight and away
from previously stated goals of
more financial liberalization.
This again shows that
housecleaning, which is aimed
at restoring industry and market order, deterring speculation and curbing asset bubbles,
is the authorities new top priority, said Shen Meng, director at Chanson & Co., a Beijing-based boutique investment bank.
The Asset Management Association of China, an industry
body supervised by the countrys securities regulator, said
Monday it had canceled the licenses of these companies,
which include what are known
in the West as hedge funds and
private-equity funds, in two
batches since it began its
clampdown in February.
40%
The approximate percentage of

privately offered funds whose
licenses have been revoked
The association said that it
found that some firms lacked
basic infrastructure or funding, while others were engaged in private lending
rather than their core business. Some were engaged in illegal fundraising and criminal
activities, it said.
The rapid development of
the private fund-management
industry in China in recent
years has led to a situation
where the good and the bad
are intermingled, the industry
body said. A shell-company
phenomenon has disturbed industry order and affected the
truthfulness and effectiveness
in monitoring the sector.
There are still more than
16,000 registered fund firms
operating with about 6.5 trillion yuan, or about $980 billion, available to invest, according to the association.
Given the economy is not
doing well, the top leaders
probably want to make sure
that the capital markets arent
sending the wrong message.
Thats why the emphasis is on
clamping down on anything
that may inflate the asset bubbles and doesnt benefit the
real economy, said Mr. Shen.
The latest clampdown began on Feb. 5, when the Asset
Management Association required all private fund-management companies to disclose
records of offered products
and audit reports.
Generally seen as a positive
in the long run, industry participants say the impact has
been limited.
This is because most of
these private funds that have
been kicked out are really tiny
shops, said Gu Weiyong, general manager of Ucon Investments, a Shanghai private-equity fund. The hit on liquidity
in the stock market, for example, shouldnt be exaggerated.
Surfeit of Funds
Number of registered private
fund-management rms in China
25,000
20,000
15,000
10,000
5,000
0
4Q 1Q 2Q 3Q 4Q 1Q
2014 15
16
Source: Asset Management Association of China
FINANCE & MARKETS
Sizing up 1990s crisis,

bank overseer says
curbs on lenders may
have hobbled recovery
BY YUKA HAYASHI
AND ATSUKO FUKASE
TOKYOJapan had its financial crisis long before the
West. A quarter-century of
stagnation later, the countrys
top bank regulator has a warning for his global counterparts:
Overreacting to the bust could
undermine the recovery.
Supervisors emphasis on
clean
bank
balance
sheets...may have had side effects, Nobuchika Mori said
when asked in a recent interview with The Wall Street
Journal what lessons he would
offer from his countrys experience cleaning up a burst bubble.
Looking back from todays
vantage point, we wonder if
we should have done things
differently, paying more attention to economic growth, he
said.
It is a contrast with the
tone in Washington, where
bank overseers continue to add
capital requirements and other
restrictions. The Federal Reserve and other regulators
have defended the steps as
necessary to keep the banking
system safe. But critics in the
industry say they are in some

cases deterring banks from
taking the risks and offering
the credit needed to fuel faster
economic activity.
Mr. Mori spent most of his
career at Japans powerful
Ministry of Finance, working
in various divisions from international finance to national
budget, before moving next
door to the Financial Services
Agency in 2006.
He became commissioner of
the agency a year ago, making
him the countrys top financial
regulator. His one-stop-shop
agency combines the functions
of a broad range of American
overseers, from the market
monitoring of the Securities
and Exchange Commission to
the bank supervision of the
Fed and the Office of the
Comptroller of the Currency.
He has since charmed industry executivesand unnerved veteran bank examinerswith a pro-market stance
rarely seen among policy makers in the postcrisis world. Mr.
Mori has encouraged Wall
Street bankers and private-equity executives to help manage
Japanese savers nest egg,
while telling regulators to ease
up on bank inspection standards.
To illustrate the danger of
what he calls a one size fits
all approach to postcrisis
rule-making, Mr. Mori invokes
the Japanese World War II
YUKA HAYASHI/THE WALL STREET JOURNAL
Japan Warning: Dont Make Our Mistake
Regulator Nobuchika Mori has an unusually pro-market stance.

battleship Yamato, sunk by
American bombers because it
had thick walls to withstand
naval attacks but was vulnerable to airstrikes.
We always respond to the
previous crisis and try to prevent it from happening again,
the 59-year-old career bureaucrat said. So the next crisis
comes from an unexpected angle.
Japanese banks faced their
own crisis in the 1990s after a

real-estate bubble burst. The
long ensuing workout left
them with clean balance sheets
and reduced leverage by the
time the global financial crisis
hit in 2008, allowing them to
emerge relatively unscathed.
Still, the countrys financial industry has never regained a
strong appetite for risk, keeping lending and profit growth
sluggish.
In speeches and editorials

since he took office, Mr. Mori
has regularly cautioned his
Western counterparts about
overregulation.
The more we rely on regulation, the more such distortion and inefficiency become
prominent, Mr. Mori said.
Asked where he developed
such views, Mr. Mori cited the
three years he spent in New
York during the deregulatory
heyday of the booming early
2000s, as a representative
of the Ministry of Finance. Frequent discussions with market
participants, economists and
fellow regulators, he said,
helped him appreciate market
dynamism.
Rather than being tough on
big banks, Japanese regulators
say their priority now is urging financial institutions to
take more risks. As his
agencys chief bank inspector
in 2013, Mr. Mori turned upside down examination policy
by giving banks more freedom
to assess borrower credit, said
Hironari Nozaki, a finance professor at Kyoto Bunkyo University and a former bank analyst.
It sent a shock wave
among examiners, and some
pushed back, he said.
Unlike predecessors who
preferred to keep a low profile
and stick with conventional
policies, Mr. Mori says he
wants to make dramatic
changes, and plans to highlight
them in the new version of the

FSAs annual guidelines to be
released by September.
He plans to push for a big
shake-up in Japans struggling
regional banks, urging them to
find new business models
where bankers serve as consultants helping clients improve
productivity. With the Bank of
Japan joining European central
banks in using negative interest rates to spur growth, it is
more urgent for weaker banks
to strengthen their operations,
Mr. Mori said. Low rates hurt
banks by making it difficult to
make profits charging interest
on loans. The simple banking
model is facing a sea change,
Mr. Mori said.
Another key element of the
new guidelines will be encouraging asset managers to help
diversify Japanese household
investments. While people in
the U.S. and U.K. have large
chunks of their assets in mutual funds and stocks, Mr. Mori
says more than half of Japans
roughly $17 trillion pool of
household savings sits in cash
or bank deposits. Top executives of big Western privateequity funds like Blackstone
Group and KKR & Co. visit
Japan frequently and often
stop by Mr. Moris office.
The presence of sophisticated buy-side players should
also result in the growth of the
asset management industry in
Japan, he said.
Film Firm, U.S. Reach Piraeus Bank Seeks KKR Deal

Pact in 1MDB-Tied Case
BY STELIOS BOURAS
The U.S. film company that

produced The Wolf of Wall
Street reached a deal with the
Justice Department on Monday
to keep separate its future
earnings from the film pending
the outcome of the governments civil asset-seizure cases
tied to a Malaysian investment
fund, according to a filing.
The government filed cases
last month to seize more than
$1 billion of assets allegedly
acquired with funds embezzled
from 1Malaysia Development
Bhd., a Malaysian sovereignwealth fund that is at the center of corruption and moneylaundering inquiries in at least
seven countries.
Among the assets was all
future income from The Wolf
of Wall Street due to Red
Granite Pictures, which the
government said used money
siphoned from 1MDB to finance
the film. The film has grossed
$400 million, though it is unclear how much of that went to
Red Granite.
Under the agreement, Red
Granite will ringfence future
income from the film. The
amount may be relatively
smallin the millions of dollarsthrough sales to television networks and video-ondemand companies such as
Netflix.
Red Granite was co-founded
by Riza Aziz, the stepson of
Malaysian Prime Minister Najib Razak. The government also
moved to seize luxury proper-
PARAMOUNT PICTURES
BY BRADLEY HOPE
The company that produced The Wolf of Wall Street, Red

Granite Pictures, agreed to keep separate future income from it.
ties of Mr. Aziz in New York
and Beverly Hills, Calif., as well
as hundreds of millions of dollars in property and investments owned by his friend and
confidante of Mr. Najib, Jho
Low.
Mr. Low and his lawyers
have declined multiple requests for comment. A spokesman for Mr. Aziz and Red
Granite said earlier this year
that there was nothing improper about Mr. Azizs business dealings and that the
company was cooperating with
inquiries. In a statement after
the civil forfeiture cases were
filed last month, 1MDB said it
was aware of the U.S. news
conference about the enforcement actions but said it had no
assets in the U.S. and wasnt a
party to any lawsuits. It said it
would cooperate with any lawful investigation.
By reaching the deal, Red

Granite is trying to show that
the government lawsuit wont
affect its operations. Red Granite said in a statement that the
agreement showed the company remains open for business, and that everyone involved with Red Granite can
confidently continue to do
business with us in the wake of
the civil lawsuit filed by the
government last month.
The company also agreed to
ringfence future income from
its earliest film, from 2012,
Friends with Kids, without
giving a reason why. The government didnt file a seizure
suit against it.
Red Granites latest film, a
remake of the 1973 prisonbreak film Papillon, is about
to start production, according
to a person involved with the
film.
U.S. Pushes for Disclosure

BY LIZ HOFFMAN
AND EMILY GLAZER
Regulators are asking big
banks to provide investors
with more-detailed disclosures
about their trading businesses,
a push that could peel back
the curtain on a huge and volatile source of Wall Street revenue, according to people familiar with the matter.
Communications
between Securities and Exchange
Commission officials and executives from some of the
largest U.S. banks have been
informal and preliminary, the
people
said.
But
the
SEC may send comment letters to the biggest trading
firmsJ.P. Morgan Chase &
Co., Bank of America Corp.,
Citigroup Inc., Goldman Sachs
Group Inc. and Morgan Stanleyin the coming months,
asking them to give investors
more details in the future,
some of the people said.
That could include requests
to break out revenue from individual products such as
bonds, stocks, commodities,
and other, more-exotic instru-
ments. Currently, trading revenues are lumped together,

making it difficult for investors to figure out what is driving a particular firms results.
This is especially the case
when it comes to so-called
FICC revenues. These encompass fixed-income, commodities and currency products
and are the biggest source of
fees on Wall Street.
In 2015, FICC revenues for
the 12 largest global investment banks came to $69.9 billion, or 9% of overall revenues,
according to data firm Coalition.
Everyone just wants to
keep it close to the vest, said
Steven Chubak, a banking analyst with Nomura Holdings
Inc. In quarterly and annual
filings, there is some disclosure around how banks make
markets for clients, but firms
still dont divulge much information around specific contributors to FICC-related revenue, he added.
For investors, additional details could be telling. Knowing
which bank had good performance in, say, energy trading
could help steer an investment

based on a view about the future direction of oil prices. Or
it could push banks to get out
of businesses where it becomes clear they are underperforming.
It isnt clear whether the
SEC ultimately will ask for
specific disclosure items or
leave it up to the banks to individually decide what to
share. A spokesman for the
SEC declined to comment.
Investors do get a sense of
the overall market for particular FICC-related products. Coalition, for instance, breaks
down market revenue by product for interest rates, credit,
foreign exchange, securitization, emerging markets and
commodities.
But investors know little
about the breakdown bank by
bank. James D. Cox, a professor of corporate and securities
law at Duke University School
of Law, said information about
particular product lines is
highly sensitive in part because companies dont want to
attract competition or regulatory scrutiny.
ATHENSPiraeus Bank SA,

Greeces largest lender by assets, said it is looking into
striking a deal with U.S.-based
private-equity firm KKR & Co.
to manage 600 million ($670
million) of its problem loans.
Piraeus Banks acting chief
executive officer, George Poulopoulos, said in an interview
Tuesday that Piraeus Bank was
examining the possibility of
teaming up with KKR to restructure the loans. An announcement may be made
soon after the summer, he
said.
It would involve the restructuring of corporate loans,
debt that belongs to large, potentially viable companies,
Mr. Poulopoulos said. This
wont solve the entire problem,
of course, but it is part of the
solution. There are a lot of further steps we want to take in
the management of [nonperforming loans] and that is
what we are doing. KKR declined to comment.
Greek banks have been slow

in tackling the 110 billion of
bad loans weighing on their
books as a result of the countrys crisis, which has reduced
the size of its economy by
more than a quarter to some
180 billion.
Bank executives said many
of the large corporate loans
need to be restructured and
shouldnt be sold at a loss to
third parties.
Greek banks have

been slow in
tackling the bad
loans on their books.
Better management of nonperforming loans is seen as being a crucial step in the countrys return to growth as it will
free up funds to finance
healthier companies.
The problem of bad loans
was also a key point of discussion in a meeting between
Greek President Prokopis Pav-
lopoulos and Bank of Greece

Gov. Yannis Stournaras on
Tuesday, according to a central-bank official.
Piraeus Bank would be the
third Greek lender to strike a
deal with KKR in recent
months.
In May, KKR signed an
agreement with Eurobank Ergasias SA and Alpha Bank AE,
Greeces third- and fourth-largest lenders, respectively, to
manage up to 1.2 billion of
underperforming assets via
KKRs platform, known as Pillarstone.
In Athens, Greeces secondlargest lender, National Bank
of Greece SA, is expected to
follow suit, Yannis Sinapis, an
analyst at Athens-based brokerage Euroxx Securities said.
National Bank of Greece didnt
immediately respond to a request for comment.
Mr. Sinapis said a KKR deal
would involve only a small part
of Piraeus Banks domestic
troubled assets, which stood at
24.7 billion at the end of the
first quarter.
Legal Notice
If You Purchased Freight Forwarding Services

Providing domestic and international shipping,
You Could Get Benefits from a $53.55 Million Settlement
If you or your company used the services
of certain freight forwarders, you may be
entitled to a potentially significant cash
payment from class action Settlements.
Settlements have now been reached with
the final two Defendants. Settlements
were previously reached with 29
Defendants.
The Settlements involve a lawsuit
claiming that certain freight forwarding
companies secretly agreed to prices
for their freight forwarding services
worldwide, including on routes in the
U.S. and between the U.S. and China,
Hong Kong, Japan, Taiwan, India,
Germany, the U.K. and other parts of
Europe. The Settling Defendants deny
that they did anything wrong.
Freight
Forwarders
provide
transportation, or logistics services for
shipments relating to the organization
or transportation of items via air and
ocean, which may include ancillary rail
and truck services, both nationally and
internationally, as well as related activities
such as customs clearance, warehousing,
and ground services.
Who is Included
You may be included in one or more of the
Settlements (as a Class Member) if you:
(1) Directly purchased Freight Forwarding
Services; (2) from any of the Defendants,
their subsidiaries, or affiliates; (3) from
January 1, 2001 through January 4, 2011;
(4) in the U.S., or outside the U.S. for
shipments within, to, or from the U.S.
What Do the Settlements Provide?

DHL and Hellmann will establish a
$53,550,000 Settlement Fund. The amount
of your benefits will be determined by the
Plan of Allocation, which is posted on www.
FreightForwardCase.com.
How to Get Benefits?
You need to submit a Claim Form, online or by
mail, by April 3, 2017 to get a payment from
the Settlements. You can obtain a Claim Form
by calling one of the numbers below or visiting
the website. If you already submitted a
Claim Form for the first or second round
of Settlements, you do not need to file a
new claim. You will automatically be paid
from this third round of Settlements.
Your Other Rights
Even if you do nothing you will be bound by
the Courts decisions. If you want to keep
your right to sue DHL or Hellmann yourself,
you must exclude yourself by September
20, 2016 from that Settlement. If you stay
in a particular Settlement, you may object to
it by September 20, 2016.
The Court has appointed lawyers to
represent you at no charge to you. You may
hire your own lawyer at your own cost. The
Court will hold a hearing on November 4,
2016 to consider whether to approve: (1)
the Settlements, (2) a request for attorneys
fees up to 33% of the Settlement Fund, plus
interest, and reimbursement for litigation
expenses; and (3) a request for Class
Representative service awards of no more
than $75,000 each. You or your own lawyer
may appear and speak at the hearing.
This notice is only a summary. For detailed information:

Call U.S. & CANADA: 1-877-276-7340 (Toll-Free)
INTERNATIONAL: 1-503-520-4400 (Toll)
or Visit www.FreightForwardCase.com
MARKETS DIGEST
Nikkei 225 Index
STOXX 600 Index
S&P 500 Index
Year-to-date
16391.45 t 244.32, or 1.47%
t 13.88% 335.47 t 4.39, or 1.29%
52-wk high/low20808.69 14952.02 High, low, open and close for each
High, low, open and close for each
trading day of the past three months. All-time high 38915.87 12/29/89 trading day of the past three months.
Data as of 4 p.m. New York time
2157.03 t 13.81, or 0.64%

High, low, open and close for each
trading day of the past three months.
Year-to-date
t 8.29%
52-wk high/low 403.93 303.58
All-time high
414.06 4/15/15
Last
Year ago
Trailing P/E ratio * 25.03 21.59

P/E estimate *
18.42 17.82
Dividend yield
2.11
2.01
All-time high: 2175.03, 07/22/16
* P/E data based on as-reported earnings from Birinyi Associates Inc.
17500
65-day moving average
UP
Close
350
2130
16500
340
2090
16000
330
2050
15500
320
2010
Open
Close
2170
17000
Session high
DOWN
Session open
360

15000
Session low
310
1970
Bars measure the point change from session's open

14500
Apr.
May
June
300
July
May
International Stock Indexes

Region/Country Index
World
Data as of 4 p.m. New York time

Latest
NetChg
Close
The Global Dow

MSCI EAFE
MSCI EM USD
% chg
Low
2387.15 17.87
1672.15 10.13
876.11 6.44
0.74
0.60
0.73
2033.03
1471.88
691.21
Americas
Brazil
Canada
Mexico
Chile
DJ Americas
Sao Paulo Bovespa
S&P/TSX Comp
IPC All-Share
Santiago IPSA
519.07 4.04
56191.54 564.22
14469.65 113.09
46304.81 502.43
3183.29 26.30
0.77
0.99
0.78
1.07
0.82
433.38
37046.07
11531.22
39256.58
2730.24
U.S.
DJIA
Nasdaq Composite
S&P 500
CBOE Volatility
18295.62 108.89
5139.81 44.39
2155.32 15.52
13.59
1.15
0.59
0.86
0.71
15370.33
4209.76
1810.10
10.88
9.24
Stoxx Europe 600

Stoxx Europe 50
Austria
ATX
Belgium
Bel-20
France
CAC 40
Germany
DAX
Greece
ATG
Hungary
BUX
Israel
Tel Aviv
Italy
FTSE MIB
Netherlands AEX
Poland
WIG
Russia
RTS Index
Spain
IBEX 35
Sweden
SX All Share
Switzerland Swiss Market
South Africa Johannesburg All Share
Turkey
BIST 100
U.K.
FTSE 100
335.47 4.39
2815.83 43.30
2180.98 28.15
3365.38 61.00
4327.99 81.18
10144.34 186.18
551.64 17.96
27167.07 301.81
1447.26 14.26
16098.37 456.46
438.61 6.36
47031.70 810.32
903.04 19.49
8277.30 236.10
488.02 6.45
8011.24 115.96
52532.76 594.04
75803.92 907.76
6645.40 48.55
1.29
1.51
1.27
1.78
1.84
1.80
3.15
1.10
0.98
2.76
1.43
303.58
2556.96
1929.73
3117.61
3892.46
8699.29
420.82
20452.90
1378.80
15017.42
378.53
41747.01
607.14
7579.80
432.78
7425.05
45975.78
68230.47
5499.51
Asia-Pacific
Australia
China
Hong Kong
India
Japan
Singapore
South Korea
Taiwan
1446.01 4.30
5540.50 46.90
2971.28 17.89
22129.14
27981.71 21.41
16391.45 244.32
2856.67 35.85
2019.03 10.58
9068.76 11.95
0.30
0.84
EMEA
DJ Asia-Pacific TSM
S&P/ASX 200
Shanghai Composite
Hang Seng
S&P BSE Sensex
Nikkei Stock Avg
Straits Times
Kospi
Weighted
June
1.75
2.11
2.77
1.30
1.43
1.12
1.18
0.73
1188.42
4765.30
2655.66
18319.58
22951.83
14952.02
2532.70
1829.81
7410.34
0.61
Closed
0.08
1.47
1.24
0.52
0.13
52-Week Range
Close
Coupon
Commodities
20%
s
10
WSJ Dollar index
Euro
0
10
2015
2016
US$vs,
YTDchg
Tue
in US$ per US$ (%)
Country/currency
Americas
Argentina peso-a
0.0675 14.8230 14.6
Brazil real
0.3076 3.2512 17.9
Canada dollar
0.7640 1.3090 5.4
Chile peso
0.001526 655.10 7.6
Colombia peso
0.0003227 3099.05 2.4
Ecuador US dollar-f
1
1 unch
Mexico peso-a
0.0529 18.9074 9.9
Peru sol
0.2986 3.3485 1.9
Uruguay peso-e
0.0336 29.800 0.4
Venezuela bolivar 0.100150
9.99 58.4
Asia-Pacific
0.7606 1.3148 4.2
0.1506 6.6380 2.2
Australia dollar
China yuan
Key Rates
Country/currency
Hong Kong dollar
India rupee
Indonesia rupiah
Japan yen
Kazakhstan tenge
Macau pataca
Malaysia ringgit-c
New Zealand dollar
Pakistan rupee
Philippines peso
Singapore dollar
South Korea won
Sri Lanka rupee
Taiwan dollar
Thailand baht
Cur Stock
0.49390%
0.76760
1.12720
1.44260
0.19075%
0.30110
0.48585
0.80520
Euro Libor
One month
Three month
Six month
One year
-0.36857%
-0.30429
-0.19271
-0.06571
-0.08929%
-0.01714
0.05343
0.16429
-0.37100%
-0.29800
-0.18400
-0.04800
-0.07900%
-0.02300
0.04800
0.16400
-0.04914%
-0.01379
0.01086
0.09671
Offer
0.05714%
0.09500
0.13143
0.24686
Bid
0.5500%
0.8500
1.1500
1.4500
Latest
0.4500%
0.7500
1.0500
1.3500
52 wks ago
3.50%
2.70
1.475
5.00
3.25%
2.70
1.475
5.00
0.00%
0.50
0.50
1.75
1.00
0.25
2.25
0.05%
0.50
0.50
2.00
0.75
0.00
2.00
Overnight repurchase rates

U.S.
0.52%
Euro zone
n.a.
0.26%
n.a.
Eurodollars
One month
Three month
Six month
One year
Prime rates
U.S.
Canada
Japan
Hong Kong
Policy rates
ECB
Britain
Switzerland
Australia
U.S. discount
Fed-funds target
Call money
7.7610 0.1
66.6783 0.7
13092 5.4
100.88 16.1
354.10 4.5
7.9950 0.1
4.0524 5.8
1.3829 5.5
104.750 0.1
47.020 0.3
1.3384 5.6
1109.76 5.6
145.85 1.1
31.602 4.0
34.760 3.5
52 wks ago
Libor
One month
Three month
Six month
One year
Yen Libor
One month
Three month
Six month
One year
0.1289
0.0150
0.0000764
0.009913
0.002824
0.1251
0.2468
0.7231
0.0095
0.0213
0.7472
0.0009011
0.0068564
0.03164
0.02877
2.6512
0.1133
0.2624
3.3172
2.5976
0.2746
0.2666
0.0714
0.3772 0.02
8.8300 12.8
3.8106 2.1
0.3015 0.7
0.3850 0.01
3.641 0.04
3.7505 0.1
14.0035 9.5
Close Net Chg % Chg YTD % Chg
WSJ Dollar Index
86.15 0.64 0.74 4.46
1.437
1.830
-0.566
0.213
-0.521
0.202
-0.593
-0.033
-0.067
1.221
-0.172
-0.068
-0.569
0.069
0.387
2.917
-0.169
1.071
-0.655
0.125
0.198
0.811
0.679
1.538
75.9
29.2
-124.5
-132.5
-120.0
-133.6
-127.1
-157.1
-74.6
-31.7
-85.1
-160.6
-124.8
-146.9
-29.2
137.9
-84.8
-46.7
-133.3
-141.3
-48.1
-72.7
...
...
CBOT
CBOT
CBOT
CME
ICE-US
ICE-US
ICE-US
ICE-US
ICE-EU
COMEX
COMEX
COMEX
LME
LME
LME
LME
LME
LME
TCE
Palm oil (MYR/mt) MDEX

NYMEX
Crude oil ($/bbl.)
NY Harbor ULSD ($/gal.) NYMEX
RBOB gasoline ($/gal.) NYMEX
Natural gas ($/mmBtu) NYMEX
Brent crude ($/bbl.) ICE-EU
ICE-EU
Gas oil ($/ton)
Spread Over Treasurys, in basis points

Previous
Month Ago
Year ago
97.9
52.1
-116.5
-138.8
-114.7
-128.1
-124.2
-156.4
-71.7
-30.6
-92.6
-169.7
-120.8
-150.3
-37.6
155.8
-80.2
-29.9
-127.0
-119.8
-40.1
-57.8
...
...
77.8
30.2
-126.2
-137.6
-122.2
-139.6
-130.1
-162.4
-75.0
-34.9
-92.0
-166.2
-127.0
-152.5
-30.5
136.7
-86.7
-50.2
-135.7
-146.7
-51.2
-79.3
...
...
122.4
58.7
-84.2
-123.5
-84.1
-124.1
-89.3
-157.3
-57.0
-40.9
-65.5
-177.4
-87.1
-135.9
-29.8
19.8
-54.7
-33.5
-106.3
-144.2
8.0
-28.1
...
...
Previous
Yield
Month ago
1.465
1.828
-0.575
0.150
-0.535
0.130
-0.614
-0.098
-0.063
1.177
-0.233
-0.136
-0.584
0.001
0.382
2.893
-0.180
1.024
-0.670
0.059
0.175
0.733
0.687
1.526
1.576
1.964
-0.568
0.055
-0.550
0.162
-0.645
-0.121
-0.120
1.137
-0.328
-0.254
-0.611
-0.060
0.222
3.001
-0.205
1.144
-0.673
0.245
0.196
0.865
0.597
1.443
Sources: WSJ Market Data Group, SIX

Financial Information, Tullett
Sym
Last
AIAGroup
AstellasPharma
AustNZBk
BHP
BankofChina
CKHutchison
CNOOC
Canon
CentralJapanRwy
ChinaConstructnBk
ChinaLifeInsurance
ChinaMobile
CmwlthBkAust
EastJapanRailway
Fanuc
Hitachi
Hon Hai Precisn
HondaMotor
HyundaiMtr
Ind&Comml
JapanTobacco
KDDI
Mitsubishi
MitsubishiUFJFin
Mitsui
Mizuho Fin
NTTDoCoMo
NatAustBnk
NipponStl&SmtmoMtl
NipponTeleg
NissanMotor
NomuraHldgs
Panasonic
PetroChina
PingAnInsofChina
RelianceIndsGDR
RioTinto
SamsungElectronics
Seven&I Hldgs
SoftBankGroup
Sumitomo Mitsui
SunHngKaiPrp
TaiwanSemiMfg
1299
4503
ANZ
BHP
3988
0001
0883
7751
9022
0939
2628
0941
CBA
9020
6954
6501
2317
7267
005380
1398
2914
9433
8058
8306
8031
8411
9437
NAB
5401
9432
7201
8604
6752
0857
2318
RIGD
RIO
005930
3382
9984
8316
0016
2330
49.00
1740.00
25.73
19.24
3.26
91.75
9.26
2862.00
18340
5.35
17.78
97.95
77.59
9159.00
17150
458.70
88.50
2759.50
134000
4.47
4053.00
3157.00
1751.50
512.30
1183.00
165.80
2810.00
26.59
1918.00
4927.00
1000.50
435.30
940.10
5.31
37.05
30.20
49.41
1548000
4267.00
6060.00
3290.00
110.60
176.00
1.98
-2.16
-0.19
-2.19
2.19
1.05
-0.22
-1.72
-3.22
2.88
0.57
2.40
-0.50
-1.91
-2.03
-2.32
-0.34
-2.90
-1.11
1.82
0.15
-1.80
-0.79
-5.93
-1.70
-3.04
0.57
-0.41
-1.08
-1.99
-1.96
-1.74
-0.06
0.95
2.35
0.33
-0.58
-1.28
-0.47
2.19
-4.19
-0.36
-0.56
1.889
2.771
-0.178
0.949
-0.176
0.943
-0.228
0.611
0.094
1.775
0.009
0.410
-0.207
0.825
0.366
2.382
0.117
1.849
-0.399
0.742
0.744
1.903
0.665
2.184
3:30 p.m. New York time
334.25
953.00
401.75
114.750
2,884
141.20
19.04
73.94
1828.00
unch.
-8.50
-4.25
0.150
-42
-2.25
0.23
-0.44
10.00
2.2085
1371.90
20.685
1,653.50
18,000.00
4,924.00
1,843.00
2,276.00
10,775.00
154.20
0.0090
12.30
0.185
25.50
230.00
59.00
45.00
59.00
265.00
0.10
2339.00
39.56
1.2592
1.3093
2.736
41.85
363.75
12.00
-0.50
0.0013
0.0057
-0.035
-0.29
-0.25
unch.
-0.88%
-1.05
0.13%
-1.44
-1.57
1.22
-0.59
0.55
0.41
0.90
0.90
1.57
1.29
1.21
2.50
2.66
2.52
0.06
0.52
-1.25
0.10
0.44
-1.26
-0.69
-0.07
Year
low
449.00
1,186.25
533.75
125.500
3,241
154.80
21.22
75.00
1,866.00
329.00
868.00
399.25
106.950
2,745
117.15
12.92
54.19
1,400.00
2.3295
1,384.40
21.225
1,695.50
18,250.00
5,070.50
1,909.00
2,276.00
10,775.00
159.30
1.9690
1,066.00
13.930
1,451.50
13,225.00
4,320.50
1,598.00
1,467.00
7,750.00
153.00
2,672.00
52.73
1.5985
1.6344
2.9900
53.56
474.50
2,172.00
32.85
0.9858
1.1171
2.0090
31.92
291.50
Cross rates
London close on Aug 2
Australia
USD
1.3148
GBP
1.7522
CHF
1.3628
JPY
0.0130
HKD
0.1694
EUR
1.4758
CDN
1.0043
AUD
...
Canada
1.3090
1.7442
1.3569
0.0130
0.1686
Euro
0.8908
1.1871
0.9235
0.0088
0.1148
1.4693
...
0.9956
...
0.6806
Hong Kong
7.7610
10.3408
8.0450
0.0769
0.6777
...
8.7122
5.9296
5.9038
76.7200
100.8800
134.4200
104.5700
...
12.9980
113.2500
77.0600
Switzerland
0.9647
1.2856
...
0.0096
0.1243
1.0829
0.7370
0.7338
U.K.
0.7505
...
0.7778
0.0074
0.0967
0.8425
0.5734
0.5709
U.S.
...
1.3325
1.0366
0.0099
0.1289
1.1226
0.7640
0.7606
Japan
Source: Tullett Prebon
Sources: Tullett Prebon, WSJ Market Data Group
4 p.m. New York time
% YTD%
Chg Chg
Asia Titans
HK$
AU$
AU$
HK$
HK$
HK$
HK$
HK$
HK$
AU$
TW$
KRW
HK$
AU$
HK$
HK$
$
AU$
KRW
HK$
TW$
Year ago
Sources: SIX Financial Information; WSJ Market Data Group
Middle East/Africa
Bahrain dinar
Egypt pound-a
Israel shekel
Kuwait dinar
Oman sul rial
Qatar rial
Saudi Arabia riyal
South Africa rand
Latest
Top Stock Listings

Latest
Euribor
One month
Three month
Six month
One year
US$vs,
YTDchg
Tue
in US$ per US$ (%)
Bulgaria lev
0.5739 1.7426 3.2
Croatia kuna
0.1498 6.675 4.8
Euro zone euro
1.1226 0.8908 3.3
Czech Rep. koruna-b 0.0415 24.089 3.2
Denmark krone
0.1509 6.6266 3.6
Hungary forint
0.003604 277.50 4.5
Iceland krona
0.008266 120.98 7.1
Norway krone
0.1186 8.4336 4.6
Poland zloty
0.2596 3.8524 1.8
Russia ruble-d
0.01499 66.732 7.2
Sweden krona
0.1175 8.5101 0.8
Switzerland franc
1.0366 0.9647 3.7
Turkey lira
0.3342 2.9919 2.5
Ukraine hryvnia
0.0403 24.8125 3.4
U.K. pound
1.3325 0.7505 10.6
July
Prices of futures contracts with the most open interest
Copper ($/lb.)
Gold ($/troy oz.)
Silver ($/troy oz.)
Aluminum ($/mt)*
Tin ($/mt)*
Copper ($/mt)*
Lead ($/mt)*
Zinc ($/mt)*
Nickel ($/mt)*
Rubber (Y.01/ton)
Europe
Yen
Yield
Corn (cents/bu.)
Soybeans (cents/bu.)
Wheat (cents/bu.)
Live cattle (cents/lb.)
Cocoa ($/ton)
Coffee (cents/lb.)
Sugar (cents/lb.)
Cotton (cents/lb.)
Robusta coffee ($/ton)
1481.22 4.0
5697.90 4.6
3993.67 16.0
24552.47 1.0
28298.13 7.1
20808.69 13.9
3196.66 0.9
2052.77 2.9
9080.71 8.8
US$vs,
YTDchg
Tue
in US$ per US$ (%)
Country/currency
June
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.; MDEX: Bursa Malaysia
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 8/1/2016
Year
One-Day Change
Commodity
Exchange Last price
Net
Percentage
high
London close on Aug. 2
Yen, euro vs. dollar; dollar vs. major U.S. trading partners
Country/
Maturity, in years
3.250
Australia 2
4.250
10
1.250
Belgium 2
1.000
10
1.000
France 2
0.500
10
0.000
Germany 2
0.000
10
0.250
Italy 2
1.600
10
0.100
Japan 2
0.100
10
4.000 Netherlands 2
0.500
10
4.450
Portugal 2
2.875
10
0.250
Spain 2
1.950
10
4.250
Sweden 2
1.000
10
1.250
U.K. 2
2.000
10
0.750
U.S. 2
1.625
10
Source: SIX Financial Information;WSJ Market Data Group
Currencies
May
Latest, month-ago and year-ago yields and spreads over or under U.S. Treasurys on benchmark two-year
and 10-year government bonds around the world. Data as of 3 p.m. ET
18622.01 5.0
5199.13 2.6
2178.29 5.4
53.29 25.4
403.93 8.3
3503.19 9.2
2515.09 9.0
3853.21 9.1
5217.80 6.7
11669.86 5.6
731.18 12.6
28100.59 13.6
1725.04 5.3
23992.48 24.8
504.00 0.7
53694.88 1.2
975.21 19.3
11330.00 13.3
539.07 3.4
9537.90 9.1
54760.91 3.6
86931.34 5.7
6780.05 6.5
Apr.
Global government bonds
524.80 6.5
57729.31 29.6
14622.35 11.2
47785.29 7.7
3243.62 8.1
YTD
% chg
2547.27 2.2
1956.39 2.6
1044.05 10.3
High
1930
July
5.15
0.49
-7.88
7.73
-5.78
-12.12
14.75
-22.12
-15.09
0.75
-29.16
11.94
-9.28
-20.01
-18.64
-33.67
9.53
-29.42
-10.07
-4.49
-9.35
0.10
-13.63
-32.33
-18.16
-31.91
13.12
-11.95
-20.61
1.88
-21.81
-35.90
-24.22
4.32
-13.64
-1.31
10.51
22.86
-23.12
-1.29
-28.57
17.97
23.08
Cur Stock
Sym
Last
HK$
AU$
AU$
AU$
TakedaPharm
TencentHoldings
TokioMarineHldg
ToyotaMtr
Wesfarmers
WestpacBanking
Woolworths
4502
0700
8766
7203
WES
WBC
WOW
4778.00
184.50
3878.00
5696.00
43.01
30.83
23.63
CHF
CHF
CHF
CHF
CHF
DKK
ABB
AXA
AirLiquide
Allianz
Anheuser Busch
AstraZeneca
BASF
BNP Paribas
BT Group
BancoBilVizAr
BancoSantander
Barclays
Bayer
BP
BritishAmTob
FinRichemont
CreditSuisse
Daimler
Deutsche Bank
DeutscheTelekom
Diageo
ENI
GlaxoSmithKline
HSBC Hldgs
INGGroep
ImperialBrands
IntesaSanpaolo
LVMHMoetHennessy
LloydsBankingGroup
LOreal
NationalGrid
Nestle
Novartis
NovoNordiskB
Prudential
ReckittBenckiser
Stoxx 50
ABBN
CS
AI
ALV
ABI
AZN
BAS
BNP
BT.A
BBVA
SAN
BARC
BAYN
BP.
BATS
CFR
CSGN
DAI
DBK
DTE
DGE
ENI
GSK
HSBA
INGA
IMB
ISP
MC
LLOY
OR
NG.
NESN
NOVN
NOVO-B
PRU
RB.
20.39
17.39
91.76
126.70
111.10
5002.00
68.97
41.80
403.60
4.79
3.51
146.00
94.20
413.90
4820.50
56.40
10.46
58.91
11.23
15.18
2145.50
13.13
1690.00
482.80
9.40
4048.00
1.83
149.50
52.73
170.25
1075.00
77.05
79.65
370.50
1312.00
7399.00
% YTD%
Chg Chg Cur Stock
RioTinto
-0.46 -21.22
-1.07 20.83 CHF RocheHldgctf
RoyDtchShell A
-2.39 -17.70
SAP
-1.74 -23.93
Sanofi
0.02
3.36
SchneiderElectric
-0.87 -8.13
Siemens
0.25 -3.55
Telefonica
Total
-1.02 13.53 CHF UBSGroup
Unilever
-3.20 -31.05
Unilever
-1.42 -11.47
VodafoneGroup
-1.09 -22.53
-1.86 -2.88 CHF ZurichInsurance
-1.26
8.35
-1.96 -2.47
AmericanExpress
-4.33 -19.96 $
Apple
-0.92 -14.44 $
Boeing
-4.87 -28.29 $
Caterpillar
-5.32 -23.01 $
$
Chevron
-3.57 -33.30
CiscoSystems
-2.23 -18.65 $
CocaCola
-1.06 16.92 $
Disney
0.46 27.83 $
$
DuPont
-4.33 -21.78
ExxonMobil
-6.19 -51.29 $
GenElec
-2.96 -24.07 $
$
GoldmanSachs
-4.83 -50.12
HomeDepot
-0.69 -8.17 $
Intel
-0.44 15.57 $
IBM
-2.09 -4.86 $
$
JPMorganChase
-0.62 23.09
$
JohnsJohns
-1.28 -9.96
McDonalds
-4.64 -7.30 $
$
Merck
1.73 12.87
$
Microsoft
-3.79 -40.77
$
NikeClB
-2.22
3.17
$
Pfizer
-0.98 -27.84
$
Procter&Gamble
...
9.63
$
3M
-1.42 14.67
$
TravelersCos
-0.84
3.35
$
UnitedTech
-0.81 -8.24
UnitedHealthGroup
$
-2.73 -7.35
$
VISAClA
-1.17 -14.30
$
Verizon
0.65 17.80
$
WalMart
Sym
Last
RIO
ROG
RDSA
SAP
SAN
SU
SIE
TEF
FP
UBSG
UNA
ULVR
VOD
ZURN
2441.50
245.40
1849.00
77.05
73.91
57.97
96.13
8.45
41.47
12.55
41.13
3532.00
226.95
228.90
DJIA
AXP
AAPL
BA
CAT
CVX
CSCO
KO
DIS
DD
XOM
GE
GS
HD
INTC
IBM
JPM
JNJ
MCD
MRK
MSFT
NKE
PFE
PG
MMM
TRV
UTX
UNH
V
VZ
WMT
63.47
104.48
131.60
81.22
99.59
30.62
43.54
95.03
68.72
87.04
31.06
156.05
137.23
34.56
160.57
63.65
124.77
117.70
58.34
56.58
54.92
36.39
86.80
178.35
117.04
106.28
143.18
78.34
54.00
73.12
% YTD%
Chg Chg
-1.79
-0.85
-2.09
-1.73
-3.09
-0.67
-0.85
-3.82
-1.50
-5.99
-0.19
-0.06
-1.30
-1.72
23.34
-11.22
21.17
5.00
-5.97
10.29
6.95
-17.44
2.50
-35.71
2.57
20.69
2.69
-11.42
-1.03 -8.74
-1.48 -0.74
-1.21 -8.98
-0.89 19.51
0.48 10.70
-0.36 12.76
0.21
1.35
-0.53 -9.56
-0.91
3.18
1.37 11.66
-0.29 -0.29
-1.35 -13.42
-1.11
3.77
-0.83
0.32
-0.55 16.68
-0.24 -3.60
-0.50 21.47
-0.26 -0.37
-0.55 10.45
...
1.98
-0.88 -12.13
-2.47 12.73
0.45
9.31
0.03 18.39
0.20
3.70
-0.62 10.63
-0.23 21.71
0.10
1.02
-0.92 16.83
-0.89 19.28
Asia Titans 50
Last: 138.46 t 0.50, or 0.36%
YTD s 1.6%
High
Close
Low
6
May
140
135
130
125
120
115
50day
moving average
t
13
20
27
3
10
June
17
24
1
8
July
15
22
29
Stoxx 50
Last: 2815.83 t 43.30, or 1.51%
YTD t 9.2%
3000
2900
2800
2700
2600
2500
6
May
13
20
27
3
10
June
17
24
1
8
July
15
22
29
Dow Jones Industrial Average
P/E: 20
Last: 18313.77 t 90.74, or 0.49%
YTD s 5.1%
18500
18000
17500
17000
16500
6
May
13
20
27
3
10
June
17
24
Note: Price-to-earnings ratios are for trailing 12 months

Sources: WSJ Market Data Group; Birinyi Associates
1 8
July
15
22
29
INTERNATIONAL PROPERTY: BRAZIL
Rio Projects Fail to Reach the Finish Line

Big plans for privatesector development
in Olympics host city
stall amid corruption
Brazils economy was galloping seven years ago when the

country won the right to host
the 2016 Summer Olympics.
That made it easier for planners to sell a novel idea: using
private real-estate development
opportunities to finance much
of the more than $12 billion it
would cost the nation to put on
the Games.
Seven years later, the strategy is unraveling amid corruption scandals and economic and
political upheaval that has cast
a pall on demand for all types
of real estate in Rio de Janeiro.
With the Games set to start
Friday, analysts say that it is
going to take much longer than
anticipated for the private-sector development to kick in fully,
adding more risk to a project
already racked with problems.
We have a negative outlook
for the real-estate market in
Brazil, said Cristiane Spercel,
an analyst for Moodys Investors Service. And were probably looking at at least another
two years before there are
signs of a positive outlook.
The idea was that private
companies would pay much of
the upfront cost of infrastructure, stadiums and other
needed projectsand in return
would get dozens of acres of
prime residential- and commercial-development sites whose
value would be greatly increased by Olympics-related
building.
But some companies involved in Olympic projects have
gotten caught up in corruption
scandals that have sullied some
of the biggest names in Brazilian politics and business. Earlier this year, for example, Marcelo Odebrecht, former chief
YASUYOSHI CHIBA/AGENCE FRANCE-PRESSE/GETTY IMAGES
BY EMILY NONKO
Scandals and economic upheaval have hurt demand for all types of real estate in Rio de Janeiro.
executive of South Americas
biggest construction company,
Odebrecht SA, was sentenced
to 19 years in prison for his involvement.
A division of Odebrecht is
one of three companies in a
consortiumalong with Grupo
Andrade Gutierrez and developer Carvalho Hoskenthat is
developing the Barra Olympic
Park, where many of the sporting events will take place. Executives of construction company
Andrade Gutierrez also have
been arrested in the probe.
In return for their investment in the Olympic Park, the
consortium is getting adjacent
land to develop 5,000 to 6,000
residential units as well as
commercial and retail space.
Planners consider the land to
be well placed to benefit as Rio
expands to the west.
Two members of that consortium, Odebrecht and Car-
valho Hosken, also built Ilha

Pura, or Pure Island, the Olympic Village near the Olympic
Park. Private demand for condominiums will determine the
success of that 31-tower project, which has come under criticism for electrical and plumbing issues as it has started to
fill up with athletes.
So far sales have been
slower than expected, reflecting the countrys anemic residential real-estate market, analysts say. Prices for the 3,600
apartments range between
750,000 and three million reais
($229,650 to $918,600).
That is not cheap for Brazilians in the midst of a deep
recession, said Randall Loker,
managing director of Paldin Realty Firm LLC, who said it has
become difficult to sell units
above one million reais.
In the period leading up the
Olympics, developers have mar-
keted 600 of 2,600 apartments. About 40% of the 600

units have sold, according to a
statement from Ilha Pura.
As provided for in the planning of Ilha Pura since its inception, the expectation is that
all units will be sold within a
period of up to eight years after
the Games, the company said.
Price cuts might be necessary to hit those targets. According to Moodys, there has
been a 9% drop in asking prices
over the past 12 months, while
sales prices have dropped as
much as 20% from one year
ago.
Officials involved in the
Olympic developments acknowledge sales have been
slow and that the prospect of
new projects anytime soon is
dim. But they predict the projects will be successful in the
long run.
The apartments are very
well located with very good infrastructure, said Marcelo Pedroso, president of the Olympic
Public Authority, which is coordinating the participation of
government agencies in the
games. Even if we are in a little more difficulty in terms of
the economy, as soon as we recover, they are going to increase sales.
Planners long have dreamed
the Olympics would be a game
changer for Rio, known for its
beaches and natural beauty.
City officials often have cited
the 1992 Games in Barcelona as
the spark for a big increase in
tourism and other economic
development in that city.
Rios ambitions stretched beyond the citys Barra da Tijuca
neighborhood, where the Olympic Park and village are located.
Enormous investment has been
pumped into transportation infrastructure projects through-
out the city and in revitalizing

the Porto Maravilhaor Marvelous Portdistrict.
But many of these other
projects also had a big privatesector component that depended largely on the hot realestate market continuing. In
the boom times, we would sell
50% to 100% in the first month
of a launch, Paldins Mr. Loker
said. Thats not the case anymore.
Because the outlook has
soured, developers havent
moved forward with many of
the anticipated private residential and commercial developments. For example, Tishman
Speyer, a big international developer, is waiting for the economy to improve before moving
ahead with two sites that it
owns in the Porto Maravilha
area.
The area will be the future
of the city, said Rob Speyer,
the firms chief executive.
Were going to monitor the
market and make decisions as
the market recovers.
Planners involved in the Rio
Olympics point out that Londons Stratford district that
hosted the 2012 Olympics has
turned into a success story.
That wasnt a sure thing when
it was being developed during
the dark days of the financial
crisis, they say.
At the same time, the large
investment the private sector
already has made in the Olympic projects increases the
chances that future development will take place, some
planners say.
If this were entirely a public sector development, I dont
think it would ever get developed for the next 20 years,
said Bill Hanway, global sports
leader of Aecom, the global
builder and designer that developed the master plan for the
Olympic Park. Its better to
have a public-private partnership where the private sector
has to try and make its money
back.
Hotels Will Be Swimming in Rooms Investors See Gold
In Distressed Deals
BY ROBYN A. FRIEDMAN
BY PETER GRANT
TRUMP HOTELS
With hundreds of thousands

of visitors showing up in Rio de
Janeiro for the 2016 Olympics,
which begin Friday, hotel owners have been dusting off
something they havent used
for some time: their No Vacancy signs.
But those signs will likely go
back into the closet after the
games are over. Brazils hotel
industry has been reeling from
the effects of a prolonged recession, a political crisis and
the outbreak of the Zika virus.
The slump is expected to
continue, at least for the short
term, and hurt the returns of
the investors who have made
big bets on the Brazilian economy and the hoped-for afterglow of the Olympics. Concerns
are being fueled by the large
volume of development still in
the pipeline.
The number of hotel rooms
in Rio increased more than 50%
in the past six years, according
to a recent report by real-estate firm JLL. Despite all positive expectations created in relation to the legacy from the
Olympic Games, there are still
many uncertainties regarding
its actual benefit for the hotel
industry, the report states.
The negative economic scenario added to the crisis in the
oil and gas sectorwill be big
challenges.
About 100 hotels are under
construction in Brazil, with
nearly 18,000 rooms, according
to data firm STR.
Among the new hotels in
Rio: the first Trump-branded
hotel in South America and a
404-room lodging that is adjacent to Barra Olympic Park and
is Marriott International
Inc.s first dual-branded property in Brazil, flying the Courtyard and Residence Inn flags.
Brazil hotel occupancy was
51.6% in the second quarter of
2016, down from 55.9% in the
same quarter of 2015, according to STR. The average daily
rate was down 3.6% to 279.08
reais (about $85), STR said.
To be sure, some analysts
point to positive forces at work
in the Brazilian hotel industry.
The devaluation of the Brazilian real has made lodgings
there more affordable to international travelers while discouraging locals from leaving
the country.
A rendering of the 170-guest-room Trump Hotel Rio de Janeiro

But good deals on rooms
arent enough to remove the
pall on tourism and other
travel from the Zika virus and
Brazils other woes. The hotel
industry has been suffering
quite a lot, said Diego Bufquin,
an assistant professor at Rosen
College of Hospitality Management in Orlando. Our (revenue
per room) has dropped significantly because of this deep recession, and because of the
lack of confidence, everyone is
cutting their budget right now
and not sending executives to
travel.
The number of hotel

rooms in Rio rose
more than 50% in
the past six years.
The countrys economy is
expected to rebound eventually
and, when it does, occupancies
and room rates will likely rise
as the world rediscovers the
countrys weather, culture and
other attractions. Developers
are looking at the medium and
long term because Brazil has
good fundamentals, said Mr.
Bufquin. They are still investing quite a lot of money, but
they will have to be a little patient.
But that isnt much consolation for investors trying to ride
out the current slump. Analysts
are particularly concerned

about the market in Rio de Janeiro because it is dependent
on the countrys ailing oil and
gas industry, according to Gilberto Martins, director of CBRE
Hotels in Brazil.
Today we have some performance issues in most of the
cities, Mr. Martins said.
The outlook for the Brazil
hotel industry was much different in 2009 when Rio was
awarded the games. Indeed,
one of the concerns raised by
the International Olympic Committee before making its choice
was whether the city had
enough hotel rooms.
After the announcement, developers unveiled plans to
build thousands of new rooms.
At the end of 2009, the country
had 201,301 rooms. As of June
2016, there were 235,288
rooms, according to STR.
The 170-guest-room Trump
Hotel Rio de Janeiro was announced in 2014, just as Brazil
entered a recession. It is owned
by LSH Barra SA, of Rio de Janeiro, which licensed the
Trump name from the Trump
Organization, which also is
managing the lodging.
Some hotel companies have
throttled back on their plans.
For example, in 2011, two new
Four Seasons hotels were announced by a venture of Iron
House Real Estate, a subsidiary
of Grupo Cornelio Brennand,
and a subsidiary of the Abu
Dhabi Investment Authority.

Next year, the venture plans
to open the first Four Seasons
Hotel in Brazil, a 254-room
lodging in So Paulo. But it has
decided to postpone the second
project, according to Ruy Rego,
chief executive of Iron House.
We had already acquired
the land [for the So Paulo
project] three years before, and
we didnt see any reason not to
proceed, Mr. Rego said.
Theres no competition from
any other international luxury
brand. We didnt see a reason
to stop.
Analysts say the So Paulo
market is stronger than Rios
because it is driven by business
travelers. So Paulo is the
least-affected market because
the economy is more diversified, plus it didnt have much
supply growth in the last 10
years, said Ricardo Mader,
managing director of the Hotels and Hospitality Group at
JLL.
For the long term, experts
are cautiously optimistic about
the Brazilian hotel market.
The economy is starting to
pick up and show signs of recovery, said Bruno Coelho,
manager of capital markets for
Cushman & Wakefield in So
Paulo. If the political reforms
that are needed are done, people will start to build up confidence. That and the economy
are the major things needed to
keep the market going.
International investors that

have made big bets on Brazilian real estate have no illusions that the Olympic Games
that begin on Friday will do
much to shorten the grueling
marathon the countrys economy is running.
But some say there is one
emerging bright side to Brazils
prolonged recession, corruption
scandals, ailing currency and
political crisis: Distress levels
for some property owners are
reaching the point that they are
selling at steep discounts.
The latest sign of this:
Blackstone Group LP is in talks
with listed real-estate company
JHSF Participacoes to buy a
50% stake in five of the companys malls in a deal that
would value the portfolio at
more than two billion reais
($620 million), according to
people familiar with the matter.
JHSFs shares have been trading at below one real, compared with more than four
reais in 2012 and it has been
under pressure to reduce debt.
Last year, private-equity
firm GTIS Partners took private Brazil Hospitality Group,
one of Brazils largest hotel
owners, in a $400 million tender offer, or about 35% of replacement cost. GTIS took advantage of the companys low
stock price and the pressure it
was under from an activist
shareholder, said Tom Shapiro,
GTIS co-founder and president.
GTIS now is looking to do
deals with capital-starved home
builders who arent able to finish projects because sales have
plummeted.
It takes time [for them] to
realize their problems as we all

know, Mr. Shapiro said. So
its taken time for asset prices
to reset.
Other big international investors that have been active in
Brazil include Brookfield Property Partners LP, Tel Aviv-based
Gazit Global, Tishman Speyer
Properties and Sam Zells Equity International. Executives at
these companies say they expect demand for office buildings, condominiums, stores and
other property to remain weak,
making it tougher in the short
term for foreign investors to
produce the north-of-20% returns expected in the high-risk
world of emerging-market real
estate.
But the current search by
many of these investors for
deals underscores how doubling down plays an important
role in emerging-markets strategies. Building operations in
these countries positions them
to take advantage of the bargains that materialize during
down cycles, they say.
Tishman Speyer, a global investor and developer that has
been in Brazil for two decades,
made some of its most profitable deals in Brazil in 2002 after Luiz Incio Lula da
Silva was elected president
raising concerns about the
countrys economy, according
to Rob Speyer, the firms chief
executive. You have to have
the stomach for moments like
this, he said.
Gazits Brazil unit recently
was able to turn a quick profit
by buying a 5.16% stake in BR
Malls Participacoes SA when
the companys stock bottomed
out last year. Since then BR
Malls shares have risen.
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Bad Timing
For a Wager
On BMW
BMW faces mounting
costs just as the car market
is weakening. Best not to bet
on a rebound in its shares
however cheap they look.
The Bavarian car maker
published record secondquarter profit Tuesday, but
its shares fell 2.2%. After
stellar numbers from Daimler, investors were underwhelmed by its rivals more
modest beat. The bigger picture is that BMW is having to
spend heavily to compete
with Tesla and Google, just
as the consumer buying cycle
hits an inflection point.
Staff numbers at the end
of June were 3.4% higher
than a year earlier, after the
company hired software developers and other digital
technicians. Last month,
BMW also signed a deal with
Mobileye and Intel to create
an open platform for autonomous vehicles.
Meanwhile, growth in the
crucial U.S. market slowed to
just 1.4% in the first half.
BMW itself sold 10% fewer
cars than in the year-ago period at slightly cheaper prices.
It expects a flat second half.
Still-booming sales in Europe and China more than
made up for lost U.S. ground.
Surprisingly, management
also reported no weakness in
U.K. sales after Junes Brexit
vote. But Chinas volatility
and Europes tendency to follow U.S. trends make investors understandably nervous.
BMWs shares trade at just
eight times forward earnings.
Eventually, new ownership
models for all-autonomous
cars may free manufacturers
from the whims of consumers. That hope looks closer to
reality at BMW than at other
European car makers. But it
is still well beyond the horizon of even the most longterm stock investors.
Stephen Wilmot
HEARD ON THE STREET

FINANCIAL ANALYSIS & COMMENTARY
WSJ.com/Heard
Bonds in Japan: Reason to Worry

Reminder: Bond yields can
rise as well as fall. A glance
at Japan should give investors who have reveled in this
years bond rally pause.
More testing times could lie
ahead.
In the space of less than a
week, 10-year Japanese government-bond yields have
surged higher. Last Wednesday, they stood at minus0.29%; on Tuesday, they
closed at minus-0.06%, having come close to zero, as a
poorly received auction
added to the disappointment
following the Bank of
Japans failure last week to
deliver a monetary big bang.
The move could yet be
contained to Japan; the bond
market there is dominated by
domestic players and tends
to move to the beat of its
own drum. So far, U.S. Treasurys and German bunds havent moved in a similarly violent way, although yields
have risen modestly. In Europe in particular, the effect
of European Central Bank
bond purchases is likely
weighing on long-dated bond
Backing Up
10-year Japanese government
bond yield
0.4%
0.2
0
0.2
0.4
J
M J
YOSHIO TSUNODA/ZUMA PRESS
Email: heard@wsj.com
Japanese Prime Minister

Shinzo Abe
yields; that in turn may help

keep a cap on U.S. yields,
with Germany acting as an
anchor. But rising Japanese
yields could yet make foreign
bonds less attractive to Japanese investors, removing a
support.
A clash of forces is building, however, as questions
arise about whether monetary-policy makers are running short of options; increasingly, markets have
been underwhelmed by the

outcome of central-bank decisions. This weeks Bank of
England meeting could be
telling; while Brexit is a local
economic shock, not a global
one, the central banks response will have wider resonance in showing how much
room for maneuvering policy
makers have.
Moreover, a debate about
making greater use of fiscal
policy is gathering steam.
Source: Tullett Prebon
OVERHEARD
That would be bearish for

bonds. Japans new 28 trillion ($273.5 billion) stimulus
package, approved by the
cabinet Tuesday, is a case in
point, although it isnt seen
as a game changer for the
countrys economynor
likely for bond yields, as details of the plan had leaked
before yields started moving.
At the same time, jitters
persist about the global economy. Oil prices entered a
bear market Monday, and
central bankers may be worrying about continued low inflation. That would require a
further policy response, the
expectation of which would
at least initially support bond
prices.
The problem is that the
bond market is already deep
into uncharted territory, with
negative yields abounding
and some governments being
paid outright to borrow.
Even those investors who
have called the market right
so far cant afford to feel
comfortable in this environment.
Richard Barley
The gains in equities over

the bull market of the past
seven-plus years have been,
for lack of a better word,
yuge.
But now, two unlikely
sources agree that the next
few months look less auspicious. Speaking with Fox
Business Networks Stuart
Varney, Republican presidential candidate Donald Trump
said that he had been invested in stocks but got out
with very good timing.
The latter depends on
what happens next, of course,
and Mr. Trump isnt shy
about prognostication.
I dont like a lot of the
signs that Im seeing, he
said.
But what about after he is
elected? Its going to be
great.
Strategists at investment
bank Goldman Sachs Group
are similarly downbeat in the
short run.
They downgraded their
view on equities and expect
the main U.S. and European
indexes to fall by about 10%
in the next three months.
That sounds awfully specific, so what happens in November? The U.S. election, of
course.
Goldman cites many reasons for overweighting cash,
which yields nothing or even
less than nothing these days.
Those include poor earnings,
high valuations, fading postBrexit momentum, weak
macroeconomic fundamentals
and fears about the sustainability of Chinese stimulus.
One risk factor they dont
cite, though, is uncertainty
over the big decision in November over who will lead
the free world, Hillary Clinton
or Mr. Trump.
And their reason for everything suddenly being OK in
three months? They are a bit
vague, but a Trump victory
wasnt cited as a catalyst for
stocks. Sad.
overheard@wsj.com
Big Tokyo Banks Show Glimmer of False Hope

Japans banks have found
an oasis in a negative-interest-rate world. But it might
just turn into a mirage.
The Bank of Japan gave
the countrys biggest banks
a reprieve last week when it
elected not to push further
into negative rates. Otherwise dismal results from the
three largest lenders, meanwhile, showed surprising resilience in their trading
business, even as profits
shrank. But this boost from
trading wont last.
Banks trading income
was generated by selling
down a dwindling portfolio
of Japanese government
bonds. Banking units of
Japans largest financial
group, Mitsubishi UFJ Fi-
nancial Group, posted a

more than twofold rise in
trading profits last quarter,
for instance. At Mizuho, net
trading profits were up
more than 100%. It helped
that negative yields on JGBs
made them some of the topperforming assets globally
this year on a total return
basis.
But the supply of bonds
to sell isnt limitless. As the
BOJ vacuums them up,
there are simply less to
trade. At Mizuho, for instance, the 10.5 trillion
($102.9 billion) Japanese
government-bond portfolio
has shrunk 52% since March
2014. And MUFGs banking
unit, Bank of Tokyo-Mitsubishi UFJ, last month quit its
role as a primary dealer of

JGBs, seeing the writing on
the wall.
Generating profits from
volatile capital markets
doesnt change the longstanding predicament of
Japanese banks, including
thinning spreads and falling
returns. These havent
changed. Maneuvers like
lending more overseas as
domestic loan demand
wanes arent helping much
either.
Meanwhile, Japans banks
are sitting on almost 7
trillion of legacy crossshareholdings in Japanese
companies. Late last year,
they unveiled plans to cut
these holdings as part of
Japans corporate-gover-
nance reforma good thing

for banks too, because it
creates more durable capital.
The stock sales were also
expected to cushion the impending hit from negative
interest rates. With the Nikkei at roughly 16600 as of
Mondays close, Japans five
largest banks could stand to
gain between 5 trillion and
6 trillion on these holdings, if sold. But the process
of selling large stakes has
proven cumbersome. Mizuho has sold only 11% of its
fiscal-year 2017 target in
cross-shareholdings.
Even at 0.6 times book
value, it is hard to argue
Japans banks are a bargain.
Anjani Trivedi
FINANCE & MARKETS
Santander Bids for RBSs Split Shakes Ethereum Market

Williams & Glyn Division
BY MAX COLCHESTER
SIMON DAWSON/BLOOMBERG NEWS
Santander UK has made an

offer to acquire Royal Bank of
Scotland Group PLCs Williams & Glyn unit, pouncing as
the British bank struggles to
unload the retail business
ahead of a 2017 deadline, according to people familiar
with the matter.
Following its government
bailout, RBS is required under
European Union state-aid rules
to spin off 314 branches. These
have been regrouped under
the brand Williams & Glyn and
need to be disposed of by the
end of next year.
The exact details of the deal

remain unclear, and people
close to the process warned
that the sale could still fall
apart.
For Banco Santander SAs
U.K. unit, Williams & Glyn
could help bolster its presence
in corporate lending to small
British businesses. For RBS, a
deal could solve an expensive
problem: how to carve out a
new bank from its existing operations.
The Williams & Glyn separation has been dogged with
technology problems and delays. RBS, which is 73% owned
by the British government,
RBS has a 2017 EU deadline to sell its Williams & Glyn unit.
Finance
Watch
INTESA SANPAOLO
Bad-Debt Provisions
Cut Into Earnings
Italian lender Intesa Sanpaolo SpA said its second-quarter net profit dropped slightly,
mainly due to higher loan-loss
provisions that were only par-
tially offset by a one-off capital

gain and a lower tax bill.
Net profit slipped to 901
million ($1.01 billion) from 940
million in the year-ago quarter.
Revenue rose to 4.61 billion
from 4.51 billion.
Intesas provisions for bad
loans rose 9% to 923 million, or
one-fifth of its revenue, compared with the same period of
last year.
The bank recorded a capital
gain of 170 million on the sale
of its stake in Visa Europe. Its
quarterly tax bill dropped by
about one-third to 340 million.
Giovanni Legorano
said earlier this year that

there was a significant risk
it couldnt spin off the
branches by that deadline,
making an initial public offering of Williams & Glyn look
unlikely.
RBS has since been exploring other ways of shedding the
branches. These include going
down the route Lloyds Banking Group PLC chose when it
also had to meet similar EU
requirements. Lloyds created a
new bank, TSB, but didnt
move all its computer systems
onto a new platform. Many of
TSBs operations use Lloydss
technology. The Santander
deal could be structured in a
similar way.
However, RBS has been
here before. A plan to sell the
branches to Santander in 2012
fell through amid concerns
about the banks technology.
Today, RBS has 5,000 staff
working on the process of separating the bank. Williams &
Glyn still doesnt have its own
banking license.
Santander has been circling
the unit for some time. Bankers
say that a slew of smaller challenger U.K. banks could merge
as they seek to weather the
fallout from Brexit and boost
market share. Santander UK
isnt the only finance company
looking at the Williams & Glyn
unit, according to one person
familiar with the matter.
PROPERTY
U.S. REITs Drop Deal

New York REIT Inc. and JBG
Cos. said the two companies
would call off a planned merger
and New York REIT would move
to sell off its own assets after
the deal failed to gain support
with shareholders. The deal between the two real-estate trusts
was announced in May.
The companies said that after talking to shareholders, it became clear it made sense to terminate the deal rather than hold
a formal shareholder vote.
Austen Hufford
The new digital currency

ethereum is only about three
years old, but after a contentious software upgrade, it already has split in two.
After the forking of the
cryptocurrency was carried
out July 20 to undo a hack in
June that led to the theft of
$60
million
worth
of
ethereum, some developers of
the currency fought back by
essentially ignoring the fork,
not updating their software
and maintaining the older version.
The new name of the older
version: ethereum classic. The
somewhat confounding result
is that two virtually identical
versions of the same cryptocurrency exist, with one significant difference.
A high-profile theft in June
involving ethereum, a bitcoinlike digital platform, led to the
decision to rewrite the software so that the theft didnt
exist. Users were given a
choice of whether or not to
upgrade their software via a
hard fork; in this new version, the transactions would
be erased and the money returned.
Most adopted the fork. But
a minority, driven by a philosophical disagreement, didnt,
choosing to work with the old
software. Now, that nonforked version is gaining support through a rising price and
more adoption on trading platforms, leaving two versions of
ethereum that are identical in
every respect save one. In one
version, the theft doesnt exist. In the other, it does.
The reputation of a much-
Advertisement
JAN HAAS/DPA/ZUMA PRESS
BY PAUL VIGNA
Barry Silbert
hyped bitcoin alternative rests
on how quickly this schism is
resolved. The value of the nonforked version, Ethereum Classic, has been extremely volatile, falling by nearly 90% one
day and rising more than
200% another. It closed last
week around $1.64, and on
Tuesday was up 49% at $3.19.
By comparison, the forked
Ethereum traded at about
$9.61 on Tuesday afternoon,
down 16%, with an overall
market value of about $800
billion, according to the website Crypto-Currency Market
Capitalizations.
A more telling statistic in
this new civil war: The volume
of ethereum classic traded on
Monday was higher than the
volume of ethereum traded,
even if the hash rate, a measure of the computing power
on the network, is far higher
for ethereum than for classic.
It is still a thin market, but the
trading volume is a sign that
for now, at least, there is a
market for classic.
One bitcoin investor, Barry
Silbert, announced on Twitter

last week that he had invested
an undisclosed amount in
ethereum classic, his first nonbitcoin cryptocurrency investment. He didnt state his rationale exactly but did clarify it
was an investment and not a
trading position.
Many in the ethereum
community opposed the hard
fork, said Arthur Hayes, chief
executive of digital exchange
BitMex, which also is supporting classic, even offering option trading on the currency as
well. These traders will place
ideology ahead of profits, and
that is very positive for the
staying power of [classic].
Another exchange, Shapeshift, was supporting classic,
too. The decision to do so, said
Shapeshift CEO Erik Voorhees,
is purely market driven.
He said he thinks that
within a few weeks or a
month, one version of
ethereum will overtake the
other.
We dont expect that both
of the assets will persist indefinitely, he said. Until its settled we should probably trade
them both. Still, he acknowledged it was a tricky and unusual situation. Theres not a
lot of precedent for this.
The decision to revise the
history of ethereum trading
has split people who trade the
currency and who designed it
to encourage open technology
ledgers in a number of industries.
The Ethereum Foundation
itself said, in a blog post, that
it isnt opposed to alternative
versions of its software, but it
would support only the forked
version.
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COMPANIES RETHINK HOW

The Donald J. Trump

WEDNESDAY, AUGUST 3, 2016 ~ VOL. XXXIV NO. 129

NASDAQ 5137.73 g 0.90%

NIKKEI 16391.45 g 1.47%

STOXX 600 335.47 g 1.29%

BRENT 41.80 g 0.81%

Mourners Honor Slain French Priest

ig U.S. firms reported

Japans cabinet approved

GM, Ford and Toyota reported lower U.S. sales in

3.20; CHF5.50; 2.00;

s Copyright 2016 Dow Jones &

Japan Refires Stimulus Gun

to jump-start the nations

South Africa has trailed overall

BY PATRICK MCGROARTY AND JOE PARKINSON

BOE may resume bond buying,

Procter & Gamble says

many benefits from more than

SOUTH AFRICAN SCHOOLS FADE

Below the Curve

projects, such as upgrading

Americas biggest companies logged a fourth straight

Source: International Monetary Fund

THE WALL STREET JOURNAL.

Nice Cargo Shorts! Youll Be

Fans of the roomy summer staple meet

Relationships around the

J. SCOTT APPLEWHITE/ASSOCIATED PRESS

The U.K. housing market

MICHEL EULER/ASSOCIATED PRESS

A U.K. regulator proposed

EURO 1.1226 0.56%

Business & Finance

Biogen has drawn takeover interest from drug

Tourism Flags in Rio Ahead of Games

pics, including Athens, Atlanta, Barcelona and Seoul,

THE WALL STREET JOURNAL.

A2 | Wednesday, August 3, 2016

Xi Enforces Partys Version of History

FIVE HEROES VILLAGE,

JOSH CHIN/THE WALL STREET JOURNAL

Try, Try Again

Direct scal spending

Note: 1 trillion = $9.84 billion

THE WALL STREET JOURNAL.

tory as a conspiracy. Now

claims that the five soldiers

Year-over-year change in earnings

since third-quarter 2013,

by the Japan Center for Economic Research. The figure is

democracy protests and the

In the past, you didnt

ing the strongest growth

est quarter, cutting into customer traffic and ending the

for many economists that it

included interest-free loans

THE WALL STREET JOURNAL.

Thorold Barker, Editor, Europe

NEED ASSISTANCE WITH

Wednesday, August 3, 2016 | A3