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The Wall Street Journal November 20 2017

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For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
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MONDAY, NOVEMBER 20, 2017 ~ VOL. CCLXX NO. 120
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Zimbabwe’s Leader Defies Expectations and Clings to Power
What’s
News
GE Board
Takes Hit
As Firm
Rebuilds
Business & Finance
shakeout at General
Electric will claim half
of the directors, aiming to
create a board that is more
closely aligned with CEO
Flannery’s strategy. A1
A
BY JOANN S. LUBLIN
AND THOMAS GRYTA
A housecleaning at General
Electric Co.’s board will remove many long-term associates of former Chief Executive
Jeff Immelt and aims to create
a board that is more closely
aligned with CEO John Flannery’s strategy to streamline
the industrial giant.
The unusual shakeout, which
will claim half of GE’s 18 directors and add three new ones to
form a 12-member board, shows
the depths of the problems that
developed on the board’s watch.
Last week, Mr. Flannery said he
wanted a smaller board “with
some new members with key
skills relative to where the company is going.”
The board hasn’t decided
which incumbents will lose
their seats. In recent years,
the board added the CEOs of
Verizon Communications Inc.
and Qualcomm Inc., a former
chair of the Securities and Exchange Commission and the
dean of New York University’s
business school.
Global corporate icons like
GE
represent
attractive
perches for potential directors. But shares of the onetime
industrial bellwether have
plunged 42% this year. Last
week, the company slashed
profit targets and cut its dividend by half, prompting investors and analysts alike to
question the board’s oversight
of management as the company lost its way.
“The fact that the board got
us to this point, where in an
industrial/macro upcycle the
company can’t meet its financial ‘obligations,’ is rather astounding,” said Scott Davis, an
analyst at Melius Research.
Mr. Flannery, who took over
Please see GE page A2
Marvell Technology is
close to a deal to acquire
chip maker Cavium for
about $6 billion. B1
Maria Contreras-Sweet
who led the SBA under
Obama, submitted an offer
to acquire Weinstein Co. B3
Outcome Health, facing
fraud allegations, took
steps to cut staff, offering
voluntary buyouts. B3
Toshiba said it would
raise $5.3 billion, to avoid a
delisting from the Tokyo
Stock Exchange if the sale of
its chip unit is delayed. B4
Jacob Lew is joining
Lindsay Goldberg, adding
to the list of high-ranking
government officials entering private equity. B3
UNCERTAINTY RULES: Zimbabweans in the capital Harare on Sunday watched a televised address to the nation by embattled President
Robert Mugabe. He was widely expected to relinquish his 37-year reign but didn’t, extending the turmoil in the African country. A7
German Coalition Bid Fails
Pro-business party’s
pullout from three-way
talks clouds future of
Europe’s top economy
BY ANDREA THOMAS
Dallas Cowboys owner
Jones sparred with NFL
partners, escalating a feud
over a proposed contract
extension for Goodell. B6
World-Wide
The U.S. is adding hurdles to the employment-visa
application process, making
it harder for businesses to
hire foreign workers, including highly skilled applicants
in the H-1B program. A1
In a blow to Merkel,
negotiations to form a coalition government collapsed in Germany. A1
BERLIN—Negotiations to
form the German government
broke down, dealing a blow to
Chancellor Angela Merkel and
throwing the leadership and
direction of Europe’s largest
economy into doubt.
Late Sunday, Christian
Lindner, chairman of the
small, pro-business Free Dem-
Markets, Economies in Disconnect
The stock markets of developed countries have powered higher even
as their economies struggled. In contrast, emerging-market economies
have grown dramatically but their stock markets have been dismal. A2
Change since the end of 2007
Real GDP
BY LAURA MECKLER
WASHINGTON—The Trump
administration is adding hurdles and increasing scrutiny in
the employment-visa application process, making it harder
for businesses to hire foreign
workers, and companies and
immigration attorneys are bracing for more changes soon.
President Donald Trump has
long campaigned against illegal
immigration, but he also backs
reductions to legal immigration,
arguing that foreigners provide
unneeded competition for
Americans. So far, the administration hasn’t enacted wholesale policy changes to the em-
Moore is relying on evangelical Christians to keep his
Senate campaign afloat in
Alabama, after allegations of
sexual misconduct. A3
U.K.
Japan
Canada
House Minority Whip
Hoyer began a series of trips
to districts Democrats must
carry if his party hopes to
win back the majority. A4
Sen. Collins listed concerns she had with the
Republican tax bill, raising pressure on party
leaders to make changes
to secure passage. A4
Italy is struggling to
integrate migrants, as
150,000 people have won
refugee status and another 155,000 asylum applications are pending. A8
The White House declined a proposal to jointly
announce Xi’s plan to widen
foreign firms’ access to
China’s financial industry,
reflecting a shift in the
countries’ relationship. A6
Hariri promised to return to Lebanon to explain
his decision to resign as
prime minister. A9
Markets Digest..... B8
Opinion.............. A15-17
Sports....................... A14
Technology............... B4
U.S. News............. A2-4
Weather................... A14
World News......... A6-9
>
Brazil
France
China
Russia
–50%
25
0
25
50
75
100
Source: Brookings Institution Global Economy and Development Program
A Chinese
Conglomerate’s Fall
From Favor
INSIDE
The global ascent of HNA Group is drawing
the scrutiny of regulators and Wall Street
WHEN YOUR
APPLIANCES
TALK BACK
BY ANJANI TRIVEDI
AND JULIE STEINBERG
In the summer of 2016,
Adam Tan, chief executive of
China’s HNA Group Co., told
an adviser he thought the
conglomerate was growing
too quickly. After an acquisition tear that vaulted HNA
into the top tier of global
buyers, it needed to digest
its new holdings, he said, according to a person familiar
with the conversation.
Mr. Tan didn’t take his
own advice and today HNA
is paying the price. Instead
of retrenching, he accelerated HNA’s shopping, including investments in Deutsche
Bank AG, the Hilton hotel
chain and SkyBridge Capital,
the investment firm of the
onetime White House communications chief Anthony
Scaramucci. Between early
2015 and October, HNA had
announced over 80 deals totaling more than $40 billion.
HNA’s ascent and ambition—it has sought comparisons to Warren Buffett’s
Berkshire Hathaway, people
familiar with the company
say—is now drawing the scrutiny of regulators and Wall
Street, and the conglomerate’s expansion has hit a wall.
Some U.S. banks have
Please see HNA page A10
U.S. looks to toughen policy
on China........................................ A6
decision to pull out.
“This will be blamed on Ms.
Merkel—among others—because her negotiating skills
weren’t good enough for the
first time,” said Jürgen W. Falter, a retired politics professor.
“But this won’t yet automatically be her end.…There is nobody else in the conservative
party who could be nominated.”
Without a fallback alliance,
Ms. Merkel is running out of
options to form a stable government despite her winning
the September election, albeit
with an underwhelming result.
These options could include
Please see TALKS page A8
U.S. Tightens Scrutiny
For Skilled-Worker Visas
Germany
India
s Copyright 2017 Dow Jones &
Company. All Rights Reserved
Stock market
to ruling coalitions, compromise-making and consensusbuilding—has thrown Ms.
Merkel’s fourth term into
question, although analysts
said none of Germany’s parties
had an obvious contender to
assume her mantle.
Speaking after Mr. Lindner’s
departure, Ms. Merkel said, “I
assure you: As German chancellor, as acting chancellor I
will do all I can to ensure this
country is led well through the
difficult weeks ahead.”
Both the conservatives and
the Greens said a deal had been
within reach and expressed regret over the Free Democrats’
U.S.
Zimbabwe’s Mugabe
defied expectations that
he would announce his
resignation in a live television address. A7
CONTENTS
Business News... B3,6
Crossword.............. A14
Heard on Street... B11
Journal Report.. R1-14
Life & Arts....... A11-13
Markets................... B10
ocratic Party, broke off talks
with Ms. Merkel’s conservative
camp and the center-left
Greens, saying four weeks of
discussions and extended
deadlines had failed to yield
the vision and necessary trust
to build a government among
the three partners.
The collapse of talks leaves
Germany with a caretaker government and Ms. Merkel without a majority in Parliament
almost two months after a
general election that gave her
Christian Democratic Union its
worst result since 1949.
The political gridlock—a
novelty in a country long used
ployment-visa
programs.
Congress hasn’t enacted any
new limits or changes either.
But the administration has
tightened the system in ways
that are making it tougher to
import foreign workers.
The administration is more
closely scrutinizing applications
for the high-skilled visa program known as H-1B, sending
back more than one in four applications between January and
August via “requests for further
evidence,” according to data
from U.S. Citizenship and Immigration Services, known as USCIS, which administers the program. A year earlier, fewer than
one in five were sent back.
The H-1B visas are heavily
used by technology companies,
including outsourcing firms.
Businesses argue they need the
visas to fill critical jobs while
critics say they displace American workers.
H-1B applications for positions at the lowest pay level are
getting particular scrutiny, with
the government questioning
whether the foreigner holds required specialized skills, according to several immigration attorneys. A directive from the
agency specifically questions
whether a computer programmer is a specialty occupation
that qualifies for the visa. Many
Please see VISAS page A4
Honk If You Know Turkey’s Rules
Regarding Car Window Tinting
i
i
i
Drivers thought for a while the ban was
lifted; the country’s president weighs in
LIFE & ARTS, A11
AGENCE FRANCE-PRESSE/GETTY IMAGES (TOP)
Oil companies and auto
makers are teaming up to
preserve the internal combustion engine by turning
to high-tech engine oil. B1
BEN CURTIS/ASSOCIATED PRESS
Money managers are
sometimes misrepresenting ratings from Morningstar in advertisements
aimed at investors. B1
Investment firms are
snapping up stock in some
of the most highly valued
startups by buying positions from early shareholders in private sales. B1
YEN 112.11
CEO COUNCIL:
THE AGENDA
FOR BUSINESS
JOURNAL REPORT, R1-14
BY DAVID GAUTHIER-VILLARS
work.
Late last month, though,
ISTANBUL—Turkish motor- the same Science Ministry anists saw light at the end of a nounced the ban was actually
long tunnel last year when the in force, citing complaints by
nation’s Science, Industry and police that tinted windows
Technology Ministry seem- pose a serious security threat.
ingly lifted a two-decade ban Since July 2016’s failed milion tinted car
tary coup, Turwindows. Like
key is governed
curtains in a
under
state
house,
Turks
emergency rule.
say, dark car
Afraid of bewindows help
ing caught on
create muchthe wrong side
Tinted windows
wanted privacy.
of the law—the
Among them, Osman Özen penalty on illegal tinted winhad rushed to a car shop to dows stands at 427 lira—Mr.
have dark film applied on the Özen rushed back to a car
side and rear windows of his shop on the northern edge of
BMW 520i. “It was for my Istanbul, where he paid 150
mother, to avoid harassment lira to have the tint removed.
when she uses the car,” said
“What a waste of time and
the 21-year-old university money,” he said.
student, adding he had paid
His recriminations, and
Please see TINTED page A10
300 Turkish lira ($78) for the
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A2 | Monday, November 20, 2017
* ***
THE WALL STREET JOURNAL.
U.S. NEWS
THE OUTLOOK | By Josh Zumbrun
There’s
something
about economic growth
and stock
markets,
across the developed and
emerging world, that doesn’t
add up.
For most of the past decade, the stock markets of developed countries have powered higher even as their
economies struggled with
sluggish growth.
By contrast, emerging-market economies have grown
dramatically, but their stock
markets have been dismal.
“It’s difficult to imagine a
very large and persistent disconnect between equity markets and the real economy
continuing indefinitely,” said
Eswar Prasad, a senior fellow
at the Brookings Institution.
T
o contemplate the extent of this disconnect,
Mr. Prasad and his colleague Karim Foda of the
Brookings Institution’s Global
Economy and Development
program compared the
growth and market performances of the major advanced economies with those
of the largest emerging markets.
Think of it as the major
G-7 economies (U.S., U.K.,
Canada, Japan, Germany, Italy
and France) vs. the BRICs
(Brazil, Russia, India and
China).
U.S. stocks have climbed
76% over the past decade,
outperforming India’s market
by more than 10 percentage
points, the Brookings program
calculated. Over that same period, India’s economy grew
89% vs. just 14% for the U.S.
REUTERS
Economic and Equities Trends Diverge
Stock markets have struggled in developing nations such as China, above, as their economies boomed.
Over the past decade,
China’s economy has more
than doubled in size while its
market has declined 35%.
Not all emerging markets
have posted such rapid
growth. Russia’s economy, for
example, has grown just 6.5%,
barely faster than Japan. But
despite posting slightly better
growth, Russia’s markets are
down 50% while Japan’s are
up by 46%.
This observation is true
whether focused on the biggest emerging markets, or on
all emerging markets collectively. Over the past decade,
emerging-market economies
have nearly doubled in size,
growing at an annualized rate
of 6.6%, according to data
from the International Monetary Fund.
The MSCI Emerging Market stock index has climbed at
an annualized rate of just
0.6% over that same decade.
Individual markets and
economies have their stories.
China’s economy has been
slowing, a disappointment to
some investors. Brazil and
Russia had recessions driven
by a drop in commodity
prices. On the other hand, developed countries have held
interest rates near zero and
their central banks have
flooded their economies with
money to spur growth.
Generally speaking, the developed countries have aging
demographics and slow productivity growth, while the
emerging world has younger
populations and can post
faster productivity growth
simply by copying wealthier
countries.
Some of the disconnect is
likely natural. “Emerging-
market equities rarely outpace developed-market equities to the extent one might
expect when looking at the
markedly superior economic
growth rate among emerging
economies,” said Eric Lascelles, chief economist of RBC
Global Asset Management.
M
r. Lascelles sees a
handful of reasons a
sizable gap could persist. First, emerging markets,
in general, have more meddlesome governments and
worse corporate governance,
he said, which could result in
less of their economic growth
benefiting investors in those
economies. Secondly, the
stock markets in the major
developed economies are full
of companies that operate
globally, and thus can still
benefit substantially from
U.S. WATCH
Trump: Should Have
Left Students in Jail
FLORIDA
Official Seeks Added
Election Safeguards
Calling it a “growing threat”
to Florida’s election systems,
Gov. Rick Scott and state election officials want to spend
more than $2 million in the coming year on cybersecurity.
Mr. Scott, a Republican, included the request in budget
recommendations he gave to the
Florida Legislature last week.
The Department of State,
which oversees the state’s elections office, wants to create a
new cybersecurity unit. The governor also is asking that legislators set aside $1.9 million in
grants for the state’s 67 local
election supervisors.
—Associated Press
TUESDAY: The National Association of Realtors reports
U.S. existing-home sales for
October. In September, sales of
previously owned homes declined on an annual basis for the
first time since July 2016, falling
1.5% from a year earlier. On a
monthly basis, September existing-home sales edged up by
0.7%, an uptick largely due to a
rebound in Houston home sales
following a sharp drop in the
wake of Hurricane Harvey.
WEDNESDAY: Rising consumer confidence in Europe has
been one of the driving forces
behind the eurozone’s strengthening economic recovery during
2017, and that is expected to
continue into November as seen
by the European Commission’s
measure of household sentiment.
U.K. Treasury chief Philip
Hammond presents his latest
tax and spending plans in a
twice-yearly budget statement
to Parliament.
The Commerce Department
releases October orders for U.S.
durable goods. New orders for
products designed to last at
least three years rose a seasonally adjusted 2% in September
from a month earlier, according
to revised figures.Economists
surveyed by The Wall Street
Journal believe orders rose 0.2%
in October.
The Federal Reserve releases
minutes from its Oct. 31-Nov. 1
meeting. Markets are expecting
a December interest-rate increase. The minutes could offer
clues about the path for interest
rates in 2018.
THURSDAY: The first measure of eurozone economic activity to become available for
November, IHS Markit’s composite purchasing managers index,
is expected to show the region’s
economy remains on course for
its strongest year since 2007.
Border Agent
Killed in Texas
POLITICS
BY ESTHER FUNG
JOHN MOORE/GETTY IMAGES
President Donald Trump on
Sunday said he should have left
three college basketball players
in a Chinese jail, after the father
of one minimized his role in securing their release.
“Now that the three basketball
players are out of China and
saved from years in jail, LaVar
Ball, the father of LiAngelo, is unaccepting of what I did for his
son and that shoplifting is no big
deal,” Mr. Trump wrote in a tweet.
“I should have left them in jail!”
Three University of California,
Los Angeles basketball players
were freed from custody in
China last week after being accused of shoplifting. Mr. Trump
said he intervened to secure
their release and later said they
should thank him.
On Friday, the elder Mr. Ball
played down Mr. Trump’s role, in
an interview on ESPN, saying
“Everybody wants to make it
seem like he helped me out.” He
added, “I’ve seen a lot worse
things happen than a guy taking
some glasses.”
The players—LiAngelo Ball,
Jalen Hill and Cody Riley—have
apologized for their conduct on
the team trip and thanked U.S.
and Chinese authorities. “To President Trump and our government:
thank you for taking the time to
intervene on our behalf,” Mr. Riley
said at UCLA last Wednesday.
The next day, Mr. Trump replied on Twitter: “You’re welcome” and encouraged the players to take care to avoid the
“many pitfalls on the long and
winding road of life.”
—Gabriel T. Rubin
emerging-market growth.
Stock markets can run for
years—perhaps very many
years—disconnected from
economic fundamentals. But
ultimately, the overall profitability of equity markets must
have some tie to economic
growth. There must be more
real income, somewhere in
the economy, for customers
to buy products.
The difference in economic
growth is expected to continue. Over the next five
years, emerging-market economies are forecast to grow an
additional 44% vs. just under
20% for advanced economies.
Five years from now, in 2022,
the IMF forecasts emerging
markets will eclipse the G-7
economies in overall size.
Broadly speaking, there are
four ways the current paradox could be resolved.
Developed economies could
accelerate much more than
anyone expects, helping to
justify their buoyant markets.
Or developed markets could
come down, better aligning
with their growth. Emerging
markets could also slow more
than anyone currently expects, so their stock valuations look more justified. Or
emerging-market stocks could
boom, better aligning with
their generally robust growth.
Some combination of all
four things could happen. The
only thing that looks unlikely
is for the current dynamic to
continue indefinitely.
“Things that cannot be
sustained will eventually
end,” Mr. Prasad said, “and
the concern with financial
markets is that adjustments
happen not gradually, but
very rapidly, and in a way
that creates turmoil.”
ECONOMIC
CALENDAR
A stretch of open road in the Big Bend region of southwestern Texas, near Terlingua.
GE
Continued from Page One
as CEO on Aug. 1 and chairman on Oct. 2, said he expects
executives and directors to debate and challenge his decisions.
“The same culture I want to
have inside the company, I
want to have that on the
board as well,” he said at an
investor conference Wednesday.
Boards rarely go through an
overhaul except after a proxy
fight or merger, and even
then, most directors typically
keep their seats. About half of
S&P 500 companies didn’t appoint a new director this year,
according to a 2017 proxy
analysis by Spencer Stuart, an
executive-search firm.
“It’s highly unusual even for
a few directors to depart at a
given time,” said Dennis
Carey, a vice chairman of recruiters Korn/Ferry International. With such a significant
shake-up, “it is difficult to pick
out who goes.”
As part of his corporate restructuring, Mr. Flannery
wants to sell GE’s stake in
Baker Hughes, an oil-field services provider where GE owns
about two thirds. So the GE
board no longer may need sev-
eral energy-industry veterans
such as James J. Mulva, a former CEO of ConocoPhillips
and a GE director since 2008.
At the same time, GE has
greatly shrunk its financial
business since 2016—reducing
its need for multiple board
members with financial services backgrounds.
Andrea Jung and Shelly
Lazarus, the longest serving
GE directors with 19 and 17
years of service, respectively,
Boards rarely go
through an overhaul
except after a proxy
fight or merger.
are also likely to be among
those who depart. Ms. Jung, a
former chief of Avon Products
Inc., was due to step down in
2018—followed in 2019 by Ms.
Lazarus, a prior leader of
Ogilvy & Mather, GE’s latest
proxy statement said.
Ms. Lazarus oversees the
selection of new GE board
members as head of its nominating committee. The fresh
slate will emerge from the
board’s normal governance
process, Mr. Flannery told investors last Monday. The
conglomerate will reveal the
new lineup in a proxy in
March.
Shrinking to 12 members
will bring GE closer to the typical big business. U.S. companies with market capitalizations of at least $10 billion
have an average of 10.9 board
members, according to a 2017
survey by the National Association of Corporate Directors.
Since 1977, GE has had a median of 16 directors.
GE’s board has already gone
through some changes in recent years. It added four new
members and had three retire
in 2016. Another retired this
year and it chose three new
members, including Mr. Flannery and Ed Garden, cofounder of Trian Fund Management LP.
Mr. Flannery has said that
he and GE’s lead independent
director, former Vanguard
Group head Jack Brennan,
would keep their seats. The
same is true for Mr. Garden,
who joined the board in October. Trian is a large GE shareholder.
Executive recruiters already
are trying to find GE’s next
three board members, according to a person familiar with
the company. Mr. Garden “will
play an active role in working
with his fellow directors to
identify potential new direc-
A U.S. Border Patrol agent
was fatally injured while on
patrol in the Big Bend Sector
of Texas, according to U.S.
Customs and Border Protection Sunday.
Rogelio Martinez, a 36year-old agent from El Paso,
and his partner, whose name
wasn’t released, were on patrol near Interstate 10, in the
Van Horn Station area.
His partner reported that
they were both injured and
needed assistance. Other
agents who responded to their
call helped transport the
pair to a local hospital.
Mr. Martinez, who has been
with the Border Patrol since
August 2013, died in the hospital, while his partner remained in serious condition.
Authorities said they are
searching the area for potential suspects or witnesses.
tors,” this person said. Indeed,
Mr. Garden is joining the nominating committee along with
two other board panels at GE,
people familiar with the matter said.
A board loses extensive institutional memory with the
simultaneous departure of
most members, however. Edward Breen, now CEO of
DowDuPont Inc., was willing
to take that risk after he became CEO of Tyco International Ltd., an embattled industrial conglomerate, in July
2002.
On Mr. Breen’s first day, big
investors demanded that he
replace the entire board. Mr.
Breen agreed. He soon convened a call and asked Tyco’s
10 independent directors to
step down. But they dead-
CORRECTIONS AMPLIFICATIONS
General Electric Co. reduced its quarterly dividend
by 68% in 2009. A Page One
article on Nov. 13 incorrectly
said the dividend was reduced
by half.
Readers can alert The Wall Street
Journal to any errors in news articles
by emailing wsjcontact@wsj.com or
by calling 888-410-2667.
In a tweet late Sunday,
President Donald Trump recognized the agents. “We will
seek out and bring to justice
those responsible,” he said.
“We will, and must, build the
wall.”
Along the U.S.-Mexico border, the Big Bend Sector has a
rugged terrain and the Rio
Grande, which makes it more
difficult for people to attempt
an illegal crossing.
According to the Associated
Press, Border Patrol records
show that Big Bend accounted
for about 1% of the more than
61,000 apprehensions its
agents made along the
Southwest border between October 2016 and May 2017.
The local office of the Federal Bureau of Investigation is
taking the lead in investigating Sunday’s incident, said
Douglas Mosier, a spokesman
for the Customs and Border
Protection office.
locked, recalled Korn/Ferry’s
Mr. Carey, who heard the debate over the phone while
seated in the CEO’s office. “Ed
cast the deciding vote.”
THE WALL STREET JOURNAL
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A3
* * * *
©T&CO. 2017
U.S. NEWS
JONATHAN BACHMAN/GETTY IMAGES
A TIFFANY HOLIDAY
Republican U.S. Senate candidate Roy Moore spoke last week at the Walker Springs Road Baptist Church in Jackson, Ala.
Moore’s Faithful Firewall
Many evangelicals say
Alabama Republican
has long defended
values they hold dear
BY IAN LOVETT
As allegations of sexual misconduct have mounted against
Roy Moore and Republican
leaders have urged him to end
his run for the U.S. Senate in
Alabama, Mr. Moore is relying
on his most loyal constituency
to keep his campaign afloat:
evangelical Christians.
In just over a week since the
allegations surfaced, Mr. Moore
has spoken at a Baptist church,
held a press conference with
half a dozen evangelical pastors who defended him and
called the campaign a “spiritual
battle with those who want to
silence our message.”
Mr. Moore faces allegations
of having made sexual advances on teenage girls, one of
them age 14, while he was in
his 30s. He denies the claims.
Several national evangelical
leaders—including Franklin
Graham, president of the Billy
Graham Evangelistic Association, and Jerry Falwell Jr.,
president of Liberty University—have voiced support for
Mr. Moore, who is 70.
In Mr. Moore, many conservative Christians see a man
who has defended values—in-
cluding opposition to abortion
and same-sex marriage, and an
expanded role for religion in
the public sphere—that they
believe are under siege, and
they are reluctant to abandon
him.
Other evangelicals—who entered politics in the 1980s advocating for morality in public
life, and became a powerful
force within the Republican
Party—say they believe Mr.
Moore’s accusers. They worry
that those who support him are
sacrificing their moral authority for political gain.
“Party allegiance should
never take precedence over
what is morally right,” said
Daniel Akin, president of
Southeastern Baptist Theological Seminary, adding the allegations against Mr. Moore
are credible and he was “disappointed” with evangelical
pastors continuing to support
him. “I think, unintentionally,
we have allowed our political
loyalty to influence our decisions.”
Democrats have also faced
questions of how to respond
when politicians are accused of
sexual improprieties.
On Thursday, Sen. Al Franken (D., Minn.) was accused by
a woman of having kissed her
against her will during a 2006
rehearsal for a USO comedy
skit and posing for a photo in
which he appeared to grope
her while she was asleep.
Mr. Franken subsequently
apologized and said he would
cooperate with a Senate Ethics
Committee inquiry into the allegations. A representative of
Mr. Franken told the Star-Tribune newspaper in an article
published online Sunday that
he wouldn’t resign.
Mr. Moore has reason to believe that evangelicals in Alabama—who make up 42% of
the population, the highest
percentage of any state—will
continue to support him in his
race against Democrat Doug
Jones.
Now, Mr. Moore, along with
a number of religious leaders,
is making the case that he is
being persecuted for his faith
by the media and the Republican establishment.
At a press conference, Janet
Porter,
president
of
Faith2Action, a conservative
Christian political organization,
said, “Why do the enemies of
life and liberty and the Ten
Commandments hate this man
so much?”
While support has slipped
for Mr. Moore overall, he is doing best among evangelicals.
A Fox News poll, conducted
between Monday and Wednesday, found although Mr. Moore
now trails his Democratic opponent overall, 65% of white
evangelicals planned to vote
for him, the highest percentage
of any demographic group.
Brett Doster, a spokesman
for the Moore campaign, said it
has been focused on evangelical voters since the primaries,
and remains so now.
Last year, Donald Trump
won the presidency in part because evangelical voters stuck
with him after he was accused
of sexual misconduct—allegations that he denied.
Mr. Trump hasn’t commented directly on the allegations against Mr. Moore,
though White House officials
have said he believes that if
they are true, Mr. Moore
should step aside.
Some have expressed
concern that backers
are sacrificing their
moral authority.
Mr. Moore is a hero to many
conservative Christian voters,
having made his faith a central
tenet of his time in public office.
Twice he was elected to the
Alabama Supreme Court. Twice
he was removed: First in 2003
for refusing to take away a
statue of the Ten Commandments that he put up outside
the courthouse, and last year
for directing probate judges
not to issue marriage licenses
to same-sex couples.
Puerto Rico Health Services Struggle
In western Puerto Rico, Oscar Corzo, a New York physician, was treating a woman for
her chronic illnesses this
month when he noticed a
group of her neighbors had
gathered to ask for help.
“Almost kind of organically,
there was a waiting room,”
said Dr. Corzo, who stayed on
the woman’s porch for two
hours treating her neighbors.
Two months after Hurricane Maria tore across the island, Puerto Rico’s health-care
system is still struggling.
Storm damage and power outages remain problems especially in rural areas where access is difficult, say medical
volunteers and relief workers
who have worked in the U.S.
territory in recent weeks.
In the mountainous central
region of Utuado, Catherine
Trossello, a New York nurse
practitioner, worked a few
weeks ago with a local healthcare provider who was trying
to track down patients he
hadn’t seen since the storm.
He made house calls. She set
WILLIAM VAZQUEZ/AMERICARES
BY MELANIE EVANS
Americares has hired nurses and set up pop-up clinics in
abandoned gas stations and empty bus terminals to offer
primary health services to rural communities in Puerto Rico.
up a walk-in clinic in another
part of town he couldn’t reach.
“Everybody’s trying so
hard. But you can only walk so
many miles in a day and knock
on so many doors at a time,”
Ms. Trossello said.
Recovery from the most
powerful storm to hit the island in almost a century is
halting at best. Half of Puerto
Rico’s electric grid remains
down, leaving many of the island’s 3.4 million residents exposed to the heat and unable
to keep food or medicines cool
without generators. Telephone
service remains spotty.
Most Puerto Rican hospitals
have regained power, though
generators still keep one in five
hospitals running, according to
recent Federal Emergency
Management Agency data.
Puerto Rico’s network of
more than 90 largely rural
federally funded primary care
clinics have mostly reopened,
but half remain on backup
generators, said Katia Leon,
deputy director of an association representing the clinics.
But the overall conditions
have exacerbated illnesses
such as diabetes and heart disease with potentially lifethreatening
consequences,
said volunteers with the nonprofit Americares, which has
organized pop-up clinics.
Federally operated healthcare shelters and temporary
emergency rooms have seen a
stream of chronically ill patients following an initial wave
of those who suffered stormrelated injuries, according to
the U.S. Department of Health
and Human Services.
But unlike other disasters,
chronically ill patients who
lack oxygen or dialysis are
staying longer under federal
care in Puerto Rico because
those lifesaving supplies can’t
be found elsewhere.
—Arian Campo-Flores
contributed to this article.
Sanctuary Policies Draw Letters of Warning
BY ALICIA A. CALDWELL
AND ALEJANDRO LAZO
LOS ANGELES—The Trump
administration is expanding its
immigration dispute with local
officials across the country,
warning 29 additional city,
county and state governments
that they may be violating a law
requiring them to share certain
immigration information with
federal authorities.
The notice, issued in letters
to local officials from Vermont
to Oregon last week, tells governments that they must comply with the information-shar-
ing rule to receive a federal
grant, and says they have until
Dec. 8 to prove compliance.
The warning comes despite
repeated rulings from federal
courts that prohibit the Trump
administration from pulling
funding over local immigration
directives. Known as sanctuary
policies, the directives vary
from place to place, but generally protect undocumented immigrants from federal enforcement.
The Trump administration
has been battling local governments over the issue for
months, pushing cities and
states to alert federal officials
to illegal immigrants in local
jails before they are released.
Some of the cities and states
on the list say they already
share that information with federal officials, but have other
policies in place that benefit
and protect undocumented immigrants.
Acting Assistant U.S. Attorney General Alan Hanson said
in letters dated Wednesday that
each
government
entity
has until Dec. 8 to show it is in
compliance to keep getting certain federal grant money. The
letters don’t specify what action
the administration could take if
the jurisdictions don’t comply,
but Trump administration officials have previously said the
government could demand repayment of past grant money.
U.S. Immigration and Customs Enforcement this year
briefly published weekly reports
naming law enforcement agencies it said weren’t complying
with requests to jail certain immigrants suspected of being in
the country illegally. That list
was criticized after errors were
discovered and the agency
hasn’t released a new list in
several months.
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A4 | Monday, November 20, 2017
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U.S. NEWS
In Tour, Democrats Listen for a Message
House minority whip
Hoyer meets voters in
districts the party
needs to win in 2018
KANSAS CITY, Mo.—House
Minority Whip Steny Hoyer
says he came here to listen.
The No. 2 House Democrat
on Friday began a series of
trips to districts his party
must carry if it hopes to win
back the House majority in
2018. His goal: to craft a message that resonates with voters who are only marginally
attached to a party dominated
by liberals from the coasts.
“We have a lot in common,”
said Mr. Hoyer, of Maryland,
about voters in parts of the
Midwest. “But they may say it
a different way or see it in a
different perspective. They
may not think you are talking
about what they are thinking
about, but you really are.”
Republicans control both
houses of Congress, the White
House and most state legislatures and governorships. Ten
states, all in the mountain
West or Midwest, have no
Democratic representatives in
the House, where the party
needs to win 24 seats next
year to take the majority.
But after election victories
across the country this month,
Democratic leaders are optimistic the party can harness
voter energy built in large part
on animosity toward President
Donald Trump. The Cook Political Report rates 62 GOP-held
seats as competitive to some
NATALIE ANDREWS/THE WALL STREET JOURNAL
BY NATALIE ANDREWS
House Minority Whip Steny Hoyer of Maryland, left, met with local entrepreneurs Saturday in Kansas City, Mo.
degree—17 as tossups and 45
as “likely” or “lean” Republican. Democrats will have to
play defense too: Cook lists 21
Democratic seats as competitive, including four tossups.
David Wasserman of Cook
Political Report said last week
that Democratic wins in Virginia this month show the GOP
House majority is in “serious
risk” and that the “balance of
evidence suggests Democrats
would be the ever-so-slight favorites to reclaim the House if
the elections were held today.”
To win GOP seats and retain
seats they hold in Republicanleaning districts, Democratic
leaders say candidates should
talk more about bread-andbutter economic matters and
less about social issues like
abortion rights and gay rights,
and climate change.
“One of the struggles the
Democratic Party has had is
that its messages have not really resonated with a lot of
voters in the Midwest,” said
Paul Davis, a former Kansas
legislator and the party’s 2014
gubernatorial nominee, who is
now running for an open
House seat. “I’m not going to
wait around for Democrats to
construct a message that appeals there.”
In what the party dubbed a
listening session, Mr. Hoyer, 78
years old, visited Las Vegas on
Friday to discuss infrastructure, joined by Nevada Democratic Rep. Ruben Kihuen.
In Kansas City on Saturday,
about two dozen entrepreneurs gathered at the Kauffman Foundation’s conference
center. The group divided
among five round tables and
discussed regulations they said
GOP Senator Wants Tax-Bill Tweaks
BY HARRIET TORRY
AND GABRIEL T. RUBIN
GETTY IMAGES
WASHINGTON—Sen. Susan
Collins on Sunday recited a list
of concerns she had with the
Republican tax bill barreling through the Senate, raising
pressure on the party’s leadership to slow its progress and
make changes to secure passage.
“I want to see changes in
that bill and I think there will
be changes,” the Maine Republican said on ABC, adding that
she hadn’t yet decided to vote
against it as it is currently written.
Ms. Collins is one of a small
group of senators whose oppoSen. Susan
Collins wants
the corporate
tax rate to be
22%, not the
20% the GOP
bill proposes.
‘Gucci’ Lobbyists
Get New Look
The last time Congress
passed a major tax overhaul, in
1986, lobbyists arrived at the
Capitol with pockets full of
dimes to feed pay phones to
relay the latest news.
When lawmakers advanced
tax bills in Congress last week,
there were no longer phones in
the phone booths and only a
sprinkling of lobbyists in the
hearing rooms.
Liberated by the ability to
email, text and Gchat with lawmakers and aides, lobbyists like
those who swarmed Capitol Hill
from 1985 to 1986 no longer
have to physically be present
as the House and Senate speed
through a sweeping rewrite of
the tax code.
Now their work occurs further away from the public domain, in closed-door meetings
or zipping across phone and
computer screens.
The seismic shifts in technology, politics and cultural
norms have transformed the
lobbying scene. Lawmakers,
lobbyists and staffers who remember the packed meetings
and buzzing hallways of the
last major tax rewrite are
stunned at how empty the
rooms are now that hearings
are live-streamed and televised.
“I said, ‘Where is everybody?’ I was utterly astonished,” said Rep. Sandy Levin
(D., Mich.), who joined the
Ways and Means Committee in
1987 and sat in on some of the
tax meetings the year before.
Though they aren’t flooding
the Capitol, lobbyists are making a mark on the current tax
fight. Groups representing retailers and a bevy of other
businesses earlier this year defeated a little-loved border-adjusted tax, which would have
imposed a levy on imports but
not exports. Real estate groups
and home builders are waging
war on the GOP’s plan to curb
the mortgage-interest and
property tax deductions.
Still, it’s a different scene
from three decades ago. When
Sen. Bob Dole (R., Kansas)
emerged from a late-night
meeting to find the area so
crawling with lobbyists, he remarked dryly, “they’re Gucci to
Gucci in the hallway,” said Jeffrey Birnbaum, referring to the
high-end Italian designer. He
and Alan Murray, both Wall
Street Journal reporters at the
time, wrote “Showdown at Gucci Gulch,” a book that chronicled the bill’s tumultuous path.
Back then, a few wellheeled lobbyists had the earliest “brick-sized cellphones,” Mr.
Birnbaum said. Many others cozied up to congressional aides
whose offices were closest to
hearing rooms, offering phones
and, crucially, copying machines.
—Kristina Peterson
hampered their businesses,
writing with markers on large
notepads. Mr. Hoyer and Rep.
Emanuel Cleaver (D., Mo.) visited each table, asking questions and taking notes. At the
meeting’s end, each group presented their findings.
Barbara Shatto, a registered
Republican and owner of a Missouri milk company, told Mr.
Hoyer she worried the windmills near her farm would affect her cows and her property
value and didn’t support tax
credits for windmill owners.
“I would have never
Reconcile This
Republicans' House and Senate tax plans differ significantly.
House bill
Senate bill
Top individual
tax rate
Number of individual
tax brackets
Estate
tax
Corporate
rate
Corporate tax rate
reduction starts
Top pass-through
rate
State and local
deduction
Medical expense
deduction
Student loan interest
rate deduction
Personal
exemption
Standard
deduction
Alternative
minimum tax
Child tax
credit
39.6%
38.5%
Four
Seven
Expands exemption to
about $11 million per
person, repeals in 2024
Expands exemption
to about $11 million
per person
20%
20%
2018
2019
25% with caveats
Above 30%
Preserves for property
tax up to $10,000
Eliminates
Eliminates
Preserves
Eliminates
Preserves
Eliminates
Eliminates
Nearly doubles
Nearly doubles
Eliminates
Eliminates
$1,600 per child
$1,650 per child
Sources: U.S. House and U.S. Senate
sition could block the bill. The
GOP controls 52 votes in the
Senate and can afford to lose
only two for the legislation to
pass. The bill is slated for a vote
after Thanksgiving.
On Sunday, Ms. Collins said
the Senate bill should reduce
the corporate tax rate from 35%
to 22%, not 20% as in the current bill, and use the extra revenue to retain the individual deduction for state and local
taxes. The Senate bill currently
would eliminate that deduction.
“That would really help middle-income taxpayers,” she said.
She also said the top individual tax rate should remain at
VISAS
Continued from Page One
of these applications are being
denied, attorneys say.
“The goal of the administration seems to be to grind the
process to a halt or slow it
down so much that they achieve
a reduction in legal immigration
through implementation rather
than legislation,” said Ben
Johnson, executive director of
the American Immigration Lawyers Association, which often
takes pro-immigration stances.
R. Carter Langston, a spokesman for USCIS, said that his
agency’s policies align with the
administration’s priorities, including tightening standards to
deter fraud and abuse.
“USCIS is focused on ensuring the integrity of the immigration system through deliberative and fair adjudications all
while protecting the interest of
U.S. workers,” he said.
thought of that,” Mr. Hoyer
said in an interview.
At another table, a group
discussed the challenges brickand-mortar shops face competing with online retailers such
as Amazon, which in many areas don’t collect sales tax.
Mr. Hoyer packed up notes
from the session and took
them to Peoria, Ill., where he
will join Rep. Cheri Bustos (D.,
Ill.) on Monday for a session
on education.
Republicans, for their part,
are trying to tie Midwest Democrats to the longtime leaders
of the House and their views
on social issues and some government programs.
“What does it say about
their efforts when they select
a septuagenarian who has
spent virtually his entire life in
the D.C. area as their ambassador to the Midwest?” said
Jesse Hunt, spokesman for the
National Republican Congressional Committee.
In Kansas City, Mr. Hoyer
briefly argued against the GOP
tax bill, which Democrats say
would hurt the middle class.
But he didn’t mention the
president by name. Democrats
are debating to what extent
their candidates should attempt to harness voter dissatisfaction with Mr. Trump.
“I don’t think you need to
be out there criticizing Mr.
Trump; he can handle that well
himself,” said Rep. Ron Kind
(D., Wis.), who represents a
district that Mr. Trump won by
four points. “We’ve got to be
out there offering constructive
ideas of how we can partner
with our communities that
help them be successful.”
THE WALL STREET JOURNAL.
39.6%, as in the House bill and
in current law, rather than the
38.5% rate in the Senate bill.
She said a provision in the
Senate bill to repeal the requirement that most people
have health insurance or pay a
penalty shouldn’t be part of a
tax package, but if it is included, it should be accompanied by a measure to stabilize
insurance markets and lower
premiums.
“If you do pull this piece of
the Affordable Care Act out, for
some middle-income families
the increased premium is going
to cancel out the tax cut that
they would get,” she said on
CNN, speaking of the 2010
health care overhaul that created the insurance mandate.
The mandate prompts people
to buy policies and thus causes
the government to spend more
on insurance subsidies and
Medicaid. The Senate bill counts
on removing the mandate to
save about $318 billion over a
decade. If the mandate remains,
the bill must make up the difference elsewhere.
The Republican Party is powering its tax overhaul through
Congress with remarkable
speed. The House passed its bill
on Thursday, and the Senate
has moved its bill through the
committee process.
At least six Republican senators have expressed reservations about the bill, and if the
leadership changes the legislation to address their concerns,
it could lose votes of other senators. No Democrats are expected to support the bill.
White House Office of Management and Budget Director
Mick Mulvaney said the administration preferred to repeal the
individual mandate as part of
the tax bill, but it would support the repeal’s removal if it
stood in the way of the bill’s
passage.
White House Legislative Af-
fairs Director Marc Short said
Sunday on ABC that “the White
House is very comfortable with
the House bill,” which doesn’t
repeal the individual mandate.
“We also, though, believe the
individual mandate is a tax and
it is harming middle-income
families the most, so we like the
fact that the Senate has included [the removal of it] it in
its bill,” he said.
Mr. Mulvaney also said the
White House wouldn’t budge on
the corporate tax rate, in what
amounted to a rejection of Ms.
Collins’s suggestion.
“I don’t think you’ll see us
interested in going above 20%,”
he said on CBS.
Other Republican senators
also have voiced concerns about
the Senate tax bill.
Sen. Ron Johnson of Wisconsin said he would oppose the
bill because it would treat
“pass-through” businesses unfairly compared with corporations. Sens. Bob Corker of Tennessee and Jeff Flake of
Arizona, both of whom have announced their plans to retire
amid tussles with President
Donald Trump, have voiced
worries about the tax bill running up the federal deficit.
—Richard Rubin
contributed to this article.
For some, the changes are a
long overdue correction. “They
do slow the system down but in
a good way,” said Jessica
Vaughn of the Center for Immigration Studies, an advocacy
group that backs limits to legal
immigration.
People on both sides of the
issue are anticipating further
restrictions soon, following the
confirmation in October of
Francis Cissna as director of
USCIS. Mr. Cissna has a reputation as a skeptic of employment
visa programs. He declined a request for an interview.
Two big regulatory changes
are looming that would undo
actions by the Obama administration that eased the way for
high-skilled foreign workers.
The first change allowed
spouses of H-1B workers the
right to work. That regulation is
being challenged in court and
the Trump administration is expected to eliminate the provision rather than defend it. “The
real fight within the govern-
ment is not whether to terminate the program, but how fast
they should kill it,” said Lynden
Melmed, an attorney with Berry
Appleman & Leiden LLP, who is
tracking the internal debate.
The second change affects
the Optional Practical Training
program, which allows foreign
graduates from U.S. colleges in
modest changes that have
added scrutiny to visa processing include:
•USCIS directed last month
that adjudicators no longer pay
“deference” to past determinations for renewal applications.
This means an applicant’s past
approval won’t carry any
weight if he or she applies for a
renewal.
•The agency is conducting
more applicant interviews,
which critics say slows the system. The agency spokesman
said this process will ramp up
over several years and is
needed to detect fraud and
make accurate decisions.
•In the spring, the agency
suspended premium processing,
which allowed for fast-track
consideration to those who paid
an extra fee. This option wasn’t
resumed until October, meaning
many workers who qualified for
a coveted H-1B visa had to wait
months for a decision.
•State Department officials
have been told to consider that
Mr. Trump’s “Buy American,
Hire American” executive order
directs visa programs to “protect the interests of United
States workers.” And the Foreign Affairs Manual now instructs officers to scrutinize applications of students to ensure
they plan to return to their
home countries. A State Department official said the official
rules haven't changed but said a
“comprehensive” review is under way.
Some employers who use the
visa programs have seen a dramatic change, such as Avant
Healthcare Professionals, which
recruits foreign nurses and occupational therapists for work
in the U.S.
This year, every application
filed by the company for an
H-1B visa was returned with a
request for further evidence,
compared with 20% last year,
said Shari Dingle Costantini, the
company’s chief executive officer. The company has received
results for only three applica-
tions and in each case it was
told the application would likely
be rejected.
Foreign students hoping to
stay in the U.S. have also been
affected.
Helen Wang, a 23-year-old
from China, applied for an H-1B
visa after finishing college so
she could work as a market-research analyst at a job-recruitment website. Ms. Wang, who
lives in Chicago, recalls excitement last spring when her employer was awarded a visa for
her, one of 85,000 available in
the government’s annual lottery. Her application was processed for months and then,
this fall, was rejected.
“USCIS questioned whether
this position needs an H-1B or
not,” she said. She had to leave
her job and now plans to go
back to school in the U.S. to
earn a master’s degree and try
again for a work visa after
those studies. “I have to find
another solution to keep my legal status in the United States.”
Some see the effort as
long overdue, but
firms say the visas
are needed to fill jobs.
science and technology an extra
two years of work authorization, giving them time to win an
H-1B visa. The Trump administration could kill that benefit or
reduce the two-year window,
according to people familiar
with the discussions.
Meanwhile, a series of more
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A5
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A6 | Monday, November 20, 2017
THE WALL STREET JOURNAL.
NY
WORLD NEWS
U.S. Looks to Toughen Policy on China
Enforcement of trade,
reliance on sanctions
to be emphasized over
deals on limited issues
Commerce Builds
A Case for Action
The Trump administration
trade team is weighing several enforcement actions
aimed directly, or indirectly, at
China, with decisions expected by early next year.
Shortly before President
Donald Trump’s trip to Beijing, the Commerce Department issued a study justifying the continuing branding of
China as a “nonmarket economy,” which allows the U.S.
to impose extra-high duties
on Chinese imports found to
have been illegally subsidized
or “dumped” below production costs.
Commerce has since imposed duties of up to 162%
on Chinese aluminum foil and
194% for hardwood plywood.
China has filed a complaint over that designation
to the World Trade Organization.
—Jacob M. Schlesinger
A month before President
Donald Trump’s visit to Beijing, Chinese officials presented an offer they thought
Washington couldn’t refuse.
China proposed that during
the trip, Mr. Trump and his
counterpart, Xi Jinping, unveil
a plan to widen foreign firms’
access to China’s vast financial
industry, according to people
with knowledge of the matter.
It was a move previous U.S.
administrations had sought for
years.
To Beijing’s consternation,
according to the people, Washington wasn’t interested. The
offer was made a second time
during one of Mr. Trump’s
meetings at the Great Hall of
the People.
Hours after Air Force One
took off from Beijing, China
announced the opening on its
own.
The cold shoulder from the
White House reflects a fundamental shift in how the U.S.
manages its relationship with
China, one that suggests a
bold gamble and a rocky road
ahead despite the bonhomie of
the presidential summit earlier this month in Beijing.
The Trump administration,
which recently completed a
comprehensive review of
China policy, is rejecting the
longstanding practice of eking
out concessions from Beijing
on trade and market access
around high-level meetings.
To Mr. Trump and his aides,
that approach has yielded few
substantive benefits but allowed China to continue policies that put American businesses at a disadvantage. One
ARTYOM IVANOV/TASS/ZUMA PRESS
By Lingling Wei,
Jacob M. Schlesinger,
Jeremy Page and
Michael C. Bender
President Donald Trump met this month in Beijing with Chinese President Xi Jinping. The U.S. sees their bond easing trade issues.
White House official refers to
that pattern as Beijing’s “ropea-dope” strategy. The administration is now investigating
trade sanctions or enforcement actions against China
with the goal of fundamentally
challenging Chinese trade
practices.
The White House is also
trying to invest in the personal relationship between Mr.
Trump and Mr. Xi to absorb
some of the shock of the coming trade measures.
That helps explain Mr.
Trump’s unorthodox blend of
tough talk on trade and effusive praise for Mr. Xi in Beijing.
In China and around the
globe, the White House is aiming to make an asset out of
Mr. Trump’s unpredictability,
which has been criticized by
foreign-policy experts as a destabilizing influence on inter-
Seeking Balance
President Donald Trump, who has blamed the U.S. trade deficit
with China partly on previous administrations, is changing tack
toward Beijing.
U.S. imports from China
U.S. exports to China
$500 billion
400
300
200
100
0
2003 ’04 ’05 ’06 ’07 ’08 ’09 ’10
Source: U.S. Commerce Department
national negotiations over
trade and national security.
“The U.S. now believes that
only the threat of unilateral
action will compel China to
change,” says Scott Kennedy, a
’11
’12
’13
’14
’15
’16
THE WALL STREET JOURNAL.
deputy director at the Center
for Strategic and International
Studies, a Washington think
tank.
The new China strategy carries considerable risk. Some
policy experts fear it could set
off a trade war. Others, especially advocates of harsh sanctions, worry Mr. Trump might
not follow through if Beijing
steps up its charm offensive
with further attempts to flatter him or if his agenda becomes monopolized by domestic issues.
Still, in Beijing, the prospect of a much tougher U.S.
stance is starting to sink in.
“China realizes that it can’t
continue to drive away foreign
capital,” says He Fan, a professor at Peking University HSBC
School of Business. “It likely
will take more measures to
open up its economy.”
Beijing is likely to point to
any opening measures, however symbolic, to argue
against unilateral action by
Washington.
Under the new financial
opening, Beijing pledged to let
foreign securities firms own
majority stakes in their Chinese ventures and to scrap
foreign ownership limits on
Chinese banks. Officials indicated the security-industry
changes would be limited, at
least initially.
Western officials treat such
pronouncements with skepticism, pointing to China’s poor
follow-up record.
“This opening-up comes at
a late stage in development,”
said the European Chamber of
Commerce. “It is now difficult
for foreign firms to capitalize
on these changes as domestic
Chinese firms have stronger
positions in their respective
industry.”
Such views are shared by
U.S. officials. “The overall approach now is not to negotiate
over crumbs, not celebrate
small deals that will have limited impact,” one official said.
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A7
* * * *
WORLD NEWS
BY GABRIELE STEINHAUSER
AND BERNARD MPOFU
HARARE, Zimbabwe—President Robert Mugabe stunned
Zimbabwe on Sunday with a
speech on live television in
which he was widely expected
to relinquish his 37-year rule
but didn’t—extending days of
upheaval that have featured
tanks rolling through the
country’s capital.
Flanked by generals who
took control of his government
in a military operation five
days ago and by the Catholic
priest who takes his confessions, the 93-year-old leader
haltingly read out a nearly 20minute speech, at times tripping over words.
The address, which riveted
millions across this resourcerich nation, was the latest twist
in one of Africa’s most closely
watched succession battles.
Mr. Mugabe said the military’s operation—which led to
the detention of several of his
ministers and his family being
put under house arrest—posed
“no threat to the constitutional
order, nor challenge to the
head of state and government.”
In addition, Mr. Mugabe,
the world’s oldest head of
state, said he would preside
over the ruling ZANU-PF’s
party congress in mid-December, but said nothing about his
future beyond that.
Earlier Sunday evening, two
officials said Mr. Mugabe had
agreed to resign during talks
with the military. Two other
officials confirmed that presidential guards had been reinstated at the residence of his
ousted Vice President Emmerson Mnangagwa, suggesting
the man nicknamed “the Crocodile” was back in a government position—as demanded
by the ruling ZANU-PF party.
ZANU-PF tapped Mr. Mnangagwa as its new chief, removing Mr. Mugabe after more
than four decades at its helm,
and picked the 75-year-old as
its candidate for presidential
elections next year.
ZANU-PF also gave Mr.
Mugabe a Monday deadline to
resign as president. The party’s
Central Committee said that if
he failed to do so, parliament—
where ZANU-PF holds an overwhelming
majority—would
move to impeach him.
On the streets of Harare,
where a day earlier Zimbabweans had hugged the soldiers who took control of their
government and hurled insults
at the president, many struggled to make sense of Mr.
Mugabe’s words.
“On one breath he admits
that his government has failed
and on the other he pronounces solutions to the crisis
which he seems eager to address,” said Enock Nyamupinga, who was having drinks
with friends at a shopping
center outside Harare’s central
business district. “The old
man is a schemer.”
Adding to the confusion
was disagreement over words
Mr. Mugabe spoke after he had
ended his speech. Some
watching on television thought
he said, “Sorry…it’s a long
speech,” while others thought
they heard him say “It’s a
wrong speech.”
That added to speculation
that the president had perhaps
skipped over some passages of
the statement. A video clip
from early on in his address, in
which Mr. Mugabe was seen
handing some pages to Gen.
Constantino Chiwenga, who led
the military operation against
the president, was making the
ASSOCIATED PRESS
Zimbabwe
Ruler Clings
To Power
Zimbabwe President Robert Mugabe, right, met with military generals in the capital Harare on Sunday, as a leadership crisis continued.
By the Numbers
While much smaller than Nigeria and South Africa, the two biggest economies in Sub-Saharan Africa, Zimbabwe grew faster than both
countries last year and matches or surpasses the regional average in several key development indicators.
GDP, 2016
in billions
Zimbabwe
Annual change
in GDP, 2016
0.7%
$16.1
Nigeria
$405.4
South Africa
Sub-Saharan average
$294.9
N/A
Share of population earning
less than $1.90/day*
21%
54%
–1.6
0.3
1.4
17%
44%
*2011 purchasing power parity
Sources: IMF; World Bank
rounds on social media.
Charles Laurie, a Zimbabwean who is head of Africa
for risk consultancy Verisk
Maplecroft, had a different interpretation. The generals
“never would have put him up
there unless they knew exactly
what was in this speech,” he
said. “And seeing them sitting
next to him, they didn’t look
like they were about to force
him to resign.”
Instead of stepping down,
Mr. Mugabe could serve out
his term until elections due
next year, at which point Mr.
Mnangagwa would likely take
over, Mr. Laurie said.
The head of Zimbabwe’s
powerful association of war vet-
Life
expectancy
Adult literacy
rate
60 years
84%
53
51
62
93
60
61
THE WALL STREET JOURNAL
erans, Christopher Mutsvangwa,
which has long backed Mr.
Mnangagwa as the next president, said he was calling people
back on the streets to make sure
Mr. Mugabe steps down now.
ZANU-PF could also still go
ahead with its plan to impeach
the president through a parliamentary vote.
Mr. Mugabe’s speech on
Sunday came the day after
tens of thousands of Zimbabweans took to the streets
across the country. What had
been organized as a show of
support for the military
turned into a wild celebration
of what most Zimbabweans
considered the end of Mr.
Mugabe’s rule.
President’s Deputy
Fell Out of Favor
For more than half a century, Emmerson Mnangagwa
has stood behind Robert
Mugabe, from prison and exile,
as a rebel in the bush and as a
minister in office.
Ousted from the vice presidency on Nov. 6 following a public standoff with Mr. Mugabe’s
wife and hopeful heir, Grace, Mr.
Mnangagwa looked set for what
analysts and Zimbabwean officials said could be his big play
for the presidency.
“The only one who could ride
the tiger is Emmerson Mnangagwa,” said Eddie Cross, a lawmaker for Morgan Tsvangirai’s
opposition Movement for Democratic Change. “And he’s got to
be ruthless” in taking power.
Now 75 years old, Mr. Mnangagwa served Mr. Mugabe as
assistant and confidant for decades. Mr. Mnangagwa became
manager of the ruling party’s
commercial interests and—analysts and historians say—the engineer of several election victories but also of mass bloodshed.
He denies he was part of civil
and human-rights violations.
—Matina Stevis-Gridneff
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A8 | Monday, November 20, 2017
* ****
WORLD WATCH
Hariri Promises to
Return to Beirut
Lebanese Prime Minister
Saad Hariri, who abruptly resigned two weeks ago during a
visit to Saudi Arabia saying he
feared for his life in his country,
promised to return to Lebanon
this week to explain his decision.
Mr. Hariri was speaking after
a meeting at the presidential
palace in Paris with French President Emmanuel Macron on Saturday. As he left the palace, he
said he would return to Lebanon
before the country’s independence day on Wednesday.
“It’s there that I will make my
position known on all subjects
after meeting with the president, Michel Aoun,” he said.
Mr. Hariri said in Riyadh on
Nov. 4 he was resigning because
of meddling in Lebanon’s affairs
by Shiite Iran and its Lebanese
ally Hezbollah and because he
feared for his life.
That announcement left his
status unclear. Under Lebanese
law, a prime minister’s resignation only becomes official when
he hands in his notification in
person to the president.
—Nazih Osseiran
and Matthew Dalton
ARGENTINA
Multinational Search
For Lost Sub Persists
the fate of the 44-member crew,
which was supposed to have
made contact last week.
Argentine authorities are
working with numerous countries,
including the U.S. and U.K., to find
the submarine, whose last known
position was about 240 nautical
miles off Argentina’s coast.
Family members of the crew
gathered at a naval base in the
coastal city of Mar del Plata.
Argentine Navy officials have
said high waves and bad weather
have complicated the effort.
—Taos Turner
CHILE
Presidential Election
Heads for a Runoff
Former president Sebastián
Piñera got the most votes in
Sunday’s presidential election,
but received less support than
expected as the country now
prepares for a second-round runoff in December.
Mr. Piñera, a 67-year old conservative, received 36.6% support
with almost 95% of the ballots
counted, according to Chile’s
election agency.
He will face center-left Sen.
Alejandro Guillier, in a Dec. 17
runoff. Mr. Guillier, 64, received
22.7% of the votes, while Beatriz
Sánchez, a leftist journalist, did
better-than-expected with 20.3%
support.
Mr. Piñera would have needed
more than 50% of the votes to
win outright. Polls ahead of the
election said he would get 40%
to 45% of the votes.
—Ryan Dube
VINCENZO PINTO/AGENCE FRANCE-PRESSE/GETTY IMAGES
A multinational search for a
missing Argentine submarine
continued as concern rose over
WORLD NEWS
WINDOW ON NEED: Celebrating Mass with poor people in St. Peter’s
Basilica, Pope Francis said indifference to poverty was a ‘great sin.’
SEAN GALLUP/GETTY IMAGES
LEBANON
THE WALL STREET JOURNAL.
Chancellor Angela Merkel, with members of her CDU party in Berlin on Sunday, is running out of options after coalition talks broke down.
TALKS
Continued from Page One
trying to woo back a reluctant
center-left Social Democratic
Party.
The SPD was Ms. Merkel’s
ruling partner in the departing
government, but it has refused
to extend the alliance and is
now in opposition.
The chancellor could also
try to lead the country’s first
postwar minority government,
which would have to negotiate
every bill in Parliament with
opposition parties.
A third option would be
snap elections, which would involve a lengthy constitutional
process led by the country’s
president, Social Democrat
Frank-Walter Steinmeier. Ms.
Merkel said she would meet
with Mr. Steinmeier on Monday to discuss the situation.
Recent opinion polls, however, suggest a fresh ballot
may not break the country’s
political gridlock, with all parties polling about the same as
they did two months ago.
Some analysts say they
think the collapse of the coalition negotiations could benefit
the anti-immigration Alternative for Germany, which entered Parliament for the first
time in September.
Mr. Steinmeier told weekly
Welt am Sonntag before the
collapse of the talks the negotiating parties should “be
aware of their responsibility…and assuming this responsibility also means not giving
the [electoral] mandate back
to the voters.”
Germany’s DIHK Chambers
of Commerce sharply criticized the decision to break off
the talks.
“The failure of the exploratory talks is a disappointment for German businesses,”
DIHK President Eric Schweitzer said, adding that companies now have to brace themselves for a possible longer
period of uncertainty.
The news sent the euro
lower in early Asian trading
on Monday.
Over the past four weeks,
Ms. Merkel had tried to bridge
longstanding divisions among
the conservatives, the Greens
and the pro-business Free
Democrats on issues such as
migration, climate and the environment.
But the negotiators couldn’t
agree on the Greens’ demands
that war refugees, who are
subject to limited protection
in Germany compared with
dissidents and victims of persecution, be allowed to bring
family members into the country. Other controversial issues
included efforts to reduce
greenhouse gas emissions and
the size and beneficiaries of
planned tax breaks.
Failure to form a new
government could
lead to early elections
or minority rule.
Bringing together Ms.
Merkel’s Bavarian allies, gathered in the regional Christian
Social Union, and the Green
Party’s left wing had proven
particularly difficult. The archconservative CSU, which
scored poorly in the Septem-
ber election, faces a crucial regional ballot next year and is
in the midst of a leadership
contest, leaving it in no mood
to compromise.
“We were elected to bring
about change, but we haven’t
achieved this,” Mr. Lindner,
whose party got 10.7% in the
Sept. 24 ballot, said after pulling
out of the talks. “It’s better not to
govern than to govern wrongly.”
One of the key sticking
points was the Greens’ views
on migration and the CSU’s insistence on capping the influx.
The parties had also struggled to agree on greenhousegas emission targets ambitious
enough to meet the targets set
by the Paris accords on fighting climate change without
burdening Germany’s industry
with excessive costs.
The Free Democrats, meanwhile, insisted on abolishing
over the next four years the
“solidarity tax,” a 5.5% income-tax surcharge added in
1991 to help fund development
in the former East Germany,
which would cost roughly €20
billion ($23.5 billion) annually
and leave no leeway for other
projects.
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From computing in the multiverse to ecstatic trauma
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A9
NY
* *
WORLD NEWS
BY PAUL HANNON
Gerry Adams said he would
step down as leader of Sinn
Féin early in 2018, a move that
would free the nationalist
party’s leadership of direct
links to the 30-year period of
armed conflict in Northern
Ireland known as the Troubles.
In an address to party
members at their annual conference on Saturday, Mr. Adams said he wouldn’t stand in
Ireland’s next parliamentary
elections, which are due in
2021 at the latest but will
probably take place sooner.
“Leadership means knowing
when it’s time for change, and
that time is now,” he said.
Mr. Adams’s decision to step
down after 34 years as the
party’s president follows the
death this year of Martin
McGuinness, his longtime companion in an often violent struggle to unite Northern Ireland
with the Republic of Ireland.
Unlike Mr. McGuinness, Mr.
Adams has consistently denied
ever being a member of the
Irish Republican Army, although Sinn Féin acted as that
group’s political arm and Mr.
Adams has consistently defended its actions.
The conflict largely ended in
1998 with the signing of the
Good Friday peace accords,
which were brokered by the
U.K., Irish and U.S. governments.
Under Mr. Adams’s leadership, Sinn Féin became a more
traditional left-of-center party,
although its primary goal remains union between Northern Ireland and the Republic
of Ireland. In the wake of the
U.K.’s June 2016 vote to leave
the European Union, Mr. Adams called for a referendum
on unification, although that
option was rejected by both
the British and Irish governments. Northern Ireland voted
to remain a part of the bloc.
Italy Struggles to Absorb Refugees
BY GIOVANNI LEGORANO
AND DEBORAH BALL
ROME—Ibrahima Sillah arrived in Italy three years ago
on a rickety boat.
He says he is illiterate and
speaks virtually no Italian. A
farmer back home in Gambia,
Mr. Sillah has only occasionally
managed to find work picking
fruit, for less than €3 ($3.54)
an hour, despite having a work
permit. He lives in a tent city
behind a Rome train station.
“I can’t do anything without a job,” said Mr. Sillah, 30
years old. “It’s too important.”
Italy is facing a daunting
challenge integrating refugees,
even as the pace of seaborne arrivals on its shores shows signs
of slowing. Since 2012, 150,000
people have won refugee status
in Italy, and another 155,000 applications are pending.
Other European countries,
such as Germany and Sweden,
are wrestling with the same
task. But Italy is doing so with
a chronically weak economy,
high unemployment and a
state bureaucracy that often
fails to provide a social safety
net even for native-born Italians. And many refugees lack
marketable skills, officials and
aid groups say.
“It is a challenge that makes
your hands shake,” said Domenico Manzione, an undersecretary at Italy’s Interior Ministry
who is in charge of immigration.
The Italian government approved the country’s first-ever
plan for integrating refugees in
late September. The plan sets
out general priorities such as
providing Italian lessons, work
training and housing to people
who obtain the right to live
and work in the country, but
doesn’t spell out how Italy will
achieve the goals.
Italy has so far concentrated
largely on providing emergency
food, shelter and basic support
to new arrivals, with nongovernmental organizations and
especially the church in the
front line. But a patchwork of
existing efforts, often in the
private sector, to assimilate refugees into Italian society falls
SIMONA GHIZZONI FOR THE WALL STREET JOURNAL
Sinn Féin
Leader
To Quit
Next Year
Some refugees seeking asylum have been living in a tent camp near Tiburtina station in Rome.
Tough Transition
Italy is struggling to integrate tens of thousands of migrants amid an already strained job market.
Many of the new arrivals face cultural hurdles and lack marketable skills.
Number of migrants applying
for asylum in Italy
Unemployment rate,
monthly
150 thousand
15%
100
10
50
Italy
Share of migrants to Italy
surveyed who are...
Eurozone
5
male
83%
African
81
Muslim
60
26 years
or younger
58
high school
graduates
0
0
2009 ’10 ’11 ’12 ’13 ’14 ’15 ’16
2010 ’11 ’12 ’13 ’14 ’15 ’16 ’17
Italian
speakers*
16
1
*Among those in country less than one year Sources: Eurostat (asylum applications, unemployment); International Organization for Migration
survey of 1,031 migrants conducted April–July 2016
THE WALL STREET JOURNAL.
well short of meeting existing
needs, aid groups say. And
those needs are expected to
grow as the government processes pending applications.
“Italy focused a lot on the
reception and first care of refugees, forgetting about their
integration,” said Rev. Camillo
Ripamonti, the president of
Centro Astalli, a Jesuit refugee
service that runs a number of
programs to help refugees find
housing and work. “Now integration is the weakest link.”
Italy saw little immigration
until the early 1990s. But hundreds of thousands of migrants have arrived in the
country in recent years, most
of them traveling by boat
across the Mediterranean Sea.
But the number of seaborne
arrivals has dropped off significantly since July. So far,
about 114,000 have arrived in
2017, compared with 180,000
for all of last year.
“If we can control the numbers of people arriving, we
can integrate them better,”
Italian Interior Minister Marco
Minniti said. “We are now
looking at numbers of arrivals
that are difficult but not impossible to integrate.”
Previous waves of migrants
included many individuals—often women—with education
and work experience that allowed them to find employment
relatively quickly. Those people,
many from North Africa and
Eastern Europe, relied on networks within their national and
ethnic groups to find housing,
jobs and support, with minimal
intervention by the state, aid
groups and officials say.
By contrast, only about 16%
of migrants in recent years have
a high school degree, and 10%
are illiterate, according to a
2016 survey by the International
Organization for Migration, a
United Nations agency. About
80% are African men, and a
similar percentage are under 30.
State
resources
are
stretched so thin that Italian
citizens often wait years for
public housing, and many refugees are forced to squat in
abandoned buildings. In August,
police used water cannons to
force 800 Eritrean refugees out
of a building they had occupied
in central Rome for years.
“These people find themselves in devastating situations,” said Federica Borlizzi, a
law-school student who collaborates with aid group Alterego-Fabbrica dei Diritti,
giving free legal advice to refugees and helping refugee
women who have been victims
of sex trafficking.
Amidou Wahabou, 32, a refugee from Togo, found a night
job as a security guard in a betting parlor in Rome a year ago.
That meant he was no longer
entitled to stay in the migrants
center that had sheltered him
for about two years.
Unable to afford housing, he
slept for two months at Rome’s
Termini train station. Finally, he
was admitted to a church program that lets him rent a room
for €100 a month. “It’s a big
help,” said Mr. Wahabou, who
sends at least €150 a month to
support his son in Togo.
His neighbor Ousman Dibbasey, 25, a Gambian refugee
in the same church program,
works as a cultural mediator
with other migrants. “I worry
a lot about the future,” he
said. “I am fighting every day
to have a better life.”
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To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A10 | Monday, November 20, 2017
THE WALL STREET JOURNAL.
* *
TINTED
Continued from Page One
those of thousands of Turkish
drivers who had their windows tinted during the yearlong ban eclipse, have reached
the ear of President Recep
Tayyip Erdoğan. “They got it
wrong,” Mr. Erdoğan told a
gathering of lawmakers from
his ruling Justice and Development Party on Nov. 9. “I’ve ordered them to fix it.”
“Thank God, the president
heard our voices,” said Serkan
Bakırtaş, chairman of Turkey’s
federation of car-repair shops
TOBFED, who is lobbying for
more transparent rules.
With five million to six million cars—a quarter of vehicles on the road in the country—having tinted film, he
added, “the most important
thing now is to pick a date for
a glass-film workshop.”
The government said it was
working on issuing revised
rules, leaving many Turks with
a lack of clarity about whether
tinted windows would be legalized or outlawed.
As it turns out, tinted glass
has many countries groping in
Buying bonanza
During China’s buying bonanza, HNA was among its
biggest acquirers, doing more
than a quarter of the $65 billion in announced Chinese
deals into the U.S. in 2016, according to Dealogic. It has
45,000 employees in the U.S.
It started as a regional airline, founded by Chen Feng
and Wang Jian, former employees of China’s Civil Aviation Administration, HNA documents show. Mr. Tan, a
principal architect of its expansion, joined in the early
1990s as an assistant to Mr.
Chen, according to filings.
Mr. Tan, with an M.B.A.
from St. John’s University and
a Harvard diploma, said he admires America’s entrepreneurial spirit, legal system and
free-market devotion: “We at
HNA share those core values.”
To accelerate growth, HNA
acquired stakes in aviation
companies from France to Africa. It bought airports and
hotels and expanded into logistics, transportation, insurance, futures brokerage, cloud
computing, bulk commodity
trading and oil storage.
It spent $140 million on Seattle golf courses and invested
$336 million in San Franciscobased RocketSpace Inc., which
helped launch Uber Technologies Inc. and Spotify AB. It
spent nearly $80 million on a
Manhattan townhouse.
As HNA’s deal-making expanded in 2016, internal tensions were building, said people close to the company. Mr.
Chen, co-founder and co-chairman, wanted HNA to remain
focused on aviation, logistics
and tourism, they said. Mr.
the dark.
In the U.S., states have Byzantine rules regulating accepted shades of black and
sometimes the maximum
width of windshield sun strips.
In the United Arab Emirates,
the Federal Traffic Council recently raised the tint limit to
50% from 30%, saying darker
windows offered better protection against sun rays.
Tajikistan, which had long
banned dark windows in its
crime crackdown, has turned
tinted glass into a money spinner for state coffers. Since
2010, car owners in the Central Asian country can equip
their vehicles with tinted glass
as long as they pay an annual
tax, which stands at 3,100
somoni, about $350.
In Turkey, motorists have
had a long love affair with
noir film, especially in sunkissed coastal regions. Many
have ignored a 1997 ban on
“tinted film.”
A driver from the southwest city of Izmir, who asked
not to be quoted by name, said
his Honda CR-V was fitted
with window film that blocks
70% of sunlight. That keeps
the interior of the vehicle cool
and helps deter thieves who
HNA’s Deals Since 2010
Value
Outbound
$5 billion
$1.5
Undisclosed
Deutsche
Bank†
Domestic
Ingram
Micro
Hilton
CIT
2010
’11
’12
’13
’14
’15
’16
’17*
*As of Nov. 14 †Includes initial investment of $813 million only
THE WALL STREET JOURNAL.
Source: Dealogic
than $2.8 billion in loans and
a series of complex derivative
transactions, filings show.
For the Hilton deal, HNA
used margin loans—borrowing
against stockholdings, sometimes in the target company—
to cover $3 billion of the cost,
according to regulatory filings.
Such tactics can be risky because if the assets fall in
value, banks can force buyers
to supply new funds quickly.
Mr. Tan said HNA’s stake
has “appreciated significantly
since our initial investment.”
Other investments have
come at a premium, including
land HNA bought at Hong
Kong’s old Kai Tak airport at
88% above market valuation
starting late last year—financed through bank loans
and interest-free unsecured
loans from other parts of the
firm, a regulatory filing shows.
After HNA spent $2.8 billion for Swissport Interna-
tional Ltd., the Zurich cargo
handler found itself in breach
of debt covenants with lenders
because an HNA subsidiary
had pledged its shares toward
a loan. After addressing the
default, HNA is reviewing options for the company, people
familiar with the episode said.
HNA executives, defending
its debt-heavy deal-making,
said HNA tries to be a smart
investor and is taking steps to
limit risk.
Ownership questions
Then there is the mystery
over HNA’s ownership and
structure. An exiled Chinese
real-estate tycoon, Guo Wengui, has alleged that HNA’s
shareholders may include individuals connected with Communist Party leaders—potentially a sign of corruption or
favoritism, he has said. HNA
denies shareholders include
KEY PLAYERS
CHRISTOPHER GOODNEY/BLOOMBERG NEWS
which made aggressive global
bids, is among the companies
that have faced regulatory review of their debt and was
eventually forced by Chinese
regulators to slow its growth.
Anbang declined to comment.
Dalian
Wanda,
which
bought AMC Entertainment
Holdings Inc., has unloaded
assets to pay down debt and
dropped plans to buy Dick
Clark Productions Inc. It declined to comment.
Cross-border deals announced by Chinese companies into the U.S. in 2017 were
down about 80% as of October
from the same period a year
earlier, according to data provider Dealogic, to $12.4 billion.
The worry is that conglomerates, by pulling back, could
slow the global-acquisitions
trend and affect markets.
“There is the risk of financial
damage, but also public embarrassment if there is a big
Chinese company that could
go bankrupt,” said Thilo Hanemann, a director at the New
York consultancy Rhodium
Group leading its work on
global trade and investment.
“Plus of course, contagion
risk,” he said—the risk that financing troubles at a Chinese
company that has borrowed
around the world could have
global ripple effects.
Already, some credit-rating
firms, such as Standard &
Poor’s, have expressed wariness about HNA’s impact on
acquired companies, whose
cash flows the Chinese acquirer tends to tap.
On Nov. 3, Chinese regulators again tightened rules on
outbound investment, requiring that companies investing
Wang, long Mr. Chen’s secondin-command and now cochairman, wanted HNA to act
more like an investment firm
acquiring stakes across sectors, some of the people said.
Mr. Tan sided with Mr.
Wang, some of the people
said. HNA declined to make
Messrs. Chen and Wang available for comment. “HNA
Group’s senior leadership team
is unified behind its corporate
strategy,” a spokesman said.
Deal-making intensified, including HNA’s $6.5 billion acquisition of a 25% Hilton
Worldwide Holdings Inc. stake
in October 2016 and a $4 billion acquisition of CIT Group
Inc.’s aircraft-leasing business.
Instead of targeting profitable companies, HNA sought
assets with considerable revenues that would hasten its rise
up the Fortune 500, said people familiar with HNA’s strategy, with Mr. Tan encouraging
its subsidiaries to acquire
stakes in other companies.
HNA eyed target companies’
assets it could use as collateral to back further purchases.
This strategy can be perilous, bankers and analysts said,
because if the value of the assets backing these transactions drops, the investments
and loans dependent on it can
be put in jeopardy.
HNA increasingly deployed
complex financing strategies
more common among hedge
funds and private-equity firms
than traditional conglomerates
looking for long-term investments. In the Deutsche Bank
investment, it relied on more
ERIC PIERMONT/AGENCE FRANCE-PRESSE/GETTY IMAGES
Ballooning Chinese
conglomerates now
have heavy debt and
are sparking fear.
HNA announced deals totaling more than $40 billion since 2015; above, HNA’s building in Beijing.
Chen Feng
Co-founder, co-chairman
Age: 64
Wang Jian
Co-founder, co-chairman
Age: 55
Adam Tan (Tan Xiangdong)
Co-founder, CEO, vice chairman
Age: 50
Chen Feng studied aviationmanagement in Germany. After
a stint working at a World
Bank office in Hainan, he was
asked by the resort island’s
government to launch its airline. He raised much of the
money for the airline by selling
stakes to private investors.
Wang Jian also started his career as an aviation official. He
joined Mr. Chen to help start
Hainan’s airline. He helped establish the Hainan Province
Cihang Foundation, HNA’s charitable foundation, which is
based in the island’s capital of
Haikou.
Adam Tan is the primary architect of HNA’s global expansion.
He got a master’s degree in
economics, then worked with
the World Bank at the same
time as Chen Feng. He came to
work with Mr. Chen at Hainan’s
airline venture in the early
1990s.
can’t see inside, he said.
Dark film isn’t about aesthetics, “it’s a must-have,” the
driver said.
As the ban became a source
of collisions with authorities,
some drivers took umbrage.
Demet Derya Doğan was
driving on the posh Baghdad
Street of Istanbul in May 2015
when she got pulled over and
fined because her Audi A3
sported dark windows.
She took the matter to
court. In her petition, she said
she dreamed of a society
where women wouldn’t need
tinted film as protection. “But
for now, we need it against harassment,” Ms. Doğan said.
In December 2015, an Istanbul criminal court annulled
the fine, citing a mistake in
police paperwork.
Around that time, staff at
the Science Ministry was
working on bringing Turkey’s
rules on auto production into
conformity with European
Union regulations. Despite uncertainties over the fate of
Turkey’s application for EU
membership, Turkish technocrats were transposing Eu-
rope’s thicket of directives.
On Oct. 26, 2016, the Science Ministry published regulations on car production in
the Official Gazette. Article 14
said “glass film” could be fitted on car windows.
What the line meant is subject to controversy. At the
time, Turkish media spread
news that the 1997 ban on
“tinted film” had been lifted.
As drivers queued at tinting
shops, Turkish Interior Minister Süleyman Soylu grew
alarmed. He said he was worried that several terrorists
have used cars with tinted
windows to conduct attacks or
escape, and shared his concerns with the Science minister, Faruk Özlü.
In October, the Science
Ministry published a new regulation, making clear the 1997
ban applied.
“Tinted films are important,
but security is more important,” Mr. Özlü said.
Some Turks disagreed, and
found a way to attract the
president’s attention. They
filled online complaint forms
on the website of the Ombudsman Institution, a mediation
body Mr. Erdoğan created five
years ago.
DAVID GAUTHIER-VILLARS/THE WALL STREET JOURNAL
Continued from Page One
scaled back dealings with
HNA, citing its complex ownership structure, people familiar with the matter said. HNA
has faced sharply higher borrowing costs in recent weeks.
Mr. Tan, 50, has traveled
around the world to persuade
lenders and companies to keep
working with HNA. In one of a
series of statements to The
Wall Street Journal from Mr.
Tan and HNA, the company
said it signaled earlier this
year that its investment pace
was likely “to moderate somewhat this year relative to
2016,” and that HNA would
“continue to take a disciplined
approach to actively identifying, evaluating and pursuing
strategic acquisitions.”
HNA and Chinese conglomerates like it have become a
question mark in global finance. They electrified the investment world with a mergers-and-acquisitions bonanza.
Encouraged by Beijing, Chinese firms had $220 billion in
foreign acquisitions last year.
Now, they have heavy debt
and are sparking fears they
could pose a systemic risk to
China’s economy—as well as
uncertainty over the future of
cross-border investment. Anbang Insurance Group Co.,
CHRIS RATCLIFFE/BLOOMBERG NEWS
HNA
in certain sensitive areas seek
approval if the deals are done
through an offshore subsidiary. HNA and other conglomerates often do deals through
such entities.
Uncertainty surrounding
HNA is compounded by the
opacity of its ownership and
corporate structure—a web of
subsidiaries that makes it hard
to see who controls what.
There are no signs HNA’s
businesses are in dire straits.
HNA’s assets were 1.21 trillion
yuan (about $178 billion) as of
June 30, according to filings,
up from 1.02 trillion yuan at
the end of 2016. Its revenues
in the first half of 2017 were
272 billion yuan, up 92% from
the previous six months.
But its net income fell
nearly 10% to 812.5 million
yuan in the same period, and
HNA has estimated the group
has more than $100 billion in
total debt, saying it is taking
steps to limit risk.
As lenders have become
less willing to fund HNA in recent months, its cash situation
has tightened, according to a
person familiar with HNA. Executives told people inside
and outside the company that
it was in “wait-and-see mode”
on major new deals until
China’s gathering of Communist Party leaders in October,
but HNA’s deal-making pace
hasn’t resumed.
Some HNA employees involved in finding deals have
left due to the pause in deal
flow, said some of the people
familiar with HNA. Mr. Tan
has told others in recent
weeks he has fresh doubts
whether the SkyBridge deal
will close, said people familiar
with the discussions.
QILAI SHEN/BLOOMBERG NEWS
IN DEPTH
An Istanbul mechanic peels tinted film from Osman Özen’s BMW.
people connected to party
leaders. It filed a lawsuit in
New York state court alleging
Mr. Guo has made “repeatedly
false and defamatory statements.” Mr. Guo said he welcomed any such legal battle.
HNA revealed more ownership details in July, naming
for the first time all its ultimate beneficial owners, including a New York foundation
with a nearly 30% stake as its
single largest shareholder. Mr.
Tan owns 2.95% of the group.
The disclosure didn’t explain who HNA’s shareholders
had been as it was buying assets across the world, what
the value of the HNA shares
were and how they were
transferred among HNA’s
stakeholders. There are also
questions about the role of the
charity, less than a year old.
HNA said it realized there
was increasing interest in its
ownership and corporate
structure and would “continue
to increase transparency on
these matters accordingly.”
Goldman Sachs Group Inc.
suspended work on an initial
public offering of an HNA unit,
and Bank of America Corp.
pulled out altogether, both citing concerns over HNA ownership, people familiar with the
IPO effort said. The IPO is on
hold, one of the people said.
HNA Group said “we
strongly contest” reports
global banks have stopped
working with it. Mr. Tan has
sought guidance from Western
executives on addressing the
pressure, said people familiar
with the conversations. In a
July meeting with Carlos Hernandez, J.P. Morgan Chase &
Co.’s head of global banking,
Mr. Hernandez told Mr. Tan
HNA was “playing in the big
leagues, like the NFL,” and
should expect scrutiny, said a
person familiar with the talks.
HNA has been meeting with
banks including J.P. Morgan
and Goldman and answering
questions about ownership,
people familiar with the discussions said. One of these
people said answers received
so far had been unsatisfactory.
Another said HNA has been
forthcoming with materials
but that questions remained.
One concern is whether
HNA can afford to hold its empire intact as its borrowing
costs rise, according to investors, analysts and credit raters. In HNA’s half-year results
released in August, financing
costs more than doubled as
borrowing rose sharply.
In a continuing bid to acquire Hong Kong-listed asset
manager Value Partners Group
Ltd., HNA in April tried to finance the deal at an interest
rate of 8% to 9%, said a person
familiar with the bid. But the
potential lender believed the
rate should be closer to 15%,
given HNA’s rising debt, the
person said. The deal hasn’t
closed, according to filings.
HNA declined to comment.
This month, an HNA unit
said in a filing it would sell
and repurchase 4 million
shares—a form of short-term
borrowing—of NH Hotel Group
SA to “provide liquidity.”
Over the past year, HNA
subsidiaries have raised nonpublic equity—privately selling shares to investors instead
of on a public exchange—by issuing at least 30 billion yuan
to repay liabilities and bolster
capital, filings show.
—Jenny Strasburg
contributed to this article.
“This prohibition is a big
mistake,” one plaintiff said,
according to complaints seen
by The Wall Street Journal.
“I’m sure that if we checked
the cars of people who come
up with such regulation, we
would find that they use
tinted glass.”
“The use of tinted glasses
must be encouraged,” another
plaintiff said, “especially because they are good protection
against skin cancer.”
Bülent Deniz, a Turkish
lawyer and the chairman of
the national federation of consumer-rights groups, said he
has also received hundreds of
complaints.
“This is beyond reasonable,” he said. “We shouldn’t
be dealing with this day and
night.”
In Istanbul, Mr. Özen might
have held off before removing
film on his BMW. After Mr.
Erdoğan ordered the government to find a compromise,
the Interior Ministry said police wouldn’t fine drivers riding with tinted glasses until
new rules are adopted.
As a mechanic peeled off
film with a steam gun, Mr.
Özen shook his head. “I won’t
have it on again,” he said.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A10A
NY
* * * *
GREATER NEW YORK
Sex-Harass Suit
Says State Ignored
Worker’s Concerns
Bobby Ben-Simon, below, is
challenging the landmark
status of 283 Soundview Ave.
A Couple Faces Historic Problem
Landmark designation
thwarts their plan to
tear down ramshackle
house in White Plains
BY KEIKO MORRIS
Bobby and Tamar Ben-Simon thought they had found
the perfect site to build a new
family home.
The couple had planned to
tear down the sprawling but
dilapidated stucco house in
White Plains, N.Y., and build a
home that would be a gathering point for
PROPERTY their children,
most of whom
are grown, and
future grandchildren, said Mr.
Ben-Simon. The 4.3-acre property at 283 Soundview Ave. is
next door to a synagogue, a
convenient walk for family
members during the holidays,
he said.
But for the past two years,
those plans have been on hold
as the Ben-Simons have grappled with a new government
body standing in their way.
When the couple signed the
contract to buy the home in
January 2015, Mr. Ben-Simon
said, their research turned up
no obstacles. But after closing
Sites Designated
For Preservation
1. Daughters of the American
Revolution Monument
Armory Place
Erected 1910
White Plains, N.Y., the
The monument, designed by
Westchester County seat some Bruno Louis Zimm, is a bronze
30 miles north of New York
eagle on a neoclassical obelisk
City, established its historicat the site of the original county
preservation law in May 2015 to courthouse where the New York
protect buildings and other sites Provincial Congress accepted the
deemed historically or architecDeclaration of Independence and
turally significant. The city’s first declared New York an indepenlandmark designation, Sounddent state between July 9 and
view Manor, is being challenged 10, 1776. Stones from the courtby the property’s owners.
house foundation are incorpoSince the formation of the
rated in the monument.
city’s Historic Preservation Commission two years ago, the
2. Foster-Buckhout Cemetery
body has made a handful of
Hall Avenue
landmark recommendations,
1820s
from monuments to cemeteries. A family burial ground dating
Here are a few, as described on from about 1820 to 1948 and
the White Plains Historic Preslocated on Pine Tree Farm of
ervation Commission’s webpage. John Foster Sr.
on the house in August 2015
they learned the city had enacted a preservation law three
months earlier and launched a
commission. Almost two
months after they closed the
deal, the ramshackle house
they had purchased to knock
down and replace was on a
swift path to being designated
3. Jack Harrington Greenway
(formerly New York,
Westchester & Boston Right of
Way)
Located between Gedney Way and
the Scarsdale Border
The former right of way for the
defunct New York, Westchester
& Boston Railway Co. train service beginning in 1912. The city
dedicated the area as the White
Plains Greenway in 1996. A 1.4mile walking trail was later created on this stretch of land that
was renamed for local preservation advocate Jack Harrington.
4. Jacob Purdy House
60 Park Ave.
Around 1720
Farmhouse that served as the
headquarters of Gen. George
Washington for a period during
the Revolutionary War. The
De Blasio Knew About Lead Issue
BY MIKE VILENSKY
AND MARA GAY
New York City Mayor Bill
de Blasio has known the city’s
housing authority wasn’t complying with lead-inspection
regulations since last year, his
office said Sunday.
In a report issued last
week, the city’s Department of
Investigation said the New
York City Housing Authority
submitted false claims to the
federal government showing it
had conducted lead-paint inspections when the required
work hadn’t been done for
years.
The mayor was first informed of “the possibility of
non-compliance” in March
2016, his office said.
Mr. de Blasio, a Democrat
who was re-elected to a second term on Nov. 7, has said
“operations executives” were
responsible for the lapses.
The housing authority notified City Hall that the agency
wasn’t in compliance with local laws in April 2016 and with
U.S. Department of Housing
and Urban Development rules
in July, according to de Blasio
spokeswoman Olivia Lapeyrolerie.
“As part of the agency’s response, NYCHA inspected ev-
ery apartment with kids under
6 where there may have been
lead paint in 2016 and will do
so again by the end of 2017,”
Ms. Lapeyrolerie said.
Mr. de Blasio’s awareness of
the inspection issues was reported earlier by the New York
Daily News.
The revelation comes as
NYCHA’s commissioner, Shola
Olatoye, who Mr. de Blasio appointed in 2014, is facing scrutiny in the matter.
Since last year, the
mayor has known the
city wasn’t complying
with inspection rules.
The city’s public-housing
authority manages the largest
stock of affordable housing in
the U.S., providing homes for
more than 400,000 people.
The report from the investigations department found that
Ms. Olatoye told HUD officials
in 2016 that the city agency
wasn’t in compliance, but then
signed off on a report showing
otherwise. The allegations in
the report appear to be based
on a probe by federal investi-
gators into health conditions
in the city’s public housing
and homeless shelters.
After the report was released, Jean Weinberg, a NYCHA spokeswoman, said the
agency already had begun to
address the issues in connection with that investigation.
“Since the Housing Authority learned it wasn’t in full
compliance with lead-based
paint regulations and reporting, it has taken steps to address the underlying issues,”
Ms. Weinberg said in a statement. “We owe our residents
better, and we’ll take today’s
recommendations into careful
consideration.”
New York City Public Advocate Letitia James has called
on Ms. Olatoye to resign. Mr.
de Blasio said Ms. Olatoye is
“turning NYCHA around” and
“isn’t going anywhere.”
On Friday, two senior NYCHA officials resigned and another was demoted.
Brian Clarke, one of the officials was the agency’s senior
vice president for operations;
the other was Jay Krantz, director of technical services.
Luis Ponce, a senior vice president for operations, was demoted and suspended for 30
days without pay, the agency
said.
a historic landmark.
The White Plains Historic
Preservation Commission sees
the 1920 house as a significant, intact example of a
beaux-arts architectural style
and one of the few buildings in
the city some 30 miles north
of Manhattan that embodies
the characteristics of a classic
manor house built for the
wealthy.
The homeowners disagree.
“It’s a basic stucco house
with no special features, not
even nice stone work,” said
Mr. Ben-Simon, a builder of
luxury single-family homes.
“It’s just a plain stucco house.”
Now the couple is petitioning in state supreme court in
White Plains to overturn the
designation. They allege the
city has disregarded their
property rights and carried
out the landmark law in a way
that was at times secretive
and confrontational and was
Please see HOME page A10B
house, which was relocated
from Spring Street, was owned
by the family of Jacob Purdy, an
officer in the Westchester militia during the war.
5. Percy Grainger home and
studio
7 Cromwell Pl.
Around 1892
Musician and composer Percy
Grainger bought the house in
1921. Today it is managed by
the International Percy Grainger
Society.
6. Soundview Manor
283 Soundview Ave.
Around 1920
A neoclassical mansion designed
by Chester A. Patterson. Historic
designation documents describe
it as an example of the beauxarts architectural style.
A New York state government employee has filed suit
in Manhattan alleging that she
was sexually assaulted by a
former high-ranking state economic-development aide and
that Gov. Andrew Cuomo’s office ignored her complaints.
In the federal lawsuit, Lisa
Marie Cater alleged she was
“forcefully” kissed and groped
by Sam Hoyt, a senior vice
president at the Empire State
Development Corp., who
helped her get a job at the Department of Motor Vehicles.
Mr. Hoyt, she said, sent her
an unsolicited nude photo of
himself and engaged in other
forms of harassment before
and for about a year during
her employment in 2016 and
told her he had the power to
get her fired. Ms. Cater, who is
a 51-year-old domestic-abuse
survivor, according to the lawsuit, went out on disability
last year.
During a Sunday news conference in Manhattan, Ms. Cater said she hopes “not another woman has to go
through what I went through.”
The lawsuit was filed Saturday in the federal district
court in Manhattan, said her
attorney, Paul Liggieri. Mr.
Hoyt, the Empire State Development Corp., Mr. Cuomo and
the state of New York are
named in the suit.
“Sam has previously acknowledged and expressed regret for a short-term, consensual relationship with Ms.
Cater, Terrence Connors, Mr.
Hoyt’s attorney, said in an
email on Sunday. “These new
allegations are inconsistent
with her original story and
contradicted by her own email
and text message correspondence.”
In the lawsuit, Ms. Cater
said she complained to the
governor’s office several times
by phone and email about Mr.
Hoyt, but was “ignored.” Mr.
Cuomo’s office told her to contact Mr. Hoyt’s manager, the
suit stated, though Mr. Hoyt’s
supervisor “was the governor.”
Mr. Cuomo’s counsel, Alphonso David, confirmed that
Ms. Cater complained about
the situation, but said state
agencies looked into the allegations.
“The state launched three
separate investigations into
this matter, and any assertion
to the contrary is patently and
demonstrably false,” Mr. David
said. “We expect this matter
to be summarily dismissed.”
The first probe, headed by a
state agency on employee relations, found the matter “warranted further review by the
Inspector General’s Office,”
Mr. David said. He said Ms.
Cater didn’t fully cooperate
with the Inspector General’s
probe, and the matter was referred to a third agency, the
Joint Commission on Public
Ethics. The investigation is
pending.
“There was absolutely cooperation on the part of my
client,” Ms. Cater’s attorney
said Sunday at the news conference.
The lawsuit described Ms.
Cater as “poor and destitute.”
It alleged Mr. Hoyt paid her
$50,000 to settle the matter,
telling her that Mr. Cuomo’s
office had told him to “make
this go away.” Mr. David denied that the governor’s office
responded in this manner.
Mr. David said Mr. Hoyt was
told to have no further interaction with Ms. Cater and to co-
FROM TOP: DAVID DUPREY/ASSOCIATED PRESS; ALEXANDER COHN/THE WALL STREET JOURNAL
HOLLY PICKETT FOR THE WALL STREET JOURNAL (2)
BY MIKE VILENSKY
Lisa Marie Cater alleged former
Cuomo aide Sam Hoyt, top,
groped and forcefully kissed her.
operate fully with the investigations. It isn’t clear if Mr.
Hoyt left state government in
October as a result of the investigation.
In 2008, Mr. Hoyt, a former
upstate assemblyman, was
punished by then Assembly
Speaker Sheldon Silver after it
surfaced that Mr. Hoyt had an
affair with an intern. Mr. Hoyt
admitted to the affair and was
barred from working with interns. Mr. Cuomo, a Democrat,
appointed Mr. Hoyt to the
state’s economic development
agency in 2011.
Ms. Cater’s suit comes amid
heightened scrutiny of workplace sexual harassment and
assault in the wake of scandals
involving movie producer Harvey Weinstein, actor Kevin
Spacey, Democratic Sen. Al
Franken and Republican Alabama senate candidate Roy
Moore, among others.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
A10B | Monday, November 20, 2017
NY
* *
THE WALL STREET JOURNAL.
GREATER NEW YORK
Some Fork Over $200+ for Turkey
Actor Strives to
Capture Cuomo’s
‘Internal Truth’
BY MIKE VILENSKY
Gov. Andrew Cuomo has a
reputation as a guarded chief
executive, but actor Michael
Imperioli wants to show a
deeper side of the New York
Democrat.
“I’m trying to capture more
of his essential nature,” Mr.
Imperioli said in a phone interview, “the internal truth.”
Mr. Imperioli, a 51-year-old
New York native famous for
his role as Christopher Moltisanti in the HBO series “The
Sopranos,” will play Mr.
Cuomo in a limited Showtime
series focused on a 2015 upstate prison break, he confirmed on Friday.
Michael Imperioli
plays Andrew Cuomo
in a limited Showtime
prison-break series.
®ROBERTOCOIN
The casting news was reported earlier by Variety.
Mr. Cuomo, who is 59 years
old, has made rare appearances
as himself on entertainment
programs, such as a 2013 episode of “The Deadliest Catch:
The Bait,” a Discovery Channel
reality-show about fishing, but
has never had a high-profile
Hollywood depiction.
The governor declined to
comment.
The coming series, produced by Ben Stiller, focuses
on the three-week manhunt
for convicted murderers who
escaped from the Clinton Correctional Facility, a New York
state prison.
Mr. Imperioli said Mr.
Stiller asked him to play the
part in the series, which
doesn’t have a release date.
It is highly anticipated in
New York political circles and
has led to speculation about
whether Mr. Imperioli can nail
Mr. Cuomo’s style. “To be successful, Imperioli must adopt
the governor’s hand movements and that cold look he
has in his eyes when people
aren’t listening to him,” said
Hank Sheinkopf, a Democratic
strategist and former Cuomo
campaign adviser.
Mr. Cuomo appeared at the
prison shortly after news of
the escape broke and held a
news conference detailing how
the inmates pulled it off, partially retracing their steps
through a path they drilled
into a wall. After the manhunt,
one man, Richard Matt, was
killed by state troopers; the
other, David Sweat, was captured and returned to custody.
Mr. Cuomo’s handling of the
crisis was commended by
some as hands-on. Critics,
however, questioned how it affected other prisoners at the
Clinton facility.
An inmate who said he was
beaten by officers looking for
information about the escape
sued Mr. Cuomo this year, saying the governor’s visit to the
facility encouraged improper
behavior by officers. A Cuomo
spokesman called the lawsuit
“baseless.” A corrections
spokesman had no comment.
Mr. Imperioli, for one, said
the governor handled the situation well.
“I’ve watched that press
conference 8,000 times,” Mr.
Imperioli said. “He was proactive about seeing what happened there, and that’s what
good leadership is.”
Mr. Imperioli won an Emmy
for playing Mr. Moltisanti, a
rising star in an organizedcrime family who is derailed
by drug addiction.
As for his politics, Mr. Imperioli said he is an independent who votes for Democrats
and wants Mr. Cuomo to run in
2020 for the presidential nomination. “I think he’s been a
great governor and would be
an amazing president,” he said.
The actor added that he
won’t try to think too much
about that while portraying
the governor, who is planning
a 2018 re-election bid.
ROBERTO COIN BOUTIQUE
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Grunler Westermann, the birds
have plenty of pasture to explore.
The result, she says, is one
tasty turkey. “You really feel
how they live” with every
mouthful, she said.
Still, some food experts remain skeptical, noting that
turkey isn’t very flavorful—no
matter where it is sourced or
how it is raised. Hence, the
reason the Thanksgiving meal
is so much about the side
dishes.
“Unless a turkey can get up,
turn on the oven and put itself
in the roasting pan, it is rarely
worth much more than a dollar a pound,” said Allen Salkin,
a New York-based food writer.
Sure enough, New Yorkers
can still find plenty of turkey
options for $1-$2 a pound, or
even less.
ShopRite, the supermarket
chain with more than 200
stores in the tri-state area, offers a free-frozen turkey, up to
21 pounds, to customers in its
Price Plus Club program, provided the shoppers spend
$400 in the weeks leading up
to Thanksgiving.
Still, sellers of high-end
turkey stick by their product
and say there is no comparing
a supermarket bird with a specialty one.
Stanley Lobel, a partner in
Lobel’s, an Upper East Side
butcher store that sells farmraised birds for $10.98 a
pound, likens his turkey to the
best in beef.
“It’s like prime rib,” he said.
MARK KAUZLARICH FOR THE WALL STREET JOURNAL
Michael Imperioli will portray New York Gov. Andrew Cuomo in a
limited Showtime cable television series produced by Ben Stiller.
When it comes to this
year’s holiday bird, New Yorkers aren’t afraid to break out
their wallets.
A number of gourmet markets and high-end butchers
throughout the city are selling
specialty turkeys for Thanksgiving that run $200-$300plus. And in most cases, that
doesn’t include sides.
At Eli’s Market on Manhattan’s Upper East Side, options
start at $6 per pound for a
free-range, all-natural turkey,
but can go as high as $11 a
pound for a “heritage” breed
variety.
With turkey weights that
run from about 10 to 30
pounds, the cost for a bird
easily could hit the triple-digits.
“People are really concerned about where their meat
is coming from, and because
of that they’re willing to pay
higher prices,” said Marc
Reyes, head butcher at Eli’s
Market.
Purveyors of these pricey
birds say they have no problem finding customers.
Le Coq Rico, a restaurant in
Manhattan’s Flatiron District
that specializes in poultry,
says it has sold out of its allotment of heritage turkeys for
to-go orders, priced at $280
each with sides.
The restaurant is offering a
variety sourced from a Kansas
farm, where, according to Le
Coq Rico manager Patricia
Marc Reyes, head butcher at Eli’s Market, said consumers will pay more for a turkey because they want to know the source of the meat.
GREATER NEW YORK WATCH
CONNECTICUT
Ex-College Coed
Denies Being a Bigot
A former Connecticut college
student is accused of smearing
body fluids on her roommate’s
belongings.
Brianna Brochu, 18, was
charged with misdemeanor criminal mischief and breach of
peace. Prosecutors say they are
determining whether to add a
hate-crime charge.
Ms. Brochu, who is white, is
accused of contaminating her
black roommate’s belongings at
the University of Hartford.
Police say Ms. Brochu wrote
on Instagram about rubbing
used tampons on her roommate’s backpack and putting her
roommate’s toothbrush “where
the sun doesn’t shine.” Her
roommate, Chennel Rowe, said
she developed severe throat
pain.
Officials say Ms. Brochu no
longer attends the university,
but won’t elaborate. Ms. Brochu
said that she acted foolishly, but
she isn’t a bigot.
—Associated Press
NEW JERSEY
Police Probing Train
Fatality in New Jersey
A Dumont, N.J., man was
killed when a train hit his car
at a railroad crossing, authorities said.
The accident occurred
around 8:30 a.m. Saturday, Dumont police said.
They said it appeared that
the 54-year-old victim, whose
name police did not release,
disregarded the gates and
stopped his vehicle on the
tracks.
The man was taken to a
hospital but was pronounced
dead there a short time later.
The victim was alone in the
vehicle when the accident occurred. No other injuries were
reported.
The CSX Corp. train, which
consisted of two locomotives
and 22 cars, was transporting
containerized freight from East
St. Louis, Ill., to Little Ferry,
N.J.
The accident remains under
investigation, police said.
—Associated Press
HOME
Continued from the prior page
always headed toward a predetermined outcome.
Requests for comment from
members of the preservation
commission as well as the
mayor were referred to the city
attorney, who declined to comment on pending litigation. In
court documents, the city has
asserted that the commission
followed a preservation law
crafted over several years that
was based on the New York
State Historic Preservation Office’s model ordinance.
The legal fight highlights
the tensions that can flare between property owners and
landmarking bodies. It also
underscores the broad criteria
preservation committees can
call on to designate properties
as landmarks. To some neighbors the house has been an
eyesore; to the city’s preservation commission it is a local
treasure.
“This scenario is one in
which there is the ever-present contest between historic
preservation law and the owners being able to control their
property,” said Shelby D.
Green, a professor of law at
the Elisabeth Haub School of
Law at Pace University.
Mr. Ben-Simon said he
didn’t realize there was any
local historic designation until
his request for a demolition
permit was held up and he received a stop-work order
around Oct. 16, 2015. On Oct.
19, the city’s historic preservation commission proposed the
house be considered for landmark designation.
The property has been
HOLLY PICKETT FOR THE WALL STREET JOURNAL
GETTY IMAGES/ASSOCIATED PRESS
BY CHARLES PASSY
Peeling paint and a stairway inside Soundview Manor that is designated as a historic landmark.
listed on the state Register of
Historic Places since 2008 and
on the national register since
2009. Neither of the listings
restricts owners from demolishing or altering a property
but brings with it an extensive
study conducted by a state researcher to support its historic significance.
The home, called Soundview Manor, was built by
wealthy tobacco-company executive Robert B. Dula likely
for his son, according to a report supporting its listing on
state and national registers of
historic places. But in the
years before the Ben-Simons
bought the house, it had fallen
into disrepair, Mr. Ben-Simon
said. The previous owner had
used it illegally as a bed-andbreakfast, according to city
documents. It sat on the market for roughly a decade, its
price slowly falling from $8.5
million until the Ben-Simons
offered $2.25 million, said
Nick Wolff, a Rand Realty broker associate who handled the
transaction.
The city said in court papers it was using the law to
protect a historic structure
under imminent threat of being destroyed, one of the main
purposes of landmarking legislation, according to experts in
the field.
“The recommendation to
designate Soundview Manor as
a local landmark was reasonable and rational,” the city
said in court documents.
Mr. Ben-Simon said he now
has a white elephant on his
hands. The wood banisters and
balustrades ringing the terraces are rotting, the foundation is cracked, and the floors
are slanted and warped from
leaking pipes and radiators,
Mr. Ben-Simon said.
The couple’s original plan
to build a new home would
have cost about $900,000, Mr.
Ben-Simon said. They estimate
they would have to invest $2
million to preserve and restore
the existing structure’s facade
while overhauling the interior
to make it usable.
The commission last month
denied the couple’s application
to demolish the building, saying the Ben-Simons failed to
show hardship and that the
landmark house is unable to
bring a reasonable return. By
the commission’s calculations,
the couple could still make a
profit if they built and sold
homes on subdivided parcels,
according to city documents.
With a resolution up in the
air, the Ben-Simons now have
received preliminary approval
to split the property into four
lots.
But Mr. Ben-Simon remains
exasperated. “First they rejected my evaluation of the
cost involved,” he said in an
email. “I do have the experience to know when I get into a
financial disaster!”
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THE WALL STREET JOURNAL.
LIFE&ARTS
Monday, November 20, 2017 | A11
FASHION
What to Do in a Fashion Emergency
More retailers are offering personalized services in an effort to remind customers why brick-and-mortar stores still matter
BILL CARROLL, an energy
banker, was on his way from
one meeting to another
when he stepped on a cuff
of his suit trousers.
“I felt it,” the New Yorker
says. “I looked down and
said ‘Oh, that’s not good.
That’s definitely noticeable.’”
It was early afternoon.
Plus, he had an evening engagement. Going home to
Long Island to change wasn’t
an option. “Find a stapler?”
he wondered.
He knew a Brooks Brothers
was nearby, on Madison Avenue. He’d bought most of his
suits there. “Knowing they
had many tailors at the store,
they could most likely help me
out,” he said. So he made a
detour.
After explaining what happened, Mr. Carroll was
whisked off to a fitting
room, where he handed over
his trousers and waited
while they were being repaired by “Mario on the
fourth floor.” Less than 10
minutes later, cuff back in
place and relieved, Mr. Carroll headed out.
Bad things can happen to
good clothes. Through the course
of a workday there are countless
opportunities for coffee spills,
salad-dressing splashes, split pant
seams, broken buttons, busted
zippers, scuffed shoes, broken
heels and on and on. It’s the random plop on your lap during
lunch at your desk. Sometimes
the wardrobe mishap happens on
the way into the office. Other
times, it’s the stain, tear or missing button you didn’t notice until
you got to the office.
More shops are willing to go
the extra mile for customers in an
effort to remind them why brickand-mortar stores still matter.
Sure, online shopping is convenient. But physical stores are
banking on offering a human
touch and personal service that
not even their own online stores
can replicate. Increasingly, brickand-mortar stores are providing
more personalized services, including those once reserved for
VIPs, hoping to further endear
themselves to shoppers.
“We open at 8 a.m. for that
reason,” says Kathryn KnightWise, Northeast regional vice
president of Brooks Brothers. The
retailer typically opens locations
in metro business districts earlier
than 10 a.m. so people can make
pit stops on their way to work.
Staffs are trained to be prepared
for clothing-accident victims, such
as asking basic questions or
swiftly assessing or measuring
sizes, while keeping the person
calm. Stores keep steamers close,
ready to get wrinkles out of a
freshly unfolded purchase. They
are options.
Ann Taylor stores
see women needing an
interview suit on the
fly, says Lori Leslie
Robbins, senior director for client experience and communications at Ann Inc.
brands. Its city stores
will open earlier than
usual, sometimes on request. “We have clients
that will tap on the
door [before the store
opens] because they
spilled coffee,” says
Christine Whalen, Ann
Taylor’s regional vice
president, East.
Ann Taylor and other
stores are also increasingly flagging that their
physical stores can complement their online
stores, by allowing customers to send in lastminute requests or arrange an order online
and meet a sales associate or pick up a purchase in a nearby store.
Dry cleaners, shoe-repair shops, and some
hair salons and cosmetics stores often offer
quick-turnaround repairs
or touch-ups too. Small
fixes at a large retailer will
likely be free, while smaller independent stores may charge a fee.
Familiarity often matters: a dry
cleaner who knows you may
waive the charge for sewing a
button on your cardigan at the
last minute. And if they can accept a gratuity, tipping a savior is
always a good idea.
It’s tempting to try to get
stains out at work with products
such as Procter & Gamble’s Tide
to Go pens. The company designed the solution-filled pens for
sudden stains that need to be
treated on the spot, and its marketing promotes stashing them in
desks and purses.
Mishaps that happen when help
isn’t convenient or a quick
cleanup fails call for more creative solutions. After Marisa
Ayon-Gordon, an attorney based
in San Antonio, spilled coffee on
her blouse at work this summer,
she tried washing it out on the
spot. It only spread the stain and
made her shirt wet.
She had an important client
meeting in 20 minutes and didn’t
have a spare shirt in her car. The
closest mall was an option, but “I
knew by the time I went there,
found parking, found a store, and
a decent blouse I wouldn’t make
it back in time for my client, and
I’d have spent more than I wanted
on a shirt I might not really wear
again,” she says.
She set out for a Family Dollar
store down the street. A beige
blouse that cost less than $10 fit
the bill. She made it back in time
for the meeting. “No one was the
wiser,” she says.
DAVE KLUG (ILLUSTRATION); BENJAMIN HOSTE FOR THE WALL STREET JOURNAL (3)
BY RAY A. SMITH
Tailors at stores like Saks Fifth Avenue, J. Crew, Ann Taylor and Brooks Brothers, above right, offer services that might
include everything from replacing missing buttons to removing stains or repairing vintage leather.
are stocked with replacement
items such as shirts, blazers and
ties, especially around mid-morning breaks and lunch.
Brookfield Place NY, a luxury
shopping center in New York’s
downtown financial district, considered last-minute wardrobe
needs when selecting stores. The
two-year-old center sits within an
office complex that includes Merrill Lynch and American Express,
among others. “The retail center
is on the ground two floors and
above that are 35,000 to 40,000
employees a day walking
through,” says Callie Haines, senior vice president of asset management who oversees Brookfield
Property Partners’ New York portfolio. “That’s a lot of fashion
emergencies.”
Saks Fifth Avenue’s women’s
and men’s stores in Brookfield
Place are the only Saks in the U.S.
with a hotline, called Saks Save
Me, that customers can email
with fashion emergencies before
the store’s 10 a.m. opening. The
associate who responds can open
the store early to help the customer. During regular store hours,
customers can call or email the
hotline to alert a sales associate
of an emergency before heading
to the store. The men’s store contains a “leather spa” for on-the-go
repairs to men’s and women’s
shoes and leather accessories.
J. Crew opens its doors before
Brookfield Place’s 10 a.m. open
three to five times a week to accommodate everything from the
customer who spilled coffee on
her blouse on the subway to one
who ripped his button-down shirt
getting into a cab.
Staff members usually arrive at
the store as early as 7 a.m. so
tapping on the door, or calling the
store, before its official opening
HOME
DOES YOUR REFRIGERATOR UNDERSTAND YOU?
WSJ PHOTO ILLUSTRATION; GE APPLIANCES (2)
Alexa, tell
Geneva to preheat
the oven for some
chicken nuggets.
Would you like
to use your upper
or lower oven?
Makers of kitchen and laundry-room
appliances grapple with voice recognition
BY ELLEN BYRON
CALL IT a refrigerator,
fridge or ’frigerator and Geneva, the voice-recognition
tool used with Haier Group’s
GE Appliances, will understand. By next year, “ice
box” will work, too, the
company says.
Developing the voice
technology to understand
commands for some 2,500
tasks for more than 100
models of GE appliances involved digging deep into the
widely varying words and
phrases Americans use to
describe their household
chores, the company says.
So far, developers have compiled more than 160 billion
versions of these commands,
and the list grows as software updates are made ev-
ery few months, the company says. The appliances
include dishwashers, wall
ovens, ranges, washers, dryers, air conditioners, water
heaters and refrigerators.
“My father-in-law always
calls it the ‘ice box,’ ” Rick
Hasselbeck, chief commercial officer for GE Appliances, says he told Geneva
developers during a meeting
in September. “They didn’t
have that word in there yet.”
Voice-recognition capabilities are gaining ground in
the kitchen as multi-tasking
cooks appreciate the handsfree convenience of barking
orders. GE Appliances last
year was the first major appliance manufacturer to
launch its own platform,
also known as a skill, called
Geneva, which is compatible
Please see VOICE page A12
OK, Google,
ask Geneva Home
when the dishwasher
will be finished.
Your
dishwasher is
preparing to wash
with one hour,
fifteen minutes
remaining.
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To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
A12 | Monday, November 20, 2017
LIFE & ARTS
WHAT’S YOUR WORKOUT?
Exercise to Help Set His Band Apart
A student trumpet player devises his own routine to stay fit while juggling classes and his school’s famous marching band
therapeutic recreation. Two afternoons a week, Mr. Lotts does
CrossFit style workouts—running
up and down stadium stairs and
doing mixed martial arts, hurdles
and other exercises—for about 90
minutes. He mostly avoids weights.
“I’m a very little guy, so I just stick
with push-ups and sit-ups,” he
says. Mr. Lotts estimates he’s 5foot-10 and weighs 150 pounds.
During football season, Mr. Lotts
heads to band practice from the
late afternoon to well into the
night, sometimes not leaving until
12:30 or 1 a.m., he says. If his section has downtime, Mr. Lotts will
do exercises, like burpees or
lunges, while he waits for direction.
“I have to do my crunches,” he
says. “That builds up your endurance for you blowing into your
horn. You want to make sure that
airflow is perfect.”
Mr. Lotts finds time for homework typically late at night and often after band practice. He likes to
study when everything is quiet.
BY JILLIAN BERMAN
The popular image of band camp
invokes a group of socially awkward
students fumbling around in the
hopes of creating a cohesive unit.
That’s not how LaDonte Lotts
does band camp. The 22-year-old
senior at Southern University in
Baton Rouge, La., has been spreading his version of marching-band
preparation to middle and high
schools across the South since he
was a freshman.
Students perform tightly choreographed dances to hip-hop and
R&B songs, interspersed with
jumping jacks and other fitness elements that prepare them to
march around a football field with
heavy instruments for several minutes. It’s a style he developed that
he says combines Zumba with Louisiana culture. He likes to describe
the workouts as an experience
“where we get lit while we get fit.”
Mr. Lotts also uses these daily
workouts, which he broadcasts on
YouTube, Instagram and Snapchat,
to stay in shape himself. He plays
the trumpet in Southern’s highly
acclaimed band, the Human Jukebox, which requires enough ab
strength and endurance to blow
into a horn while marching in formation. Mr. Lotts also helps choreograph the dances the band performs at halftime shows, including
during the big game against rival
Grambling State University, known
as the Bayou Classic, on Nov. 25.
All of this keeps Mr. Lotts busy.
In addition to taking his workout
lessons on the road with his performing arts company ELEV8N
Brand LLC, he teaches weekly
classes to students at Southern.
But it’s worth it, he says, because
he’s living out his high school
dream. After he saw the Human
Jukebox perform for the first time
as a ninth grader, he recalls, “I just
fell in love. I knew this is where I
wanted to go.”
Mr. Lotts says he’s been preparing since childhood to become an
ambassador of dance-infused fitness routines. His mom would sit
him down in their Houston home
to watch performances by Michael
Jackson when he was young. He’d
also pay attention to her weekly
dance-themed CIZE workouts. “I
used to have to re-perform it for
her, and if it wasn’t right, I had to
watch it again,” he says.
The Gear
Mr. Lotts says he usually goes on a
shopping spree every one to two
months to buy new workout gear.
He estimates he’ll spend roughly
each time $300 on shorts, shirts,
sweatshirts, sweatpants, running
tights and other dry-fit clothes.
Mr. Lotts says he wears a range of
brands, including New Balance,
Puma, Adidas, Nike and Reebok.
But what’s most important is
maintaining variety for viewers of
his workout routines, he says.
“You always want to have fresh
gear,” he said. “People don’t like to
see you in the same thing.”
Every other week Mr. Lotts will
also incorporate another piece of
equipment into his workout: a
weight vest, which he received as
a gift. It can cost anywhere from
about $20 to more than $100. “It
makes the workout more intense,”
he says of the vest.
The Diet
Since Mr. Lotts stays active, he
tries not to obsess over his diet.
His favorite meal, which he says
he eats at least twice a week, is a
turkey patty on a ciabatta roll with
white cheddar cheese. “That’s the
way I stay happy,” he says.
Other staples include pasta and
Caesar salad with baked chicken.
And when Mr. Lotts celebrates a
cheat day, he enjoys chicken fingers.
Mr. Lotts begins his day at 5:45
a.m. with about an hour of his cardio workout. This includes what he
describes as all of the moves you
would see in a middle school gym
class: high knee lifts, butt kicks,
jumping jacks and the like, interspersed with dance moves and set
to music. “It wakes me up,” Mr.
Lotts says.
At about 8 a.m. Mr. Lotts heads
to class at Southern, where he’s
studying business management and
DAYMON GARDNER FOR THE WALL STREET JOURNAL
The Workout
LaDonte Lotts dreamed of
joining Southern University’s
band, the Human Jukebox, in
his high school days. Now he
helps choreograph the dances
they perform during halftime
shows at Southern football
games.
Continued from page A11
with Amazon’s Alexa and Google’s
Assistant, among others.
Geneva is accessed via Amazon’s Echo devices or Google
Home devices. These devices interact with Wi-Fi communication
cards built into the appliances. Users can say “Alexa, tell Geneva to
preheat the oven to 350” or “OK
Google, ask Geneva Home if my
icemaker is full,” and Geneva will
complete the job. Other tasks include setting timers, checking how
far along the wash or dry cycle is
and determining if dishwasher or
laundry detergent is running low.
Other major kitchen appliance
makers are building their own
voice-recognition capabilities, often in collaboration with Amazon
and Google, they say.
The intimate, everyday habits of
cooking and laundry breed a rich
diversity of language across generations, regions and even individual
households. “Since these kinds of
tasks are usually transferred inside
families, there can be pockets that
develop where they just have their
own terms for what goes on in their
own family,” says Kirk Hazen, a professor of linguistics at West Virginia
University who studies dialects and
language changes in the U.S.
If voice-command technologies
become commonplace in the home,
such linguistic diversity could
shrink as users adopt the words
and phrases that yield the best results. “I have to imagine that manufacturers are going to default to
GE APPLIANCES
VOICE
A typical request for the kitchen: ‘Alexa, tell Geneva to make hot water.’
having set commands, and that
will change our language,” Dr. Hazen says.
There’s a long history of how
manufacturers have affected vocabulary in U.S. homes, such as the
widespread shift from ice box to
Frigidaire and the adoption of
terms like “Xerox” and “Kleenex,”
he says. “This will be a faster and
broader change.”
GE Appliances says it doesn’t
want consumers to change their
speech patterns. But it does have a
list of “golden utterances” that
suggest how to best speak to Ge-
neva. “We’ve found that people
don’t love to talk to Geneva in their
natural language because they like
accuracy,” says Bill Gardner, the
company’s connected partner development manager. “We find that
if we promote certain utterances,
people repeat them back to us.”
Golden utterances, which appear in GE Appliances’ advertising
and on its website, include asking
“How many detergent pods do I
have left?” rather than asking
about a specific brand, and saying
“laundry” instead of “clothes,”
which can be confused for the
word “closed,” Mr. Gardner says.
“Laundry is phonetically more accurate to use right now.”
Some kitchen tasks don’t have
much linguistic variety, says Lauren Platts, GE Appliances’ lead industrial designer who, armed with
a college minor in linguistics, was
part of Geneva’s development.
“People say pre-heat the oven.
They don’t typically say turn on
the oven, or start the oven,” Ms.
Platts says. “We found there’s almost no variation in the way people ask for that.”
Talking about a refrigerator,
however, is more complex, she
says. Not only do Americans have
many names for the appliance, developers learned that consumers
weren’t familiar with some industry lingo. Most people understand
what a “freezer” is but not everyone calls the rest of a refrigerator
the “fresh-food compartment,” Ms.
Platts says. “We learned that no
one refers to it as the fresh-food
compartment.”
Such reality checks were common during consumer visits to GE
Appliances’ test kitchens in Louisville, Ky., to try early voice-recognition efforts. Consumers were
given a range of tasks, including
preparing a cake mix, and asked to
orally command the appliances
they used. Their words were recorded as developers watched behind a mirror.
“We saw how many times it
took to actually accomplish the
task,” Ms. Platts says. “We also
could understand their frustration
levels. We’d have one person yell
at the appliance and say, ‘Why
doesn’t it understand me?’ ”
Gauging user frustration was
The Playlist
For his workout and dance routines,
Mr. Lotts is partial to artists like
Boosie Badazz. As a member of the
Human Jukebox, he tries to stay on
top of a variety of music styles,
while the band strives to live up to
its name. Recent performances included music ranging from Beethoven’s Fifth Symphony to “Bohemian
Rhapsody.” “When it comes down
to a playlist and a song that they’re
going to play, you just never know,”
he says.
important, particularly since
household chores can be frustrating enough, the company says.
“We don’t want to make them
think they said anything wrong,”
Mr. Gardner says. Safeguards include Geneva saying goodbye or
otherwise making a “graceful exit”
after three failed attempts to understand a request. “We don’t
want to get into this confrontational cycle where we make you
mad,” Mr. Gardner says.
Developers also had to accommodate users who got friendlier as
they became more accustomed to
using voice commands. “Some
people started being very polite to
us and it didn’t match our voice
model,” says Mr. Gardner, recalling
users who tacked on words like
“darling,” “sweetheart,” “honey”
and “would you mind?” Adding
such courtesies to commands further expanded GE Appliances’ database. “You can imagine if with
every command you also have to
put in “please” and “thank you so
much for doing this” and “I love
that you did that for me,” he says.
GE Appliances refers to Geneva
as “she” and her voice has a female tone. To sound “relatable,”
Geneva uses contractions whenever possible.
At one point Geneva said
“boom” after she completed some
jobs, a response that ultimately
was nixed for having “too much
personality,” Ms. Platts says.
“You don’t want it to sound too
human, because then you’re talking to an inferior human,” she
says. “There’s this level of more
than a machine but less than a
person, and we’re trying to find
that balance.”
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A13
© 2017 THE JOSEF AND ANNI ALBERS FOUNDATION/ARS, NY/SOLOMON R. GUGGENHEIM FOUNDATION (5)
LIFE & ARTS
Clockwise from above: Josef Albers, his ‘To Mitla’ (c. 1940) and
‘Variant/Adobe, Orange Front’ (1948-58)
ART REVIEW
The Master of Color in Mexico
How the architecture and sculpture of the country were vital to Josef Albers’s work
BY RICHARD B.
WOODWARD
New York
THE QUIETLY provocative
exhibition “Josef Albers in
Mexico,” on the fourth floor
at the Solomon R. Guggenheim Museum, occupies one
of those corner spaces in
Wright’s design where the
walls curve in and out and
then become rooms you
didn’t suspect could be
there.
It’s the ideal venue for a
show that finds previously
hidden dimensions in a
20th-century artist typically
regarded as a stern rationalist, whose geometric paintings are supposed to exist
purely in the Euclidean
realm, unconnected to actual places and things.
Associate curator Lauren
Hinkson wants to loosen
this constricted view of Albers as an academic of color
theory in an ivory tower.
She has selected roughly 90
works (paintings, photographs and photo-collages)
that suggest the architecture and sculpture of ancient Mexico (Aztec, Maya,
Zapotec) were vital to his
art, not only as a database
of motifs for his paintings
but also as a kind of secular
church where his faith in
abstract art for the modern
age was renewed after he
and his wife, the textile artist Anni Albers, fled from
the Nazis in late 1933.
The couple was astonished by what they saw in
the Valley of Mexico and the
Yucatán: abandoned cities of
stone, carved centuries earlier with skill and sensitivity, and seemingly based on
the same elemental geometry that had informed their
teaching at the Bauhaus.
What’s more, these forms
were still visible in the
adobe structures that sheltered ordinary people in
parts of the country.
Proof of the Alberses’ enthusiasm can be seen in
their travel itinerary and
correspondence. Between
1935 and the 1960s, they
made at least 14 trips to
Mexico, with repeated visits
to six locations renowned
for archaeological ruins
(Teotihuacán, Chichén Itzá,
Uxmal, Mitla, Tenayuca and
Monte Albán).
As Anni wrote in 1936 to
Wassily Kandinsky, their
Josef Albers’s ‘Grand Pyramid, Tenayuca’ (1937), above, and
‘Study for Sanctuary’ (c. 1941-42), below
Bauhaus colleague who was
still in Germany: “Mexico is
a country for art like no
other.” Josef would later call
it “the promised land for abstract art. For here it is already 1000s of years old.”
In arguing her case, Ms.
Hinkson has chosen nearly
40 paintings, drawings and
prints of his that carry the
strong or faint imprint from
a visit to a particular site in
Mexico. Her speculations are
supported with some of the
hundreds of black-and-white
photographs he made there.
Many of them focus on architectural details—the sloping sides of a temple or the
shadowy interstices between
sun-struck buildings.
Her selection and display
of 24 of his photo-collages—
some images shot and
printed in 1935 but not
mounted until 1967—also
add substantially to the evidence that photography figured prominently in his
thought and work, long after the Bauhaus.
Albers called his first
walk in the mid-’30s around
the vast complex at Monte
Albán, the hub of Zapotec
civilization, “one of the
greatest experiences of my
life.” Only one published
work, a 1942 lithograph of
two ridged triangular pyramids on their sides, titled
“To Monte Albán,” directly
refers to the place. But it’s
the subject of eight unpublished photo-collages here,
done over three decades, a
sign that it never left his
mind.
The show wisely does not
attempt to draw one-to-one
correspondences between
black-and-white photographs and color paintings.
The seven examples from
his “Homage to the Square,”
his best-known series
(1950-76), are hung in a separate alcove.
It’s hard not to notice,
however, that the items repeatedly isolated by his
camera—windows, doors,
staircases, striated walls,
rectangular ball courts, trapezoidal plinths—have a kinship with the voids within
voids, the floating parallelograms, and the thin, straight
or notched intersecting lines
that were part of his vocabulary as an abstract painter.
He liked to photograph the
rhythms of shapes, and he
painted in the same spirit.
In the hundreds of paintings he made for his “Variant/Adobe” series (1946-66),
and in the series of paintings titled “Tenayuca”
(1936-46), named after the
Aztec city, the debt to Mexico is openly acknowledged.
Some of the works here,
such as “Tenayuca I,” have
not been publicly exhibited
for more than half a century.
The photographs that Albers made in Mexico, like
those shot by Ad Reinhardt
on his travels around the
world, are like sketch notebooks of forms and ideas for
paintings. Reinhardt’s were
mainly color slides; Albers’s
were in black-and-white and
thus already abstractions.
Ms. Hinkson and the art
historian Joaquín Barriendos
in their catalog essays are
right to go easy on the Alberses as insatiable collectors who amassed more than
1,400 pre-Columbian sculptures and ceramics. The architecture and atmosphere
of Mexico inspired countless
American and European
20th-century modernists,
from Edward Weston and
Tina Modotti to Robert
Smithson and Nancy Holt.
All of them were artists,
not historians. If they acted
as cultural appropriators,
they did so out of love and
awe for foreign cultural history, and a desire that their
art could somehow share in
its legacy.
Josef Albers in Mexico
Solomon R. Guggenheim Museum, through Feb. 18, 2018
Mr. Woodward is an arts
critic in New York.
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THE WALL STREET JOURNAL.
A14 | Monday, November 20, 2017
SPORTS
GOLF
Vikings
receiver
Adam
Thielen
The Distance Boom Effect
As tour pros hit drives farther than ever, the governing bodies of golf consider changes to the ball
BY BRIAN COSTA
Dustin Johnson is one
of the PGA Tour’s longest
drivers, averaging 315
yards last season.
NFL
VIKINGS
STEP IT UP
BY MICHAEL SALFINO
THE MINNESOTA Vikings rolled
to their sixth straight victory, a
24-7 win over the Los Angeles
Rams, to position themselves for
a postseason run that could end
with a “home” game in Super
Bowl LII at U.S. Bank Stadium.
Leading the Vikings (8-2) is
quarterback Case Keenum, who
has stepped into the starting
lineup and formed the NFL’s
most unlikely lethal passing
combo with undrafted, fourthyear wide receiver Adam
Thielen. It was Thielen’s 65-yard
touchdown catch and run with
10 minutes left on Sunday that
secured the win. The Vikings
outgained the Rams 451 yards to
254 as Keenum completed 27 of
38 passes for 280 yards with no
interceptions.
“These opportunities don’t
come around often,” Keenum
said after the game. “I want to
be the best player for this
team.”
The New Orleans Saints (8-2)
kept pace with the Vikings in
the NFC, coming back from a 15point deficit with five minutes
left against the Washington Redskins to win 34-31 in overtime.
Saints quarterback Drew Brees
hit on his last 11 tosses, including two touchdown strikes. In
the race to secure a first-round
bye, Minnesota holds a tiebreaker over the Saints due to a
Week 1 win over New Orleans.
The AFC South-leading Jacksonville Jaguars (7-3) continued
their strong defensive play, with
a 19-7 win over the winless
Cleveland Browns. The Jaguars’
No. 1-ranked defense forced five
turnovers, including two in the
final two minutes.
In the biggest upset of the afternoon, the New York Giants
held the previously prolific Kansas City Chiefs offense to just
three field goals to win in overtime, 12-9. The Chiefs were 10point road favorites and coming
off a bye week. But this season,
nothing is a given.
FROM LEFT: ADAM BETTCHER/GETTY IMAGES; JAMIE SQUIRE/GETTY IMAGES
THE GOVERNING bodies of golf
are exploring a change that could
have a dramatic effect on the future of the sport: different balls
for different levels of the game.
The change would address the
distance boom at the highest levels of the game, which is rendering
many classic courses obsolete. One
solution is developing so-called
“reduced-distance” balls, with different specifications than the highperforming balls in use today. Offering them as an option for some
tournaments and courses would
address the distance problem
without mandating a sport-wide
rollback of the regular golf ball.
Mike Davis, executive director
of the U.S. Golf Association, briefly
floated the idea at a symposium in
March. Now, his group, in tandem
with the Britain-based R&A, is undertaking a major research effort
on how reduced-distance balls
would impact the sport.
Though players vary widely in
how far they can hit them, balls
have long been held to a universal
set of specifications in order gain
USGA approval. That could change
in the years ahead, as the industry
grapples with the ripple effects of
advances in equipment technology
and physical fitness.
“I don’t care how far Tiger
Woods hits it,” Davis said. “The reality is this is affecting all golfers
and affecting them in a bad way.”
Proponents of tighter ball restrictions argue that longer distances have prompted many
courses to expand their land footprint—or risk being viewed as illsuited to challenge the modern
player. That has increased construction and renovation costs,
slowed the pace of play and hampered efforts to reduce water usage. Those costs trickle down to
average golfers.
One of those proponents is
Woods. When he debuted in 1996,
not a single PGA Tour player drove
the ball 300 or more yards on average. Last season, there were 43
such players. “We need to do something about the golf ball,” he said
on a podcast earlier this month.
Regulating the ball has been
strictly the responsibility of the
governing bodies. The USGA tests
each brand and model using a ballhitting robot and a ball-tracking
radar, among other tools.
The concept Davis is floating
would leave it to other groups,
from the PGA Tour all the way
down to private clubs, to decide
which category of balls is permitted on any given course.
“What if we said to get more
little kids into the game, we’re going to come up with a conforming
golf ball that’s the size of a tennis
ball, to help them hit it up in the
air?” Davis said. “We are really
trying to think outside the box.”
One question to be answered is
which groups would mandate the
use of reduced-distance balls. PGA
Tour commissioner Jay Monahan
declined to comment. Until someone requires golfers to use something other than the best-performing balls they can find,
manufacturers will have little reason to bring reduced-distance balls
to market.
America’s 24 million golfers are
not clamoring to hit the ball a
shorter distance. Angel Ilagan,
chief executive of Bridgestone Golf,
the ball-maker endorsed by
Woods, said having categories of
shorter-flying balls would be irrelevant to all but a tiny percentage
of golfers.
“The question really comes down
to, who should we be fulfilling the
most?” Ilagan said. “Should we be
leveling the playing field for competitive golfers? Or should we focus on being more inclusive and allowing as many people to enjoy the
game as possible?”
What complicates that question
is the impact that the top few percentiles of golfers have on the rest.
Tom Doak, a leading U.S. course
architect, said most amateur golfers do not hit the ball so far that
it would require any rethinking of
a course’s design. But the very
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U.S. Forecasts
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58
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11 Asiatic ravager
36
38
13 Stayed positive
despite adversity
39
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Today
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58 36 s
75 61 pc
48 38 s
80 54 pc
43 34 s
36 25 s
55 50 r
62 49 c
59 40 s
50 38 c
67 56 c
57 30 s
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53 27 pc
52 39 s
Tomorrow
Hi Lo W
41 18 s
76 61 t
58 47 pc
83 60 pc
52 28 s
51 38 s
58 54 r
69 48 c
56 24 s
58 42 pc
71 56 c
60 31 s
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31 15 s
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Today
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53 48 r
62 45 r
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88 77 sh
51 21 s
42 35 sh
51 48 r
72 50 r
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56 51 c
48 42 r
Tomorrow
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53 48 sh
57 47 s
77 54 pc
86 77 sh
51 28 s
42 39 c
53 46 sh
71 52 s
86 69 s
57 49 r
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City
Frankfurt
Geneva
Havana
Hong Kong
Istanbul
Jakarta
Jerusalem
Johannesburg
London
Madrid
Manila
Melbourne
Mexico City
Milan
Moscow
Mumbai
Paris
Rio de Janeiro
Riyadh
Rome
San Juan
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
Toronto
Vancouver
Warsaw
Zurich
Tomorrow
Hi Lo W
50 42 sh
53 36 sh
85 64 pc
72 62 pc
51 46 s
91 76 t
56 46 pc
86 61 pc
57 54 c
64 34 s
89 78 pc
89 63 s
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84 75 c
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TALKING TURKEY | By Mary Wolfe
Across
1 Fall behind
4 Turkeys, for
example
8 Capitol Reef
National Park
setting
12 Punk offshoot
13 Enjoys a soak
23 Cager Shaquille
24 Creator of Tigger
25 High points
38 Member of the
weasel family
39 Military alert
number
41 In need of a
massage
42 Sleigh pullers
45 Toss out
46 Slow, in music
47 Spectrum
producer
49 Volkswagen
subsidiary
50 “___ not
jealous?”: Emilia
to Desdemona
55 Magnetic metal
56 “Little” baker
of children’s
literature
28 Sporty Mazda
51 Dribble catcher
29 Flight parts
52 Stretch of years
57 Some scans,
for short
30 List preceder,
often
54 Got together
34 Informed
35 Wine-on-thetablecloth
problem
36 Ebb
58 Backfire sound
37 Quarterback
Manning
59 They’re broken
by athletes
40 Kitchen tool
43 Boardwalk treat
60 Turkey found in
the four longest
Across answers
Down
1 Creator of
Aslan
44 Beneficial
2 Acid type
3 “The Teflon Don”
49 Protection by
drones, say
4 Tap
26 Body expert
29 Sell at the
stadium, perhaps
51 Founder of Italian
Fascism
22 School paper?
22 Turns down
35 Ad supplier
36 “Marilyn Diptych”
painter
33 Avenue shader
48 Eats
21 Evening party
18 They were frosh
last year
31 George W.
Bush’s second
Supreme Court
appointee
32 Barcelona boys
15 Prego competitor 38 Vindictive
behavior
16 In toto
39
Valleys
19 School squawker
20 Dobbs of Fox
Business
Network
14 Integrated circuit
element
17 Bringer of news
50
Tampa
Today
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47 33 pc
83 61 sh
70 62 pc
55 43 r
91 77 c
63 51 pc
84 60 pc
56 51 sh
65 36 s
90 77 pc
87 62 c
72 46 pc
52 36 pc
34 26 c
92 79 pc
50 44 pc
81 74 t
81 59 c
61 48 pc
86 77 sh
42 22 pc
56 46 c
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9 Mai ___ (rum
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35
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23
32
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Amsterdam
Athens
Baghdad
Bangkok
Beijing
Berlin
Brussels
Buenos Aires
Dubai
Dublin
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7
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City
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Orlando
Philadelphia
Phoenix
Pittsburgh
Portland, Maine
Portland, Ore.
Sacramento
St. Louis
Salt Lake City
San Francisco
Santa Fe
Seattle
Sioux Falls
Wash., D.C.
But it has. “Everyone in the golf
business watches the PGA Tour every week and thinks, ‘Oh, the onslaught is coming, we have to keep
up with it,’” Doak said.
The effect has been most noticeable at courses that host major
championships, where the longest
holes in recent years have approached 700 yards. When Shinnecock Hills hosted the second U.S.
Open in 1896, it played at 4,423
yards. Next year, when it hosts the
U.S. Open for the fifth time, it will
play at 7,439 yards.
The average length of courses
on Golf Digest’s biennial Top 100
13
16
5 Center Jim in
the Football Hall
of Fame
Solve this puzzle online and discuss it at WSJ.com/Puzzles.
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s...sunny; pc... partly cloudy; c...cloudy; sh...showers;
t...t’storms; r...rain; sf...snow flurries; sn...snow; i...ice
Today
Tomorrow
City
Hi Lo W Hi Lo W
Anchorage
25 10 s
23 13 pc
Atlanta
59 42 s
59 45 c
Austin
67 48 pc 75 50 pc
Baltimore
49 32 s
58 44 pc
Boise
47 43 sh 57 49 c
Boston
41 36 s
55 46 s
Burlington
34 28 pc 50 39 s
Charlotte
58 34 s
60 42 pc
Chicago
49 39 s
44 23 pc
Cleveland
47 38 s
51 30 pc
Dallas
67 49 s
70 44 pc
Denver
64 37 pc 58 38 pc
Detroit
46 36 s
47 27 pc
Honolulu
82 65 pc 83 69 pc
Houston
68 52 pc 74 53 t
Indianapolis
49 35 s
50 26 pc
Kansas City
59 42 s
50 20 s
Las Vegas
68 49 pc 75 57 pc
Little Rock
60 35 s
62 34 pc
Los Angeles
77 61 pc 85 62 pc
Miami
81 72 sh 84 68 t
Milwaukee
50 39 s
41 23 pc
Minneapolis
49 28 s
30 18 pc
Nashville
56 37 s
61 32 pc
New Orleans
63 50 pc 71 52 sh
New York City
46 38 s
57 48 s
Oklahoma City
62 40 s
63 32 s
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70s
80s
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70s
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America’s 24 million
golfers are not clamoring
to hit the ball a shorter
distance.
list this year was 7,151 yards, a
jump of more than 200 yards since
1997. With water costs projected to
rise sharply in the years ahead,
the shift threatens the long-term
sustainability of the sport.
“You can’t say you don’t care
about distance, because guess
what? These courses are expanding and are predicted to continue
to expand,” Davis said. “The impact it has had has been horrible.”
Every party involved has some
incentive not to force the issue. If
the governing bodies tried to mandate a more restrictive ball for all
golfers, they would face a massive
fight from equipment companies.
Brian Mahoney, head of the New
York-based Metropolitan Golf Association, said elite amateur
events like the ones his group organizes would be receptive to a reduced-distance ball. But for the
idea to be more than an option
presented by the governing bodies,
some influential club would need
to be the first to adopt it.
Mahoney could think of one. It
hosts the Masters in April.
“It would take a group like Augusta National to have the vision
to try this,” he said.
When asked at an amateur
event last month if the club
would consider rolling back the
ball for the Masters, Augusta
National chairman Fred Ridley
said, “It’s not something we would
want to do.”
The WSJ Daily Crossword | Edited by Mike Shenk
Shown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.
40s
best golfers, who may feel insufficiently challenged on some
courses, have pushed many private
courses to expand.
“The people who have the loudest voices at a lot of clubs are the
2% of better players,” Doak said.
The sight of tour pros hitting
300-yard and even 400-yard drives
shouldn’t necessarily impact the
thinking of courses with no aspirations to host professional events.
27 Punctual
53 Dijon dissent
Previous Puzzle’s Solution
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ARSENIC + A; MAY I CUT IN = ACTINIUM + Y). The
added letters spell the contest answer.
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A15
OPINION
Venezuela Is Starving Its People
There’s something vaguely
uplifting
about
the
house arrest
of Zimbabwe
AMERICAS dictator Robert Mugabe
By Mary
last week. But
Anastasia
it’s depressing
O’Grady
to think that
he hung onto
power for 37 years, despite hyperinflation and famine in an
African nation that was once a
major food producer for the
continent.
Ronald Reagan believed
that “what is right will always
eventually triumph,” but Zimbabwe is proof that it can take
a long time. So too is Venezuela, which is experiencing its
own Zimbabwean meltdown
with no electoral way out.
Venezuelan shortages of everything are widely acknowledged. But there is less recognition that strongman Nicolás
Maduro is using control of
food to stamp out opposition.
Hyperinflation has shriveled
household budgets and the
government has taken over
food production and distribution. Most damning is evidence
that access to government rations has become conditional
on Maduro’s good favor.
The hardship is killing and
deforming children. But Cuba,
which runs the Maduro intelligence apparatus, also endorses it. Holding power
trumps all.
Maduro took the helm in
Venezuela after the March
2013 death of Hugo Chávez.
Over 14 years Chávez had destroyed property rights and
civil liberties and greased the
monetary printing press. But
$100 per barrel oil covered his
multitude of sins.
Now the global crude price
has been cut in half and the
Chávez mess is exposed. The
central bank’s net hard-currency cash reserves have fallen
below $1 billion. Last week
Miraflores Palace missed deadlines for interest payments on
two sovereign debt issues and
one bond issued by the national oil company PdVSA. Triple-digit inflation is spiraling.
Outside the country many
are asking why the popular rebellion, which was significant
in July, has gone quiet. The answer may be in the government’s skillful use of hunger as
much as imprisonment to
quash dissent.
Last week the newspaper El
Nacional reported on a “food
emergency forum” held by Amnesty International in Caracas.
One participant was Maritza
Landaeta, coordinator of the
Caracas-based nonprofit Bengoa, which has worked to aid
Venezuelans in food and nutritional needs since 2000. In describing the crisis, Ms. Landaeta shared the grim reality
facing many mothers: “They
say their children cry all day
and they can only give them
water. They are dying.”
Ms. Landaeta said some
communities are experiencing
undeniable “famine” and that in
some parts of the country 50%
of the children have left school
because of hunger. According to
the website El Estímulo Ms.
Landaeta also reported that
household surveys in the Baruta
neighborhood of Caracas found
that since the beginning of 2016
residents have lost, on average,
more than 30 pounds. In September El Nacional reported
that a study in 32 parishes in
the states of Vargas, Miranda
The Maduro regime
is using its control
of food to stamp out
political protests.
and Zulia by the Catholic aid organization Caritas Venezuela
found that 14.5% of children under five are suffering either
from moderate or severe malnutrition. This is no accident.
Inflation has stripped Venezuelans of purchasing power.
The minimum monthly salary
is now 456,507 bolivars, which
on Nov. 15 was equal to about
$8. A year ago the monthly
minimum was 90,812 bolivars
or about $21. Obviously imported food is unaffordable for
most Venezuelan families.
The breakdown of domestic
production is not new. But it
has worsened in the past two
years. Without hard currency,
farm equipment cannot be serviced and seeds cannot be imported. Price controls make it
hard for local producers to
earn a profit.
The dictatorship increasingly controls what food there
is. Dollars from oil exports go
only to the state, which uses
them to import. It also confiscates, at will, farm production
and the output of agricultural
processors. It plans to use the
capital freed up by a restructuring of $3 billion in debt
held by Moscow to buy Russian wheat. The government is
forcing the use of debit and
credit cards by withholding
cash. This allows it to monitor
all commerce and it saves on
the costly importation of plane
loads of new bills.
Venezuelans face risks if
they complain. Last week the
government announced that
anyone who “incites hatred,
discrimination or violence”
against another, for their politics, faces 10-20 years in jail.
The threat of jail, or worse, has
already caused a retreat from
the streets. This new law, which
includes social media, will further chill speech.
Hunger has much the same
effect because government rations are crucial for survival.
Food supplied by the militaryrun Local Committee for Supply and Production—known by
its Spanish initials CLAP—is
not enough to live on. But it’s a
subsidy that makes a big difference to families.
To receive the rations, Venezuelans must carry the Carnet
de la Patria, a government-issued license only available to
those approved by the regime.
As Ms. Landaeta bravely explained, “Food is controlled and
votes are bought, food is used
as a political weapon and is at
the center of the hurricane.”
Write to O’Grady@wsj.com.
Quit Modifying Capitalism
After the calamitous century between
Russia’s October Revolution and Venezuela’s debt
INSIDE
default last
VIEW
week,
you
By Andy
might think
Kessler
socialism
would be dead
and buried. You’d be wrong:
It’s capitalism that is back on
the rack, being tortured and
refitted according to the ideologies of its detractors. But be
warned, when you modify the
word “capitalism,” you are by
definition misallocating capital. I call this fill-in-the-blank
capitalism.
Bernie Sanders offers a fine
place to start. “Do I consider
myself,” he asked at an October 2015 rally, “part of the casino capitalist process by
which so few have so much
and so many have so little?”
(Emphasis mine.) Never mind
that it was a progressive hero,
Barney Frank, who said in
2003 that he wanted to “roll
the dice a little bit more in this
situation toward subsidized
housing”— which helped lead
to the financial crisis. Now Mr.
Sanders wants to load the
dice: Free college for all. Free
Medicare for all. Free rations
for all?
Al Gore, an ostensible environmentalist who made millions
dealing with oil-rich Qatar, is no
stranger to ideological modifications. On these pages in 2011,
Mr. Gore co-wrote “A Manifesto
for Sustainable Capitalism,”
which demanded that markets
integrate “environmental, social
and governance (ESG) metrics
throughout the decision-making
process.” Yet messing with critical price signals through “ESG
metrics” is exactly what would
make capitalism unsustainable.
See: Frank, Barney.
A 2014 Huffington Post
headline declared “Let’s Make
Capitalism a Dirty Word.” This
was right around the time that
“Capital in the Twenty-First
Century,” the French economist
Thomas Piketty’s now largely
discredited book, was published
in English. Mr. Piketty called
for a tax on dynastic wealth because of “a strong comeback of
private capital in the rich countries since 1970, or, to put it another way, the emergence of a
new patrimonial capitalism.”
Tell that to Mark Zuckerberg
and Larry Page, self-made billionaires who weren’t even
alive in 1970.
Nobel Prize winner Joseph
Stiglitz tried to one-up Mr.
Piketty, complaining in a 2014
article for Harper’s magazine
about “phony capitalism.” But
he offered a remedy! “A welldesigned tax system can do
more than just raise money—it
can be used to improve economic efficiency and reduce
inequality.” Messrs. Stiglitz
and Piketty and all the modern-day central planners will
no doubt gladly make the economic decisions needed to
right the ship after they have
sunk it.
The conspiracy theorist and
occasional filmmaker Oliver
Stone was at the July 2016
Comic-Con to promote his film
“Edward Snowden.” Speaking to
the cosplay crowds, he got nervous about the augmented-reality game Pokémon Go. “It’s
what some people call surveillance capitalism,” he warned.
“You’ll see a new form of,
frankly, a robot society, where
they will know how you want to
Profits should be
pure, generated from
price signals between
buyers and sellers.
behave.” He was borrowing the
term from Shoshana Zuboff, a
Harvard Business School professor—another strike against
getting an M.B.A.
Much of this technocratic
tinkering started with the
20th-century economist John
Maynard Keynes, who called
for government intervention in
the economy to end a depression caused by government. He
envisioned economists in control, running the economy. In
“The General Theory of Employment, Interest and Money”
(1936), his inner socialist
comes out. “I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means
of securing an approximation
to full employment.”
It never ends. In 2012, Britain’s then-Prime Minister David
Cameron talked about “socially
responsible and genuinely popular capitalism” and blamed
Labour for “turbo capitalism.”
Whole Foods CEO John Mackey
touts “conscious capitalism.”
Postdocs in Che T-shirts whine
about late capitalism over $6
soy lattes. China practices
state-directed capitalism. The
jury is still out.
My advice? Drop the modifiers. There is only one type of
capitalism that works, and it
goes like this: Someone postpones consumption, invests his
savings to produce a good or
service, delights customers,
generates profits, and then consumes and invests what’s left in
further production. These profits are pure, generated from
price signals between buyers
and sellers, without favoritism
from experts or elites. It isn’t
hard to grasp.
Profit is the ultimate measure of value to consumers—
and therefore to society. Consumers benefit from buying
stuff, or else they would make
it all themselves, and producers benefit from selling, or else
business wouldn’t be worth the
effort. Of similar value, profits
go both ways. “Experts” who
poke their noses in only mess
with this fine balance. And
who needs central planning
when there’s the stock market,
where theories melt and reality
bites? Stock exchanges are the
true consiglieres of capitalism,
providing capital to ideas
deemed worthy of it and starving the rest.
Most of this was once selfevident, but in 2017 capitalism
is losing the mind-share game.
Where does all this end up? For
something scary, skip the next
Steven King clown movie. Instead read up on postcapitalism and progressive mutualism.
It sounds like Venezuela.
A
s tax reform snakes its
way through the legislative process, it’s becoming clear that one critical group
could come out behind: dog
families. This inequity must be
remedied. I suggest Republicans cancel their proposed
Child Tax Credit expansion and
instead offer a fully refundable
Canine Tax Credit worth at
least $500 a dog.
Congress is preparing to
maybe even double the Child
Tax Credit. But what about
couples who opted for dogs instead of children? Or those
who are preparing for parenthood by taking on a cuddly
critter for a couple of years?
It’s as if the Child Tax Credit’s
biggest boosters are stuck in
1997, when Congress first approved the handout.
I hate millennials as much as
any op-ed writer, but conservatives need their support to keep
tax reform viable. And millennials love pets. Forty-four percent
see Fluffy as practice for real
offspring. Why privilege Child
Moms over Dog Moms?
No one is dumb enough to
believe that small subsidies for
having children encourage
more births. Imagine telling
your other half, “Sweetheart,
I’m ready for another child.
Let’s just wait until we can deduct an extra $600.” While
The IRS shouldn’t
favor Child Moms
over Dog Moms.
some finance-conscious Wall
Street Journal readers might
not find that absurd, America’s
declining birth rate suggests
few outside our rarefied readership agree.
The Child Tax Credit instead
exists to transfer wealth to a
preferred group (human families) from an undesirable one
(childless superconsumers). No
doubt a child’s life is infinitely
more precious than a dog’s, but
a puppy’s owner deserves economic security as much as a
human parent. Maybe subsidizing only families with small
humans made sense 20 years
ago, but preferences change.
Republicans must ask themselves: What do we really have
to offer a farmer in Fargo with
four French Spaniels?
Expanding the Child Tax
Credit might excite a few Senate staffers or think-tank fundraisers. But today there are
about 90 million dogs in the
U.S., spread over some 60 million households, according to
the American Pet Products Association. Millions more languish in shelters, as economically insecure Americans
hesitate to adopt. Two-thirds of
pet owners consider their animals “part of the family,” data
from Mintel shows. That’s probably why Americans, who spent
nearly $67 billion on their pets
in 2016, want relief.
The Canine Tax Credit
would do more than pad the
A Bounty
Of Troublemakers
Paradise in Chains
By Diana Preston
(Bloomsbury, 333 pages, $30)
H
istorians and novelists, no less than Hollywood
producers, have long been drawn to the mutiny on the
Bounty in 1789, notwithstanding its dubious historical
importance. For compared with British naval mutinies in the
1790s—at Spithead and at Nore, both off England’s coast,
and aboard the Hermione in the West Indies—the rumpus on
the Bounty was a tame affair. No lives were lost. The mutiny
did not erupt in wartime or endanger the homeland. Nor did
it lead to naval reforms.
Yet the tale of the Bounty, set against the backdrop of
the South Pacific, in time became romanticized, at the
expense of the “tyrannical” captain, William Bligh, and to
the advantage of young Fletcher Christian, a target of his
ire, who as a petty officer led the uprising. It is well known
that many of the crew, including Christian, had by then
succumbed to the amorous appeal of half-clad Tahitians.
Less emphasized in most accounts was Bligh’s epic feat of
seamanship upon being cast adrift after the mutiny:
navigating a cramped launch
with 18 loyal sailors before
finding a safe harbor in the
Dutch East Indies. In 48 days,
they had traveled more than
3,600 nautical miles.
The author of 10 earlier books
on such disparate topics as
Bonnie Prince Charlie and the
Boxer Rebellion, the historian
Diana Preston revisits the mutiny
in “Paradise in Chains: The Bounty
Mutiny and the Founding of
Australia.” Grounded in a familiar
assortment of printed manuscripts
and secondary sources, the book is
comprehensive in scope, cogently written and amply
detailed. In addition to the Bounty’s factious crew, we
encounter an intriguing cast of indigenous personalities,
including the Tahitian queen Purea, who years before the
Bounty’s mutineers came to her island had seduced the
famous naturalist Sir Joseph Banks.
Yet for the most part “Paradise in Chains” offers neither
new insights nor fresh information. Ms. Preston
acknowledges Bligh’s navigational skill and bravery, but
she blames his short temper and narcissism for triggering
the mutiny, giving insufficient weight to Caroline
Alexander’s painstaking evidence, presented in “The
Bounty” (2003), of a concerted campaign in England to tar
Bligh’s reputation by the prominent families of Fletcher
Christian and Peter Heywood, a fellow mutineer. Not to be
minimized, in addition to Christian’s inflated sense of
entitlement, was the reluctance of some crewmen to return
home once they had seen Tahiti.
Side by side with Ms. Preston’s account of the Bounty is a
second narrative involving the founding of Australia, an
event of far greater consequence. As a result of the
American Revolution, Great Britain had lost a dumping
ground for convicts. In prior decades, upward of 50,000
felons had been “transported beyond the seas” to America,
usually for seven years of servitude in Virginia and
Maryland—prompting Benjamin Franklin to urge, in turn,
the exportation of rattlesnakes to England.
While mutineers succumbed to half-clad
Tahitians, Capt. Bligh performed a navigational
feat—and convicts began populating Australia.
bank accounts of dog owners.
The Centers for Disease Control and Prevention says having a pet can help decrease
blood pressure, cholesterol and
feelings of loneliness. Perhaps
the Congressional Budget Office could work lowered medical costs into its score?
If the Canine Tax Credit
passes, loyal voters could finally point to a material benefit provided by the GOP. There’s
only one problem: Democrats,
always eager to one-up Republican giveaways, could counter
with a Feline Tax Credit.
Maybe they’d include ferrets
too, Rudy Giuliani be damned.
Democrats could even target
the millions of families with
turtles, rabbits, horses, lizards
and tarantulas.
It’s almost as if it’d be easier just to eliminate all the exemptions and credits and cut
tax rates accordingly.
After the Revolution, London officials, facing mounting
crime at home and having made fruitless efforts to establish
enclaves in West Africa and South America, chose Sydney
Cove in New South Wales—on Australia’s eastern seaboard—
for the site of a penal colony. With the arrival of 11 ships, the
settlement got under way in January 1788.
Again, Ms. Preston’s eye for detail is rewarded. Among the
few admirable figures in the venture was a senior marine
officer, Watkin Tench. Owing to his experience as a prisoner
of war aboard a French ship, he empathized with the anguish
of prisoners who had been “severed, perhaps forever, from
their native land.” Even so, and despite the colony’s harsh
conditions, some prisoners quickly adapted. According to the
British governor, many London neighborhoods “were not so
well guarded and watched as the small, but rising town of
Sydney,” thanks to a night watch staffed by convicts.
The chief contribution of “Paradise in Chains” lies in the
contrast it offers in the relations between natives and
newcomers. The sheer volume of convicts transported to Sydney
Cove soon ignited tensions over land and fishing grounds. By
contrast, crew members aboard the Bounty enjoyed close ties
with Tahiti’s native population even though they “regarded the
islanders as thieves.” As Ms. Preston wryly notes, in Australia,
owing to British depredations, “it was the reverse.”
Apart from unfolding in the South Pacific in the late
1780s, there is little to link these twin enterprises, tempting
as it is to draw connections. More than 3,000 nautical miles
separated Australia from Tahiti. Sir Joseph Banks, president
of the Royal Society, initially planned to employ a single
vessel to transport breadfruit from Tahiti after first ferrying
convicts to New South Wales. But he quickly concluded, as
Ms. Alexander has written, that the two missions “had
wholly distinct requirements”—not to mention destinies.
Chapters in “Paradise in Chains” cut back and forth from one
story to the other, which maps might have made less
confusing. For all of its relevance to Australia, the Bounty’s
uprising could just as well have occurred in the Persian Gulf.
One exception was the open-boat escape in 1791 of nine
Sydney convicts, including the highwaywoman Mary Bryant,
an impressive accomplishment that was reportedly encouraged
by Bligh’s journey. The convicts even arrived, after nearly
3,300 nautical miles, in the same Dutch port where Bligh had
ended up, in present-day Indonesia. Rather than “perish,” to
borrow from an Irish newspaper’s report, both expeditions had
thrown “themselves upon the mercy of the sea.”
But whereas Bryant, after being returned to London,
received a full pardon, Bligh faced criticism for his conduct
aboard the Bounty, fueled in part by a hostile committee of
inquiry established by Fletcher Christian’s brother, a law
professor at Cambridge. After returning to sea in 1795, Bligh
remained dogged by a reputation for overbearing arrogance.
His final recompense was an appointment in 1805 as
governor of New South Wales.
Mr. O’Neal is an assistant
editorial features editor at the
Journal.
Mr. Ekirch, a professor of history at Virginia Tech, is the
author of “American Sanctuary: Mutiny, Martyrdom, and
National Identity in the Age of Revolution.”
What Will Tax Reform Do for Puppies?
By Adam O’Neal
BOOKSHELF | By A. Roger Ekirch
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
THE WALL STREET JOURNAL.
A16 | Monday, November 20, 2017
OPINION
L
REVIEW & OUTLOOK
LETTERS TO THE EDITOR
Reducing Corporate Tax Games
Debating Progressive Dominance on Campus
iberals are denouncing Republican tax reWhile Ireland’s tax is lower, the European
form as a giveaway to big corporations, as Union has sought to impose restrictions on patthey always do. But the irony is that the ent boxes to prevent the flight of IP and profits.
Senate and House bills would
The Senate’s lower rate for IP
The GOP reforms are
do far more to stop corporate
could make the U.S. attractive
tax gaming than anything the
foreign innovators who
far tougher on income to
Obama Administration did in
want to take advantage of our
eight years. This includes pre- shifting than Obama was. strong legal patent protecventing tax avoidance, levelling
tions.
the tax field for U.S. multinaBoth bills would also pretionals, and stopping corporate inversions.
vent foreign multinationals from abusing
Start with cutting the corporate rate to 20% “transfer pricing”—that is, inflating the price
from 35%, which in a stroke offers less incentive that their U.S. affiliates pay to license IP in order
for companies to move capital, income and intel- to shift profits overseas. U.S. companies can delectual property out of the U.S. to lower tax duct these payments, and their foreign affiliates
climes. During the Obama Administration, many then pay taxes at lower rates. The potential for
U.S. companies “inverted” by merging with tax arbitrage is greater for IP since it’s hard for
smaller foreign competitors to take advantage government authorities to value. What is a reaof lower tax rates abroad. The U.S. has the high- sonable royalty for a patent? Apple will surely
est corporate rate in the developed world, differ from the IRS.
whose average is 25%.
To deter tax avoidance, the House bill threatInversions seek to make American companies ens a 20% excise tax on all payments from U.S.
more globally competitive and let them reinvest affiliates to related foreign companies. However,
in the U.S. tax free. Under the current U.S. American companies can avoid the excise tax by
worldwide tax system, companies can defer declaring the payments “effectively controlled
taxes on their overseas profits until they bring income,” which would then be subject to the U.S.
them home—and then get smacked with the full 20% corporate rate minus expenses and foreign
35% rate. Hence, corporations have parked $2.5 tax credits. The bill would be minimal for most
trillion or more abroad.
companies that aren’t exploiting tax havens, but
Both Senate and House bills move to a terri- would nonetheless prevent tax arbitrage.
torial system that exempts most foreign income
House Republicans modified the provision
from taxation. Most advanced economies have after foreign multinationals that sell goods
territorial systems, but they also have safe- into the U.S. howled, though the rewrite is
guards—i.e., base-erosion rules—to prevent messy and the excise tax is a vestigial appendabuse. Without these rules, companies could age that ought to be dropped. The Senate legshift domestic income through foreign affiliates islation includes a cleaner mechanism to deto lower tax jurisdictions and then bring the ter base erosion that would effectively
profits home without paying taxes.
equalize the tax treatment of U.S. and foreign
The best tool to prevent base erosion is a low multinationals.
rate. Ireland has less cause to worry about tax
Both bills also include measures to prevent
avoidance with its 12.5% (6.25% for intellectual companies from loading up on debt in the U.S.
property) corporate rate than France whose (where interest is deductible) to capitalize forgovernment takes a third of corporate income eign companies. The Senate establishes a
but is now proposing to take 25%. But there are slightly stricter limit on interest deductibility
still zero-tax jurisdictions like Bermuda and the on debt that is issued to foreign affiliates, but
isle of Jersey where Apple recently located sub- both bills would curb the practice of earnings
sidiaries. Tax havens are especially attractive stripping that the Obama Administration sought
for locating IP since assets such as patents are late last year to stop with regulations.
i
i
i
intangible and mobile.
We report all this because you’d think from
The House and Senate bills would impose an
effective 10% rate on intangible property of U.S. the press coverage that corporate tax reform is
multinationals that is held overseas. In return, all about enriching a few CEOs. The truth is that
U.S. companies like Apple and Google would be it’s a serious attempt to fix a broken U.S. code
able to repatriate their income tax free. The that has festered for years and made America
Senate bill also creates a virtual patent box to increasingly uncompetitive as a destination for
entice foreign companies to move their patents mobile global capital. The GOP reforms would
to the U.S. by taxing their subsidiaries’ royal- help the economy and make it harder for corporations to avoid paying taxes.
ties at 12.5%.
T
A Millionaire Tax Rethink?
he Republican tax reform must still pass vous about raising taxes is one desirable outthe Senate, but already it’s having a po- come of tax reform. These politicians have been
litical impact in at least one high-tax, ill- passing the burden of their tax-and-spend poligoverned state. Democrat
cies onto taxpayers in other
Killing the state and
Steve Sweeney, president of
states via the state and local
the New Jersey Senate, said
If that goes away,
local tax deduction has deduction.
last week that the GOP deciDemocrats will have to rethink
an impact in Trenton. their policies lest they drive
sion to eliminate the state and
local tax deduction could
from their states the affluent
throw a new tax increase on
taxpayers who finance most of
millionaires into doubt.
state government.
The surcharge on millionaires is a hardy pe“I’m actually very concerned for the people
rennial in Trenton, and Governor Chris Christie of this state if this Trump tax happens, and I
vetoed it multiple times. But Governor-elect think we’re going to have to re-evaluate everyPhil Murphy, who is already rich from his Gold- thing once that happens,” Mr. Sweeney said,
man Sachs days, campaigned on a special tax though the tax is New Jersey’s, not Donald
rate of 10.75% above the state’s already high top Trump’s. “Because if you’re going to add thouincome-tax rate of 8.97%.
sands of dollars to people’s budgets, then we’re
“I’ve voted for it seven times. I’ve said it’s going to have to sit down with Phil Murphy and
a top priority,” Mr. Sweeney said, according to say, ‘How do we go forward and how do we
the Observer Online. “But I’m actually getting make it work?’”
very, very nervous now with what’s happening
Here’s a radical idea: Cut taxes and make
in Washington.”
New Jersey more desirable for people to work
Excellent news. Making politicians in Tren- and invest. Tax reform in Washington could also
ton, Albany, Sacramento and Springfield ner- spur reform in the states.
R
Russia’s U.N. Trump Snub
ussia refused last week to renew the President Trump and Secretary of State Rex Tilmandate of a United Nations panel in- lerson. Earlier this month the State Department
vestigating Syria’s chemical weapons announced a deal with Russia to expand “deconuse, and the veto is more than
fliction zones” in southwestVladimir Putin’s usual intran- Moscow kills a chemical ern Syria and eventually to
sigence. The Russian rejection
Iran-backed fighters
weapons investigation eject
is a public embarrassment for
from the country.
to help Syria’s Assad.
the Trump Administration,
An Administration official
which earlier this month
said on background during Mr.
claimed Moscow is helping to
Trump’s Asia trip that the deal
advance U.S. goals in Syria.
proved that “despite our many differences with
The Joint Investigative Mechanism, or JIM, Russia, our two countries are capable of workwas the rare U.N. creation, like the U.N. commis- ing together on difficult problems where intersion on North Korean human-rights abuses, that ests converge and our doing so is profoundly
did meaningful work. Since its creation in Au- in our national security interest.” A statement
gust 2015, the panel found Bashar Assad’s re- from Foggy Bottom said President Trump thinks
gime responsible for three chlorine and sarin the deal “will save thousands of lives.”
gas attacks and also exposed Islamic State’s use
Russia has since used its air power to protect
of mustard gas.
Iran-backed ground forces as they march toThe JIM’s mandate was set to expire Thurs- ward the Syrian Democratic Forces, and it is
day evening, and Russia’s Security Council disputing that foreign fighters should head
veto sealed its fate. Moscow argued that the home. Now comes the veto of the chemical
JIM was a spectacle meant to undermine Mr. weapons investigators. If this shows interests
Assad, which is of a piece with Russia’s larger converging, how would the White House define
propaganda campaign to paint the presence differences?
of U.S. Special Forces and the U.S.-backed SyrMeanwhile, moderate Sunni Arabs who once
ian Democratic Forces in Syria as an illegal might have been U.S. allies are increasingly
occupation.
turning toward local al Qaeda affiliates, and
U.S. Ambassador to the U.N. Nikki Haley re- Iran and Syrian forces backed by Russia are
sponded via Twitter that, “By using the veto to dominating larger swaths of territory at the exkill a mechanism in Syria that holds users of pense of Kurds and Arabs who fought hard to
chemical weapons accountable, Russia proves defeat Islamic State. As the JIM’s demise shows,
they cannot be trusted or credible as we work none of this will change until the Trump Admintowards a political solution in Syria.”
istration is willing to do more than cede Syria
That’s exactly right, but someone should tell to the Syria-Iran-Russia axis.
In “Higher Education’s Deeper
Sickness” (op-ed, Nov. 14), Prof. John
M. Ellis attempts to connect student
protests of conservative speakers on
our campuses to the ideologies of
contemporary university faculty,
which he tacitly condemns as being
dominated by the “radical left.” It is
this sort of unrooted propaganda that
is the true threat to American higher
education. The California Association
of Scholars, of which Mr. Ellis is
chair, is committed to a return to the
historically Western bias of the
mid-20th-century academy. We put
ourselves in intellectual peril if we
equate embracing diversity and inclusion with a retreat to the left. We
owe our students more, which is why
our campuses have benefited from
the valiant efforts of our faculty to
diversify our curricula to represent a
truer spectrum of human experience.
JONATHAN D. GREEN
President
Susquehanna University
Selinsgrove, Pa.
Mr. Ellis notes that university faculty have drifted substantially to the
left politically over time. Why? I
think a large part of the answer relates to the fact that universities,
even so-called private ones, are
largely wards of the state. Federal
student financial-aid programs have
grown more than 10-fold adjusting for
inflation since 1970, enabling large
tuition hikes and adding to the already substantial support from state
governments and federal research
grants.
Academics correctly believe their
self-interest is promoted by big government. Hence faculty increasingly
endorse left-of-center policies that inevitably mean more and larger government programs, including support
of higher education. Academics don’t
want to bite the hand that feeds them
so well.
EM. PROF. RICHARD VEDDER
Ohio University
Athens, Ohio
Political diversity isn’t an immutable characteristic and thus differs
from racial or gender diversity. Attempting to create political diversity
in higher education would require a
type of relativism in which one’s
viewpoint—and not the evidence supporting it—matters the most.
Academics do an effective job of
self-policing and those who exaggerate or falsify data get discredited
(e.g., Michael Bellesiles and Michael
LaCour). College faculty should be
judged by two qualifications: their
ability to teach and the quality of
their research.
JASON ZELEDON, PH.D.
Denver
Yes, there are problems, but can’t
the Journal find one editorialist will-
ing to demonstrate the extraordinary
achievements of the past 70 years?
Isn’t the annual list of Nobel Prize
winners some testimonial to American academic achievement? Many are
foreign born, but the destination of
their hopes was an American campus.
The more than a million international
students from all over the world
clearly want a place at an American
college or university. What other
country is accomplishing this? Our
colleges and universities are the envy
of the world.
EM. PROF. SOL GITTLEMAN
Tufts University
Lexington, Mass.
Prof. Ellis is right but doesn’t go
far enough. The left is no longer able
even to recognize opposing political
thought as thought. At a recent conference of philosophers, I mentioned
that I was a Trump supporter. When I
defended a few of President Trump’s
positions on taxes and on negotiation,
a colleague I admire declared that I
had lost my cognitive abilities. He
meant it. It was as if he was addressing someone with dementia.
Today’s universities suffer from
two diseases: political intolerance and
low accountability to those who fund
them.
CHARLES SPINOSA, PH.D.
New York
Achieving political diversity means
dispossessing the current crop of professors and administrators, an enormous change in campus culture that
could be done slowly and methodically over a lengthy period of time
without Democratic Party interference, campus riots and boycotts and
legal attacks before compliant judges.
Good luck with that.
The main weakness of the campus
left is that it is teaching nothing of
economic value except to other universities, NGO pressure groups and
campaign staffs. Sooner or later that
will do them in, but it could be a very
long wait.
MAX HENSLEY
San Antonio
Who are the conservative morons
who spend tens of thousands of dollars to send their offspring to such
institutions of indoctrination? Why
don’t they “market demand” conservative colleges? If the country is 50%
conservative, there must be a huge
niche to fill.
BRIAN HAUSWIRTH
San Rafael, Calif.
To help return liberal education to
open analysis and debate, the ranking
services such as U.S. News & World
Report and the Princeton Review
might consider rating a university’s
faculty on its political balance.
JUDY GREY
Alexandria, Va.
Azar’s Pharma Record Includes Higher Prices
Regarding your editorial “Oh, No, a
Pharma Exec,” Nov. 14) about Alex
Azar’s nomination to lead the Department of Health & Human Services:
One in five Americans now foregoes
needed prescriptions due to their
cost. During Mr. Azar’s tenure as Lilly
USA president and in other senior
jobs, Eli Lilly, Novo Nordisk and
Sanofi, the “big three,” tripled the
price of the major insulin products in
near lockstep.
They used high list prices to attract the business of pharmacy-benefit managers, middlemen who keep an
undisclosed percentage of the undisclosed discounts they negotiate with
manufacturers. In other words, the
big three chose to compete by increasing payouts to middlemen rather
than by reducing prices to consumers.
Together they drove up health-care
costs for everyone. People living with
diabetes are paying much more out of
pocket as a result, if they can afford
to pay. Many ration their insulin use
against their own health needs.
The big three designed aggressive
patent barriers and now control 96%
Regarding “Harassment Scandals
of the global supply. We are not payPrompt Rapid Workplace Changes”
ing for innovation or, in your words,
(page one, Nov. 11), for public compa- “the reality of market economics.”
nies there is a very easy fix: Make the We are paying oligopolists to destroy
Securities and Exchange Commission markets. The U.S. government’s top
require each company to report any
health official must be prepared to
settlement money paid during the
impose discipline on manufacturers,
year in one of four categories or add
reduce government subsidies and tolthese to the good governance checkerance for anticompetitive behavior.
list—sexual-harassment claims and
Alex Azar’s record suggests he is
settlements; workplace-injury claims
more likely to defend drug corporaand settlements; other discrimination tion value, even if the cost to Americlaims and settlements; and other
cans is far too high.
claims and settlements.
PETER MAYBARDUK
Public Citizen
As part of my role in health-care
Washington
real estate, I always investigate the
last three years of settlements and
claims as part of due diligence. It
tells me how well a company is run
and its priorities. Doesn’t the American public deserve the same? By requiring these numbers be placed
THE WALL STREET JOURNAL
front and center for investors and
employees, and perhaps looking back
three to five years, potential employees would have more information
about their risks, and companies
themselves would start to self-govern
those areas.
STEPHANIE ANDERSON
Phoenix
One Way to Thwart Secret
Harassment Settlements
Pepper ...
And Salt
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“Shouldn’t someone tell him
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | A17
OPINION
By Vince Kolber
T
he House Ways and Means
Committee held its first hearing on tax reform in May. Both
parties invited witnesses to interview, but it was a Democratic witness
whose testimony was most striking.
The highly successful financier Steven Rattner told the committee that
he and his wealthy friends in the private equity industry didn’t need a tax
break, an idea that he has repeated in
subsequent months.
Mr. Rattner was right, but with a
twist. Those who make the bulk of
their annual income from investments have for years paid a 20% tax
rate on so-called carried interest.
Congress has allowed these equityfund managers to treat their profitsharing and service fees as capital
Congress should extend
a successful low tax rate
to all job-creators and
entrepreneurs.
gains rather than as ordinary income,
for which the top tax rate is 39.6%.
Most American entrepreneurs who
own and operate small business in
the nonfinancial economy pay at the
higher rate.
Mr. Rattner and his friends in the
private equity business don’t need a
tax break. All businesses need one.
Oddly, not one member of Congress asked Mr. Rattner about the
carried-interest loophole. It was a
lost teaching moment. The carriedinterest provisions in the tax code
have been a boon to private-equity
managers. It would be nice if Congress decided to tax the rest of America’s businesses at 20% so they, too,
could grow and prosper. The effect of
the carried-interest tax rate on the financial sector has proven that low
marginal tax rates can stimulate—if
not launch—entire industries.
Instead of cutting tax rates on jobcreating entrepreneurs to the same
levels enjoyed by Mr. Rattner and his
friends, Congress is proposing to tax
70% of an entrepreneur’s business income at the highest personal ordinary income rates. This will result in
a marginal tax rate exceeding 35% on
entrepreneurs who run so-called
“pass through” businesses, where
owners report profits as income on
their personal tax returns.
Congress can help expand the
economy with a simplified package
that does three things. First and most
important, define what constitutes
business income and who is eligible
to pay the proposed 25% business income-tax rate. I propose an easy-toremember rule of 5 to 1—if you own
a business and employ five people for
whom you are paying into Social Security and Medicare, then you pay
the business income-tax rate. The
concept could expand to partnerships. If you have five principals in a
partnership employing 25 people, the
partners pay the 25% business income-tax rate. This approach would
unleash employment growth, get
more people back in the workforce
and drive up wages.
Second, drop the 70% convention
to ensure that all qualified employers
have access to the 25% business income rate. Third, take heed of Senator Ron Johnson’s proposal to maintain the “balance” in the tax
treatment of large publicly traded C
corporations and pass-throughs. It is
time to eliminate the problem of double taxation, whereby profits are first
taxed at the corporate rate and again
at the capital-gains rate when paid
out as dividends.
Simply put, Congress should extend the 20% tax rate on carried interest to all job creators and entrepreneurs—Steven Rattner included.
Mr. Kolber is chairman of Residco,
a transportation equipment leasing
company.
What Went Wrong With the CFPB
By Dennis Shaul
R
ichard Cordray’s resignation as director of the
Consumer Financial Protection Bureau provides a
great opportunity for
President Trump to appoint a new director who can undo an unfortunate
legacy of bureaucratic overreach and
political bias. More important going
forward is what we have learned
from our experience with the CFPB to
prevent future similar missteps.
The first lesson is that Congress
should never again create an “independent” agency with a sole director,
particularly one not subject to the
congressional appropriations process. Under the law, the CFPB—unlike the Securities and Exchange
Commission, the Federal Communications Commission, the Federal
Trade Commission and other independent agencies—is funded by the
Federal Reserve, a move specifically
designed to avoid congressional
oversight.
I had the privilege of working as
an aide to then-Rep. Barney Frank,
chairman of the House Financial Services Committee when the DoddFrank Act of 2010, which created the
CFPB, was written. I realized that no
bill is ever perfect and the CFPB
would have its imperfections. The authors wanted the bureau to be a fair
arbiter of protecting consumers, instead of what it has become—a politically biased regulatory dictator and a
political steppingstone for its sole director, who is now expected to run
for governor of Ohio.
An independent federal agency
should be nonpartisan. A bipartisan
commission on the model of the SEC
and FCC would allow for better and
more evenhanded decision-making.
To show how partisan the CFPB became under Mr. Cordray’s leadership,
not one of the agency’s employees
made a contribution to Donald
Trump’s campaign, while a multitude
contributed to Hillary Clinton. The
new director will have a partisan
staff.
A commission can oversee a professional staff and also provide for better
By Kenneth M. Pollack
And Bilal Y. Saab
F
rom Saad Hariri’s resignation
as Lebanon’s prime minister to
the Houthi missile attack on
Saudi Arabia, the Middle East is
again in uproar, thanks to the acute
Iranian threat America’s regional
partners perceive. Without a U.S.-led
initiative to limit Iran’s regional
sway, U.S. allies will act on their own
and escalate regional crises.
That’s why the Iran policy the
Trump administration rolled out last
month is important. It’s an effort to
forge a comprehensive strategy. Its
smartest aspect is that it recognizes
that merely curbing Tehran’s nuclear
ambitions won’t end its aggressive
behavior across the region. But there
are good and bad ways to push back
against Iran, and the administration
so far seems focused on the bad.
Syria and Iraq are the places to execute an Iran strategy effectively—not
Yemen or Lebanon, and certainly not
over the nuclear deal.
Iran has gone all-in on Syria, and
while it is winning, it is also badly
By Richard Boxer
J
ennifer, a 37-year-old Virginia
school teacher now unable to
work due to unrelenting pain
caused by a genetic spinal disease,
stared hopelessly at the bottle of
opioids her doctor had prescribed
her. Beset by desperation discomfort,
she faced a difficult choice. The opioids would provide limited relief but
came with a high risk of addiction.
Or she could try marijuana, which
would likely be safer but put her on
the wrong side of the law.
Robert Thomson
Chief Executive Officer, News Corp
Gerard Baker
Editor in Chief
William Lewis
Chief Executive Officer and Publisher
Paul A. Gigot, Editor of the Editorial Page;
Daniel Henninger, Deputy Editor, Editorial Page
WALL STREET JOURNAL MANAGEMENT:
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decision-making, preventing some of
the missteps and overreach we’ve
seen with the CFPB. For example:
• The bureau took full credit for
punishing Wells Fargo for opening
false customer accounts. But the Los
Angeles Times, not the CFPB, uncovered the malfeasance. More important, the CFPB fined Wells Fargo only
$100 million, based on an incomplete
investigation that found 2.1 million
customers were affected. The actual
number turned out to be 3.5 million.
Meanwhile, large banks, including
Wells Fargo, were fined tens of billions of dollars for toxic mortgages in
the financial crisis. A threshold question is whether one person, in this
case the director, should have the
power to levy such fines.
• Even though the Dodd-Frank Act
expressly prohibits the CFPB from
regulating automotive finance, the
agency jumped into the field, alleging
discrimination in auto lending. Because federal law prohibits auto
lenders from gathering information
on race, the agency had to guess at
its claim of discrimination based
solely on names and ZIP Codes,
which the agency itself admitted as
flawed and which one observer described as the equivalent of a student
guessing on every answer on his
SATs. The agency then went ahead
with guidance that raised the costs of
an average auto loan by an estimated
$600.
• Immediately after it opened its
doors, the bureau began to create a
true bureaucracy and quickly attracted staff, often by paying higher
salaries than those at other regulatory agencies. Many of its examination procedures are duplicative of
other financial regulators, and no
thought was given to how that could
have been avoided.
I was an aide to Barney
Frank. I’ve learned it’s
a mistake to create an
unaccountable agency.
• The CFPB, like other agencies,
collects fines and fees. Astonishingly,
Congress does not require them to be
transferred to the federal Treasury.
Mr. Cordray has boasted of collecting
billions of dollars on behalf of consumers, but portions of that money
ultimately go to favored consumer
groups—a continuing problem of ideological preference.
• A dangerous precedent has been
established when the agency writes a
rule that could have a direct or indirect personal benefit. If Mr. Cordray
Mr. Shaul is CEO of the Community
Financial Services Association of
America, the leading trade association
for short-term, small-dollar lending.
overexposed. It cannot afford to let
the Assad regime sink, risking the demise of Hezbollah and the dissolution
of Tehran’s hard-won position in the
northern Levant.
Washington could take advantage
of this by ramping up covert assistance to Syrian rebels to try to bleed
Damascus and its Iranian backer over
To counter Tehran’s
influence, start with
Iraq and Syria—not
the nuclear deal.
time, the way the U.S. supported the
Afghan mujahedeen against the Soviets in the 1980s. But that runs directly contrary to President Trump’s
purported desire to wash his hands of
Syria after ISIS is evicted.
In Iraq, Tehran’s dominance is far
from complete. There are still many
Iraqis, including Prime Minister Haider
al-Abadi, who don’t want to live under
Iran’s shadow. Helping them would
mean a major U.S. investment after the
defeat of ISIS, including a large residual military force and significant economic assistance to empower champions of political reconciliation.
Here as well, the administration
seems interested only in leaving behind a relatively small force and not
in any further economic aid. Sitting
on the sidelines and blaming the
Kurds when the Iranians help orchestrate an assault on Kirkuk doesn’t
help either. It convinces Iraqi political leaders that Iran can and will act,
while Washington won’t.
As for the other squares on the
Middle Eastern chessboard, none are
as strategically valuable or potentially vulnerable for Iran as Iraq and
Syria. Not Yemen or Bahrain, where
Iran cannot be hurt, or Lebanon,
where pushback will upend the country’s extremely delicate balance.
Where the president clearly wants
to push back on Iran is over the nuclear deal—the Joint Comprehensive
Plan of Action. But that is the worst
place to do it, because the vast majority of the international community is
committed to the JCPOA, and trying
to renegotiate it is likely to unravel a
useful, if highly imperfect, agreement.
A better approach would use the leverage gained from pushing back on
Iran’s regional expansion to negotiate
a follow-on deal extending the
JCPOA’s more stringent restrictions
beyond the current 10- to 15-year
window.
Officially, the administration has
been mum on how it will execute its
strategy to push back on Iran. In private conversations, U.S. officials admit they can’t fill in those gaps yet
because the administration can’t
agree on how to handle key Iran-related issues. Until they can, the strategy is just an aspiration. If they fill it
in with the wrong answers, it will be
a disaster. And if they don’t fill it in
at all, our partners in the region will
do so on their own, and the result
will be more crises and eventual escalation to even worse.
Mr. Pollack is a resident fellow of
the American Enterprise Institute. Mr.
Saab is director of the Defense and
Security Program at the Middle East
Institute.
Can Marijuana Alleviate the Opioid Crisis?
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CFPB Director Richard Cordray testifies in 2014.
was contemplating a political future,
including a bid for governor, while
running the bureau, that alone created a conflict of interest.
The CFPB’s rules would have had
destructive effects. The arbitration
rule, fortunately overturned by Congress, would have spurred a plethora
of class-action lawsuits against financial institutions. It would have prevented consumers being made whole
where appropriate, while the winners
would have been the plaintiffs bar, a
major source of donations to Democratic political campaigns, prospectively including Mr. Cordray’s.
In its recent rule-making on shortterm, small-dollar lending, the agency
used flawed data and ignored the
comments of more than a million customers who use the service. It also
failed to draw any distinction between
legitimate, state-regulated lenders
and illegal lenders, primarily online.
New York state, for instance, basically
prohibits short-term, small-dollar
lending, but one can google “New
York payday lending” and find literally dozens of offers. The rule will cut
off millions from a needed legitimate
source of credit, and offers no viable
solutions or alternatives.
Two last thoughts to prevent future governmental overreach and politicization of our regulators:
Congress must be disciplined in
keeping regulatory agencies within
its sights and holding them accountable, so that problems can be cured
when they arise rather than becoming a matter of habit. Going forward,
the CFPB must be strictly held to its
intended purpose.
Congress should consider renaming agencies to reflect their true purpose, which is rule-writing and restrictive regulations (in most cases
with good intent). No one is against
consumer protection or environmental protection, but calling it the Consumer Finance Regulation Bureau, instead of “Protection Bureau,” would
provide truth in advertising.
Trump’s Iran Strategy Needs Much Improvement
Rupert Murdoch
Executive Chairman, News Corp
Matthew J. Murray
Deputy Editor in Chief
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A ‘Carried
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Jennifer chose marijuana. She
drove to Washington, D.C., where
the drug is sold legally, and visited
three medical marijuana storefronts
offering ridiculously named products like “Kush,” “Diesel” and “Head
Trip.” While the offerings were of
unknown concentrations and efficacy for her pain, they worked to a
greater degree and with fewer side
effects than any previous medication
Jennifer had tried. Her experience
(she is the daughter of a patient in
Los Angeles, where I practice) inspired me to advocate for further
research into clinical uses of the
drug for pain relief.
For the most part, doctors and
patients rely on anecdotal information when deciding on a treatment
path involving cannabinoids. No rigorous scientific studies have been
published that corroborate claims
about marijuana’s medical benefits
when prescribed and used properly.
The federal government should remove the drug from Schedule I of
the Federal Controlled Substances
Act so researchers can lawfully assess its medical potential.
In September, Sen. Orrin Hatch introduced a bill “to improve the process for conducting scientific research
on marijuana as a safe and effective
medical treatment.” The Marijuana
Effective Drug Study Act of 2017 has
bipartisan support. “To be blunt, we
need to remove the administrative
barriers preventing legitimate research into medical marijuana,” Sen.
Hatch said in a press release.
Any research on medical marijuana must first assess the potential
for addiction to other, harder drugs.
The notion that marijuana is a
“gateway” is so far unsupported.
“There is no conclusive evidence
The federal government
should stop blocking
research into the drug’s
medical potential.
that the drug effects of marijuana
are causally linked to the subsequent abuse of other illicit drugs,”
wrote researchers for the Institute
of Medicine in 1999. Still, the idea
lives on, underscoring the need for
real research.
Not only is marijuana a potentially effective pain treatment, it
may also help alleviate the opioid
crisis. States that have legalized
medical marijuana enjoy significantly lower levels of opioid consumption and overdose deaths than
states that continue to penalize possession and use, according to the
Journal of the American Medical Association: “States with medical cannabis laws had a 24.8% lower mean
annual opioid overdose mortality
rate . . . compared with states without medical cannabis laws.”
Researchers from the University of
California, San Diego found that hospitalization rates of people suffering
from painkiller abuse and addiction
dropped 23% and overdoses requiring hospitalization fell 13% in places
where medical marijuana was made
legal. And a recent study found that
Colorado, which legalized the drug
for recreational use in 2014, experienced a 6.5% reduction in opioid-related deaths.
Last year alone, more than
64,000 Americans died from drug
overdoses. Recognizing the link between decriminalizing marijuana
and reducing opioid overdoses could
save thousands of lives. With
650,000 prescriptions for opioids
filled each day (3,900 for new patients) the epidemic seems likely to
continue. Although scientific proof
is no guarantee of an end to partisan squabbling, evidence-based
medical data may offer hope for a
consensus about the effectiveness of
cannabis in the alleviation of human
suffering.
Jennifer is not a criminal. She
uses marijuana to relieve her debilitating pain because it is effective,
non-addictive and almost impossible
to overdose on. By preventing essential research on the medical uses of
the drug, the federal government
forces Jennifer, and thousands like
her, into an impossible position.
Dr. Richard Boxer is a clinical
professor at UCLA’s David Geffen
School of Medicine and medical adviser to iAnthus Capital Management, which invests in the cannabis
industry.
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TECHNOLOGY: STACKING CHIPS LIKE PANCAKES BOOSTS THEIR POWER B4
BUSINESS & FINANCE
© 2017 Dow Jones & Company. All Rights Reserved.
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THE WALL STREET JOURNAL.
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Monday, November 20, 2017 | B1
LIBOR 3M 1.441 NIKKEI 22396.80 g 1.25%
Marvell Deal Sets Up Chip Giant
BY DANA CIMILLUCA
AND DANA MATTIOLI
Monday, according to people
familiar with the matter. The
deal comprises 50% cash and
50% stock and values Cavium
at $80 or more a share, one of
the people said.
That would be a premium of
at least 17% to where Cavium
traded before The Wall Street
Journal reported on the possible deal in early November.
Shares of Cavium, based in
San Jose, Calif., closed at
Marvell Technology Group
Ltd. is nearing a deal to buy
chip maker Cavium Inc. for
about $6 billion, an acquisition that would create a bigger
and more well-rounded competitor to industry giants like
Intel Corp. and Broadcom Ltd.
The companies plan to announce the deal as soon as
$75.83 on Friday. Bermudabased Marvell, which is run
from Santa Clara, Calif., closed
at $20.29, having risen 10%
since the report.
Marvell has strength in producing semiconductors for
data-storage devices, while
Cavium is a leader in communications and networking chips.
A combined company could be
in a better position to compete
with Intel and Broadcom. It
could also reap significant cost
savings, one of the people said.
Broadcom, which sells a diverse line of equipment for
networking and communications as well as data storage after a series of acquisitions, is itself in the process of
trying to get bigger through
another takeover. Earlier this
month, it launched an unsolicited, $105 billion public offer
for rival chip maker Qual-
In the Game Longer
comm Inc., which rebuffed the
bid.
Broadcom is evaluating its
next move, which could involve seeking to replace Qualcomm directors to get the deal
done, people familiar with the
matter have said.
The potential deals continue a wave of chip-merger
activity amid declining revenue in the industry as competition cuts into prices.
’17
Firms Buy
Stakes of
Startups
Privately
ROB STOTHARD FOR THE WALL STREET JOURNAL
BY ELIOT BROWN
AND GREG BENSINGER
An engineer monitors testing at a Castrol facility in England. Oil and auto companies are developing super-slick engine lubricants.
combustion engine faces new
threats across the world.
Countries including the U.K.,
France, China and India have
signaled they plan to ban
sales of vehicles with traditional engines in the coming
decades. Tough new emissions restrictions to encourage the uptake of competitive technologies are set to
come into force sooner.
Earlier this month, the
European Union unveiled an
aggressive proposal to cut
carbon-dioxide emissions
from cars and vans by 30%
by 2030. Beijing wants 20%
of China’s total vehicle production and sales to be electric and hybrid vehicles by
2025. In the U.S., the Trump
administration has faced significant pushback from some
states and environmental activists after signaling it
might relax Obama-era regulations to tighten vehicle
emissions standards.
Please see ENGINE page B2
Going the Distance
Internal combustion engines' fuel-economy gains could keep pace
with hybrid electric-gasoline technology.
Miles per gallon for cars
Internal combustion
Hybrid-electric
Midrange estimate
Optimistic estimate
2010
2030*
2050*
0 mpg
50
*2030 and 2050 figures are estimates.
Source: National Research Council, 2013
100
150
THE WALL STREET JOURNAL.
Ads Misstate Morningstar Ratings
BY SARAH KROUSE
AND KIRSTEN GRIND
HEARD ON THE STREET, B11
4
’15
THE WALL STREET JOURNAL.
BY SARAH KENT
AND CHESTER DAWSON
STOCKS BETRAY
LITTLE FEAR
OF HEIGHTS
5
Source: PitchBook
Thinner oils improve efficiency, helping the old technology stay relevant as electric vehicles gain ground
INSIDE
Average time from first financing
to IPO or acquisition for private
venture-backed startups,
in years
6
2012
Combustion Engines Catch New Spark
Big oil companies and giant auto makers are teaming
up to preserve the internal
combustion engine, as tough
regulation and electric vehicles put the car industry’s
century-old technology at
risk. Their secret weapon:
high-tech engine oil.
Exxon Mobil Corp., BP
PLC, Royal Dutch Shell PLC
and other oil companies are
spending millions of dollars
a year in concert with auto
makers such as Ford Motor
Co. and Fiat Chrysler Automobiles NV to create the
next generation of superslick engine lubricants. They
are betting that the new,
thinner oils will help them
squeeze even more efficiency
out of traditional car engines, allowing them to comply with stricter environmental rules and remain
relevant as new technologies
such as zero-emission electric vehicles gain traction.
“It’s really important that
we are able to squeeze the
lemon,” said Andrew Hepher,
vice president of global commercial technology at Shell.
“The combustion engine has
still got a long way to run.”
The efforts come as the
See more at WSJMarkets.com
Money managers are sometimes misrepresenting ratings
from Morningstar Inc. in advertisements aimed at investors, a Wall Street Journal review has found.
A Journal review of more
than three dozen mutual fund
and exchange-traded fund advertisements found at least
eight ads were inaccurate.
Some reflected ratings that
were higher but out of date,
while others contained misleading language.
Managers of mutual funds
and ETFs rely heavily on top
ratings from Chicago-based
Morningstar, the country’s major fund-rating service, to persuade investors and financial
advisers to move money into
their funds.
Those ratings, in which five
stars are the highest, are frequently used in online and
print ads for mutual funds and
in marketing pitches to financial advisers.
On Aug. 23, a digital ad for
the Oppenheimer Small Cap
Revenue ETF that appeared on
the New York Times website
claimed a four-star Morningstar rating for the fund.
But the fund’s rating had
fallen to three stars roughly
three months before the advertisement appeared.
A spokeswoman for OppenheimerFunds, which manages the fund, said the firm
was in compliance with industry advertising rules. But the
Journal’s inquiry had caused it
to implement “an additional
process improvement,” she
said. “When we become aware
that a fund’s star rating has
changed, we actively pull that
ad out of circulation.”
Misleading ads by the assetmanagement industry, meant
to drum up investor interest,
show how rules laid out
by Morningstar and regulators
aren’t consistently followed or
policed.
Morningstar requires fund
companies using its ratings to
submit all advertising for review and to use the most-current monthly star rating.
Tom Smythe, a business
professor at Furman University whose research includes
mutual funds, said such misleading ads are an “unethical
practice” by fund firms and
hurt investors who rely on the
ratings.
“People are looking at that
information to give them some
shortcut clue as to what the
next great thing is,” he said.
In a recent page-one article
examining Morningstar’s ratings, the Journal reported that
most U.S. mutual funds with
the highest star ratings failed
Please see FUNDS page B2
To reap riches in Silicon Valley, entrepreneurs and venture
investors typically had to wait
until their startup was acquired
or went public.
Now, a third option is thriving: private sales of major
stakes.
Wealthy investment firms
are snapping up stock in some
of the most highly valued startups by buying positions from
early shareholders. The deals,
known as secondary sales, are
allowing employees and investors to cash out of some stock
while the companies avoid the
public markets, bringing an injection of funds to many in Silicon Valley despite a dearth of
tech IPOs.
Leading the way is Japanese
conglomerate SoftBank Group
Corp., which last week cleared a
hurdle for a deal with Uber
Technologies Inc. in which
SoftBank’s tech-focused investment fund would seek to buy
shares from investors and employees at a discount to the
ride-hailing firm’s $68 billion
valuation. If successful, the investment, valued at as much as
$10 billion, would be the largest
such transaction in tech history.
SoftBank also recently committed $1.3 billion to buy out investors and employees at
shared-office space company
WeWork Cos. as part of a $4.4
billion investment, according to
people familiar with the matter.
Shareholders were informed in
September they could sell
shares at the same $20 billion
valuation that SoftBank paid to
the company. Former WeWork
employees say they received the
money for their shares in recent
weeks.
And as part of its $2.5 billion
investment in Indian e-commerce giant Flipkart Online Services Pvt. Ltd. earlier this year,
SoftBank committed hundreds
Please see STAKE page B2
SPY
LIQUIDITY
RESILIENCY
PERFORMANCE
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B2 | Monday, November 20, 2017
INDEX TO BUSINESSES
BUSINESS & FINANCE
A
Automobiles ............. B1
Foot Locker ............... B10
Ford Motor..................B1
G
General Electric.....A1,A2
General Motors...........B2
H
B
I
Intel.............................B1
C
Lindsay Goldberg........B3
Lions Gate
Entertainment.....B3,B6
D
Dell Technologies........B4
DSW .......................... B10
E
Eaton Vance..............B10
Effissimo Capital
Management.............B4
Elliott Management ... B7
Exxon Mobil................B1
J
JPMorgan Chase.........B9
L
Robert W. Baird........B10
RocketSpace ............. A10
Rolls-Royce Holdings..B6
Royal Dutch Shell.......B1
S
M
SkyBridge Capital.......A1
Social Finance.............B2
SoftBank Group..........B1
Sony Pictures
Entertainment..........B6
Spotify ...................... A10
T
Time Warner...............B6
Toshiba........................B4
U
Marvell Technology
Group.........................B1
Morningstar................B1
Uber Technologies
............................. A10,B1
N
Value Partners..........A10
Nationwide Mutual
Insurance .................. B2
NH Hotel Group........A10
NXP Semiconductors..B7
O
OppenheimerFunds.....B1
Outcome Health..........B3
P
F
Fiat Chrysler
R
HNA Group..................A1
Bain Capital ................ B4
Bank of America.......A10
Barclays.......................B9
BP................................B1
Broadcom...............B1,B7
Cavium.........................B1
Chevron ....................... B2
Children's Place ........ B10
Columbia Threadneedle
Investments..............B2
Q
Qualcomm..............B1,B7
Participant Media.......B6
V
W
Walden Media.............B6
Wal-Mart Stores.......B10
Walt Disney................B6
Warburg Pincus .......... B3
Weinstein....................B3
Western Digital..........B4
Westinghouse Electric
.....................................B4
WeWork ...................... B1
INDEX TO PEOPLE
A
H
P
Agarwal, Shradha.......B3
Hassett, Kevin..........R12
Pehowich, Walter.....B10
Pinkerton, Rob............B2
Pitt-Miller, Barrington
.....................................B9
C
J
Chandler, Nick.............B6
Cohn, Gary.................R11
Contreras-Sweet, Maria
.....................................B3
Jones, Jerry ................ B6
D
Deaton, Angus..........R12
Diamond, Robert.........B9
F
Ferriola, John..............R8
Ford, John ................... R6
K
Kane, Claire.................B9
Kaplan, Jerry.............R11
Kelleher, Brian............B4
L
Letteri, Vincent...........B2
Lew, Jacob .................. B3
M
Michelman, Sanford...B3
Mnuchin, Steven.........R4
G
N
Goodell, Roger ............ B6
Noreika, Keith.............B7
FUNDS
Continued from the prior page
to perform in the future. Even
so, some investors and their financial advisers lean heavily
on those ratings to direct retirement savings and other investments.
The Journal reported that
asset manager AllianceBernstein cited star ratings from
September 2016 in Private
Wealth Magazine last spring
and in a handout at Morningstar’s April conference. But
two of the fund ratings it advertised had fallen by the time
the advertisements ran. A
spokesman for AllianceBernstein attributed the mistakes
to “human error.”
Rob Pinkerton, Morningstar’s chief marketing officer,
said in an email that “our
guidelines require submission,
but not all advertising material
is actually sent through to us.”
He added that “our guidelines
are to help investors, not to
regulate fund companies.”
Morningstar, which charges
licensing fees for its ratings,
declined to say how many instances of misuse it identifies
each year but noted investors
could verify ratings for individual funds on its website.
Star ratings are updated
monthly.
Columbia Threadneedle Investments ran a full-page ad
in an April issue of the financial publication Barron’s promoting a five-star rating that
STAKE
Continued from the prior page
of millions to buy shares from
investors, according to people
familiar with the matter.
The trend extends beyond
the SoftBank deals to highly
valued companies like Airbnb
Inc., online lender Social Finance Inc. and messaging software company Slack Technologies Inc., according to people
familiar with the sales.
For years, there have been
various markets for sales of
secondary shares, generally
aimed at helping employees and
early investors take some cash
out before an initial public offering. What has changed is the
scale and frequency of the
deals, with big transactions
fueled by supersize valuations
and easy access to funds amid
low interest rates.
Should the practice continue
to expand, it could further forestall IPOs of many large tech
companies—and the ability of
small investors to get in on the
companies—given that the opportunity to cash in on their
shares is a big motivator for
early investors and employees
to launch an IPO. Still, second-
S
Shah, Rishi..................B3
Shah, Semil.................B2
Smythe, Tom...............B1
Snyder, Zack ............... B6
Staley, Jes...................B9
Summers, Lawrence.R14
W
Walker, Jay.................R9
Warner, Mark..............R8
Webb, Dan...................B3
ENGINE
Continued from the prior page
In response, car companies have promised to launch
more fully electric vehicles
in the next decade, including
General Motors Co., which
on Wednesday pledged to
sell one million EVs annually
by 2026. Oil multinationals
are spending more on renewable-energy sources and, in
some cases, investing in
electric vehicles’ recharging
infrastructure. But such activities still make up a fraction of their sales. Most
companies expect the combustion engine to remain
dominant for decades to
come, which means improving efficiency is crucial.
“If you can improve a few
percent, that is very much
worth doing,” said Dave Hall,
a vice president at Castrol,
BP’s lubricants subsidiary.
“There’s going to be a lot of
internal combustion engines
around for a long time.”
Shell, meanwhile, has
formed partnerships with
Fiat Chrysler, among others,
on next-generation lubricants. “Car makers are very,
very heavily motivated to
improve the economy of
their fleet,” said Shell’s Mr.
Hepher. Other efforts to enhance performance include
adding gears to transmissions and making vehicles
more aerodynamic.
Big oil companies have
worked with car makers to
develop better engine oils
for decades, but efforts
picked up speed in recent
years as engineers pushed
for ultrathin oils to help reduce friction and allow for
more sophisticated engines.
Falling Stars
Fund companies sometimes advertise out-of-date Morningstar ratings.
AB Select US Long/
Short Portfolio
Oppenheimer Small Cap
Revenue ETF
Rating displayed in advertisement
Sept. Oct.
2016
Jan.
’17
April
Month in which print ad appeared
in Morningstar conference bulletin
showing Sept. 30 rating
March
2017
May
Aug.
Month in which digital ad appeared
showing four-star rating as of
March 31, 2017
Columbia Adaptive Risk Allocation Fund
Class Z or institutional share class*
Dec.
2016
Feb.
’17
Class A share class
April
April
Dec. Jan.
2016 ’17
Month in which print ad ran showing
five-star rating as of Dec. 31, 2016
*Mutual funds are typically divided into different share classes that charge investors different fees
Source: Morningstar Inc.
THE WALL STREET JOURNAL.
its Columbia Adaptive Risk Allocation Fund had earned the
previous December.
The fund’s overall rating
had declined months earlier to
four stars.
“When we submitted the
advertisement for publication,
it included the most current
quarter-end data available,
which is consistent with regulatory requirements,” a Columbia spokesman said.
The ad did appear to violate Morningstar guidelines,
ary sales generally come at a
discount to stock sold directly
by a company.
Vincent Letteri, a director at
Kohlberg Kravis Roberts & Co.’s
tech investment group, said
about half the deals his privateequity firm considers for investment now involve some
secondary shares. It is “something that we’re seeing with increased frequency, in particular
over the past six to 12 months,”
Mr. Letteri said.
A number of factors are fueling the trend. Big investors
such as private-equity funds,
mutual funds and sovereignwealth funds are flush with
money and eager to park vast
sums into tech amid a long
stretch of low interest rates.
To get meaningful stakes at
lofty valuations, investors often
want to inject more capital than
the startup needs. So they also
buy stock from existing shareholders instead of writing a
smaller check. “If we really believe in the company, we’d
rather have more money into
it,” Mr. Letteri said.
At the same time, startups
are opting to stay private longer with ample capital readily
available. Venture capitalbacked startups waited an average of 6.2 years before an IPO
like other ads the Journal reviewed.
Part of the challenge in
oversight is that Morningstar’s
guidelines for fund firms using
its rankings are different than
the industry regulator’s rules,
which are broader. The Financial Industry Regulatory Authority says in its advertising
policies that any ranking marketed to investors “must be, at
a minimum, current to the
most recent calendar quarter
end” before use or publication.
ROB STOTHARD FOR THE WALL STREET JOURNAL
These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.
Abercrombie
& Fitch ..................... B10
AllianceBernstein
Holding......................B2
Amazon.com ............. B10
Anbang Insurance Group
...................................A10
Apple...........................B4
THE WALL STREET JOURNAL.
* ***
Castrol oil samples. High-tech oils evaporate less easily and can operate at high temperatures.
This new generation of lubricants is thinner than predecessors. The high-tech oils
evaporate less easily and can
operate at high temperatures
and pressures.
As they are developed,
they will be recommended
for use on newer vehicles.
An industry consortium is
expected to grant its approval to “0W-16” grade motor oil in the U.S. early next
year as a thinner alternative
to the current standardgrade “5W-30” or “0W-20”
used in most new vehicles.
The new lubricants are
meant to help auto makers
build smaller, turbocharged
engines that are still quite
powerful, resulting in efficiency gains close to 15%
compared with older models, said David Tsui, project
manager for energy at consulting firm Kline & Co.
“You’re trying to get these
little engines to run at a jog
pace, but with a really
heavy load,” he said.
Optimizing internal combustion engines could boost
efficiency a further 25%—a
calculation that might tempt
auto makers from spending
more on electric-vehicle
technology, according to consulting firm McKinsey & Co.
Critics say there are limits
to how much more efficient
combustion engines can become. PricewaterhouseCoopers predicts a shift toward
electric vehicles is inevitable,
forecasting that between
2025 and 2030, the cost of
battery electric vehicles will
fall below the cost of combustion engines. Boston Consulting Group estimates gasoline-only engines won’t
meet planned regulations in
the U.S. and Europe as soon
as 2020, resulting in penalties averaging $500 a vehicle
by 2025.
Developing a new premium engine-oil grade can
cost about $10 million, said
Castrol’s Mr. Hall.
The gains from engine oil
alone are limited, however.
Industry experts say the latest lubricants typically boost
fuel economy less than 1%,
mainly by reducing the
amount of energy needed to
pump a piston. Even so, it is
a cost-effective solution.
“You can change the entire fleet fuel economy
overnight,” said Gary Parsons, a manager in charge
of relationships with auto
makers at Chevron Corp.
subsidiary Oronite. “You
may only gain a half-percent, but being able to do
that overnight makes a lot
of difference.”
A Finra spokeswoman said
the organization regularly reviews all mutual-fund ads to
make sure they comply with
its rules and that misuse can
result in a fine.
Assets in U.S. mutual funds
and ETFs total about $19 trillion. In 2017, financial-services
firms, including asset managers, are expected to spend
about $10 billion on digital ads
alone, up 16% from the previous year, according to the research firm eMarketer. The
portion of those ads that include Morningstar ratings isn’t
known.
Misleading ads from fund
firms are a problem for financial advisers like Roy Larsen,
who use star ratings to help
decide where to place their clients’ money.
Mr. Larsen, based in Gainesville, Ga., said he is bombarded
daily with emails and phone
calls from fund companies
pushing their funds’ high star
ratings. Typically, he said, he
won’t take a meeting or even
research a fund he hasn’t
heard of unless it has a
high Morningstar rating.
“I would like to think I don’t
use it at all,” he said, “but I
would be lying if I said it
doesn’t influence my decisions.”
In other ads, the Journal
found some fund companies
failed to account for a sweeping ratings methodology
change Morningstar made in
2016, removing adjustments
for sales charges—or loads—
attached to some funds.
In August, for instance, Nationwide Mutual Insurance
ran an ad in Barron’s that said
incorrectly that the star ratings calculation included the
impact of the loads. Pacific Investment Management Co.
published an advertisement in
an April issue of Barron’s with
the same incorrect language.
The incorrect ads implied
overall performance of the
fund was better than advertised, as the unmentioned fees
would have affected a fund’s
performance.
A spokeswoman for Pimco
declined to comment. A
spokesman for Nationwide
said, “We continually update
all our marketing materials as
part of our ongoing commitment to enhance transparency.”
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Getting Old, Staying Private
Although tech IPOs of companies valued at $1 billion or more have
remained relatively flat, private venture-backed startups are on the rise.
U.S. tech IPO startups, valued
at a billion dollars or more
U.S. venture-backed private
companies, valued at a billion
dollars or more
15 companies
100 companies
10
50
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2012 ’13
’14
’15
’16
’17
Sources: Dealogic (tech IPOs);
Dow Jones VentureSource (startups)
or a sale to another company
this year through September, up
from an average of five years in
2008, according to startup data
provider PitchBook. That is particularly true of the largest
companies: The average age of
the 10 most valuable startups—
which include Uber, Airbnb and
WeWork—is 9.5 years, and none
of them is known to have imminent IPO plans.
The lengthening timeline
means early employees and investors have much of their
wealth or investment gains tied
up in private shares that are
2012 ’13 ’14 ’15 ’16 ’17
THE WALL STREET JOURNAL.
difficult or impossible to sell.
Secondary sales are a rare opportunity to profit from their
shares ahead of an IPO that
might be years away.
Meanwhile, some venturecapital firms are feeling pressure from their investors to return profits while most of their
holdings sit in the private markets. Semil Shah, general partner of early-stage investor Haystack, said he sold shares in two
of his companies in secondary
deals, in part to show to his investors he can return some
cash.
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Monday, November 20, 2017 | B3
THE WALL STREET JOURNAL.
BUSINESS NEWS
Bid for Weinstein Co. Emerges
Jacob Lew
Prepares
Return to
Finance
Former public official
under Obama
proposes acquisition
to be led by women
A surprise bidder for Weinstein Co. has emerged who is
seeking to keep the embattled
studio in business with new,
majority-women leadership.
Maria
Contreras-Sweet,
who led the Small Business
Administration under President Barack Obama, has submitted an offer to acquire
Weinstein Co., according to a
letter to the board viewed by
The Wall Street Journal. It is
the first bid to be publicly reported.
In the letter, Ms. ContrerasSweet said she hopes to be executive chairwoman of a majority-female board heading
Weinstein Co., which would be
renamed.
She also wants to set up a
fund for victims of alleged
sexual misconduct by the studio’s recently fired co-chairman, Harvey Weinstein, and a
mediation process to reach
settlements with them.
Other possible bidders that
have kicked the tires of Weinstein Co. include Lions Gate
Entertainment Corp., A&E
Networks and Metro-GoldwynMayer Inc., as well as hedge
funds, people with knowledge
of the bids said. Private-equity
firm Colony Capital previously
entered an exclusive negotiation period to acquire Weinstein Co. but failed to reach a
deal.
The letter doesn’t detail
how much Ms. ContrerasSweet is offering for Weinstein Co.’s assets. A person
close to the studio said it is
valued in the low hundreds of
millions, a sizable drop from
its value before Mr. Weinstein
was accused of sexual misconduct by dozens of women last
month.
Mr. Weinstein has apologized for his past behavior
with colleagues but denied al-
BY JACOB M. SCHLESINGER
AND LAURA KREUTZER
WEINSTEIN COMPANY/EVERETT COLLECTION
BY BEN FRITZ
Colin Firth in ‘The King’s Speech.’ The offer letter doesn’t say how much investors are proposing to pay for the production company.
legations of nonconsensual
sex.
It remains to be seen what,
if any, sway Ms. ContrerasSweet’s pitch for female leadership will have on Weinstein
Co.’s board and how her financial offer will stand up to
other potential bidders.
She does have a notable ally
on her side, however, in attorney Gloria Allred, who represents several alleged victims
of Mr. Weinstein.
Ms. Allred consulted with
Ms. Contreras-Sweet on the
mediation process she has
proposed. The attorney said in
an email that she supports Ms.
Contreras-Sweet’s offer and
that it would be “very important to victims.”
An anonymous actress represented by Ms. Allred last
week sued Weinstein Co. and
Harvey Weinstein for alleged
assault and sexual battery.
Separately, an actress filed a
lawsuit against Weinstein Co.
and Miramax, Harvey Weinstein’s former company, that
seeks class-action status.
Representatives of Weinstein Co. and Miramax didn’t
respond to requests for comment on the suits. A spokeswoman for Mr. Weinstein,
asked about the lawsuits, reiterated that Mr. Weinstein denied allegations of nonconsensual sex.
Some possible bidders for
Weinstein Co. have been conMaria
ContrerasSweet would
lead a
majorityfemale board
of directors.
cerned about potential legal
and financial liabilities, said
people close to the sale process.
Ms.
Contreras-Sweet
doesn’t identify her financial
backers in her letter, dated
Nov. 8. However, people with
knowledge of the proposal
said the majority of investors
Ad Startup Outcome Health
Offers Buyouts to Employees
BY ROLFE WINKLER
Outcome Health, an advertising startup facing fraud allegations from some of its investors, on Friday took steps
to cut more staff, offering voluntary buyouts to employees.
Chicago-based Outcome,
which places digital screens in
doctors’ offices and streams
drug ads and educational content to them, on Friday held a
companywide meeting where
employees were told the company would cull its ranks by
offering “voluntary separation
packages,” people familiar
with the matter said. Some
employees later received an
email offering 10 weeks of pay
and some benefits, giving
them until Monday morning to
decide, and warning that such
severance might not be offered after the deadline, according to a copy of the email
reviewed by The Wall Street
Journal.
The company laid off 76
people in late September.
In response to inquiries
about the buyouts, Outcome
said in a statement it “understands that these are challenging times, and that the ongoing scrutiny in the media may
not be the right fit for everyone so the company is offering
voluntary buyouts. Outcome
Health’s founders believe
strongly in the long-term success of the business and that’s
why they are seeking to reinvest their own money into the
company.”
Last month, the Journal reported how some Outcome
employees had allegedly misled customers about its advertising services. The company
said then it “has always upheld the highest ethical standards” and adopted new policies this year to comply with
customer contracts. It placed
three employees on paid leave
and hired former U.S. attorney
Dan Webb to investigate the
claims.
Investors, including funds
managed by a unit of Goldman
Sachs Group Inc. and Google
parent Alphabet Inc., on Nov. 7
filed suit against Outcome ac-
Partners Suspend
Links to Outcome
The buyout offer to Outcome Health employees comes
after partners including Harvard Health Publishing and the
American Medical Association
recently suspended their relationship with the company.
Outcome told staff last
week that Harvard Health and
the AMA elected to “pause”
their relationship with the
company until its legal matters
are resolved, according to a
staff email reviewed by The
Wall Street Journal. Outcome
announced the partnership
with Harvard Health in August,
whereby faculty of Harvard
Medical School reviewed educational content running on
Outcome Health’s network.
cusing the company and its
founders of knowingly providing false data and financial reports before a $478.5 million
funding round earlier this
year.
A request from that suit to
freeze $225 million in a subsidiary controlled by the
founders wasn’t granted by a
Some investors allege
the Chicago-based
firm misled customers
about its services.
New York judge last Monday.
The investors dropped that
claim in New York and on
Thursday filed a suit in Delaware Chancery Court against
Gravitas Holdings LLC, the
subsidiary holding the funds,
seeking a temporary restraining order. The fraud claims
against the company remain in
the New York suit.
Outcome and its founders,
Chief Executive Rishi Shah and
President Shradha Agarwal,
have called the fraud allega-
are women. Ms. ContrerasSweet would also likely invest
her own funds, these people
said.
The businesswoman wrote
that she has been “profoundly
affected by the recent revelations” and that she believes
“reorganizing the Company as
a woman-led venture will be
an inspiration to the industry,
and a new model for how an
entertainment company can be
both financially successful and
treat all its employees with
dignity and respect.”
Ms. Contreras-Sweet previously founded Latino-focused
ProAmerica Bank, which was
bought by Pacific Commerce
Bank in 2015, and is on the
board of Sempra Energy. She
has no prior experience in media and entertainment.
In addition to acquiring
Weinstein Co.’s assets, Ms.
Contreras-Sweet wrote that
she would assume its liabilities and “inject new cash” to
put it on a stronger financial
footing.
Business at the studio has
been at a near standstill recently as it has delayed film
releases and been unable to
acquire new projects.
Many had assumed Weinstein Co., once one of Hollywood’s premier producers of
prestige films such as “The
King’s Speech” and “Django
Unchained,” would soon disappear.
But Ms. Contreras-Sweet intends to keep the studio in
business producing films and
television shows and to retain
most or all of its 157 employees, the letter said. She recently went to the company’s
Los Angeles offices and met
with staffers there to discuss
her plans, said people with
knowledge of the visit.
Current co-Chairman Bob
Weinstein, who is Harvey
Weinstein’s brother, wouldn’t
stay with the company under
Ms. Contreras-Sweet, said the
people with knowledge of her
offer.
—Keach Hagey
and Dana Cimilluca
contributed to this article.
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The AMA ran an educational campaign on Outcome’s
network this summer to help
patients spot signs that they
are prediabetic.
“Given the serious nature
of recent events, we are reviewing the situation to determine next steps,” said Dr.
Gregory Curfman, editor in
chief of Harvard Health Publications in a written statement.
The AMA didn’t respond to a
request for comment.
Outcome said over 90% of
content partners remain active.
The company also said it “continues to sign up prominent
new health-care systems and
advertising clients.”
Outcome last week named
Carlin Adrianopoli, a senior
managing director at FTI Consulting, as interim chief financial officer. Mr. Adrianopoli was
previously CFO of RadioShack.
tions baseless and said the effort to freeze the funds was
unfair and could financially
damage the company.
In response to the Delaware
suit, Sanford Michelman, an
attorney for Outcome Health,
said: “The Goldman Sachs
group is continuing to create
an inappropriate distraction
after New York’s courts declined their baseless arguments multiple times. This irresponsible abuse of the legal
process is seeking to prevent
the founders from using their
own money to reinvest in the
company.”
Outcome said in a Nov. 8
court filing that while Mr.
Webb’s investigation continues, he had “not come across
any evidence that senior management was involved” in any
misconduct.
On Nov. 9, the investors
said the Justice Department
was sending them subpoenas
to request information as part
of a fraud investigation. The
Justice Department has declined to comment.
An attorney for Outcome
said it “is committed to fully
cooperating with any government investigation.”
WASHINGTON—Former
Treasury Secretary Jacob Lew
is joining a midmarket New
York private-equity firm, adding his name to the long list of
high-ranking government officials entering the sector in recent years.
Mr. Lew, who ran the Treasury during President Barack
Obama’s second term, will become a partner at Lindsay
Goldberg LLC, firm executives
told The Wall Street Journal.
The company has about $15
billion in capital and specializes in investing in family and
founder-run businesses.
The move marks a return to
finance for Mr. Lew, who
worked for about two years at
Citigroup Inc., in between cabinet-level stints in the Clinton
and Obama administrations.
Mr. Lew’s predecessor as Treasury secretary, Timothy Geithner, became president of private-equity firm Warburg
Pincus LLC shortly after he
left the government in 2013.
Like Mr. Geithner, Mr. Lew,
62 years old, plans to play an
active role in helping run the
firm, a contrast with many
public figures who join private-equity companies in an
advisory role.
Mr. Lew said that after
years in leadership roles in
large bureaucracies—in addition to his stint at the Treasury, he also served as Mr.
Obama’s White House chief
of staff, and director of the
White House Office of Management and Budget—he was
drawn to a smaller organization. “The federal government was quite a labyrinth
of activity,” he said in an interview. “At this stage of life,
I’m looking forward to working on things more circumscribed.”
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B4 | Monday, November 20, 2017
NY
THE WALL STREET JOURNAL.
* ***
TECHNOLOGY
WSJ.com/Tech
KEYWORDS | By Christopher Mims
A funny
thing is happening to the
most basic
building
blocks of
nearly all our devices. Microchips, which are usually thin
and flat, are being stacked
like pancakes.
Chip designers—now playing with depth, not just
length and width—are discovering a variety of unexpected dividends in performance, power consumption
and capabilities.
Without this technology,
the Apple Watch wouldn’t be
possible. Nor would the most
advanced solid-state memory
from Samsung, artificial-intelligence systems from
Nvidia and Google, or Sony’s
crazy-fast next-gen camera.
Think of this 3-D stacking
as urban planning. Without
it, you have sprawl—microchips spread across circuit
boards, getting farther and
farther apart as more components are needed. But
once you start stacking
chips, you get a silicon cityscape, with everything in
closer proximity.
The advantage is simple
physics: When electrons
have to travel long distances
through copper wires, it
takes more power, produces
heat and reduces bandwidth.
Stacked chips are more efficient, run cooler and com-
IFIXIT
Stacked Like Pancakes, Chips Boost Clout
Apple Watch’s chip package. Without the ability to stack microchips, the device wouldn’t be possible.
municate across much
shorter interconnections at
lightning speed, said Greg
Yeric, director of future silicon technology for ARM Research, part of microchip design firm ARM.
While the principles that
underlie 3-D microchips are
straightforward, making
them is anything but. First
proposed in the 1960s, the
technology has sporadically
appeared in high-end applications, such as military
hardware, Mr. Yeric said.
But stacked-chip offerings
from most major chip makers—AMD, Intel, Apple, Samsung and Nvidia—plus
smaller, specialized companies like Xilinx, have been
around only five years or so,
said Sinjin Dixon-Warren, an
analyst at microchip research firm TechInsights.
What changed? Engineers
started running out of other
ways to squeeze more performance out of microchips.
Stacked chips are frequently part of a “package”
of other scrunched-together
chips. In addition to saving
space, this lets makers create many different chips—
with different manufacturing
processes—and then more or
less literally glue them all
together. The “3-D system in
package” approach contrasts
with the “system on a chip”
approach frequently used in
mobile phones, where all the
different components of the
phone are etched on a single
piece of silicon.
One of the most advanced
3-D chip packages has powered the Apple Watch since
its introduction, Mr. DixonWarren said. Thirty different
chips are hermetically sealed
inside a plastic envelope. To
save space, memory is
stacked on top of the logic
circuit, he said. The watch
couldn’t be this compact
without chip stacking.
But where Apple’s chips
are stacked only two stories
high, Samsung has produced
a veritable silicon high-rise.
Samsung’s V-NAND flash
memory, used for storing
data in phones, cameras and
laptops, has 64 chips placed
one atop the other. Samsung
just announced that a future
version will have 96 layers.
Memory is a natural application for chip-stacking technology, since it solves a
problem that has long
plagued chip designers: Adding more cores to anything
from an iPad to a supercomputer didn’t translate to
hoped-for speed gains because of the communications
lag between logic circuits
and the memory they need
to do their jobs. Sticking
memory right on top of
chips allows for many more
short connections between
the two.
That’s how Nvidia’s builtfor-AI Volta microprocessors
work, said Brian Kelleher,
the company’s senior vice
president of hardware engineering. By stacking up to
eight layers of high-bandwidth memory directly on
top of the GPU, these chips
are breaking records in processing efficiency.
“We are power-limited,”
said Mr. Kelleher, referring
to the amount of electricity
a system is budgeted, which
can be eaten up by both the
power put into it and the
heat it generates. “Any
power we can take out of the
memory system, we can put
into computation.”
Right now, there are still
costly barriers to getting 3-D
microchips into more devices.
For starters, 3-D chips are
so new, the design tools used
to lay them out simply haven’t evolved enough yet,
Mr. Yeric said. Until simple
design tools—the kind currently used for flat chips—
are widely available, stacked
chips will continue to be the
sole purview of companies
with the most engineering
talent.
Another problem is that
manufacturers are still learning how to physically stack
chips atop one another and
connect them reliably. This
means lower yields, or fewer
usable chips, coming from
some of the manufacturing
processes.
Toshiba to Sell Shares as It Races to Avoid Tokyo Delisting
BY TAKASHI MOCHIZUKI
TOKYO—Toshiba Corp. said
it would raise ¥600 billion
($5.3 billion) through the sale
of new shares to foreign funds,
a step to avoid a delisting
from the Tokyo Stock Exchange if the planned sale of
its chip unit is delayed.
The troubled Japanese con-
glomerate will issue about 2.3
billion shares, equivalent to 54%
of its shares outstanding, at
¥262.8 each. Under the plan,
Singapore-based activist fund
Effissimo Capital Management
Pte. will become the largest
shareholder with 11.34% ownership, Toshiba said on Sunday.
Since the bankruptcy filing
of Toshiba’s U.S. nuclear sub-
sidiary Westinghouse Electric
Co. in March, the Japanese
company has been looking for
ways to raise funds. Earlier in
the year, Toshiba said it might
not be able to stay in business.
Toshiba’s shareholder equity
stood at negative ¥619.8 billion
as of Sept. 30, signifying that
liabilities outweighed assets by
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end of Toshiba’s fiscal year, it
would trigger the company’s
delisting from the Tokyo Stock
Exchange under exchange rules.
Toshiba signed a deal in
September to sell its computer
flash-memory chip business to
Bain Capital and other investors, with Apple Inc., Dell
Technologies Inc. and other
U.S. tech companies providing
funds for the purchase. The
deal would allow Toshiba to
book enough profit to fill its
shareholder-equity hole, but it
must get approval from antitrust authorities in multiple
countries and clear legal objections raised by Western
Digital Corp., Toshiba’s partner in the chip business. Ana-
lysts have said that would be
difficult to do by March.
Toshiba, in the statement to
detail the new share offering,
said the plan would allow it to
avoid delisting and focus on
becoming profitable through
its other businesses.
The new share offering is
scheduled to be completed by
Dec. 5, Toshiba said.
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | B5
THE WALL STREET JOURNAL.
B6 | Monday, November 20, 2017
BUSINESS NEWS
New Accounting
Rule to Revamp
Firms’ Financials
CLAY ENOS/ASSOCIATED PRESS
BY NINA TRENTMANN
Time Warner Inc.’s Warner Bros. spent nearly $300 million to make ‘Justice League,’ which teams up an array of superheroes.
‘League’ Has a Soft Start
BY BEN FRITZ
What was supposed to be a
climax in the Warner Bros. effort to build a new cinematic
universe for its DC comic book
characters instead turned out
to be a low point.
“Justice League,” a megabudget production in which
Batman, Wonder Woman, Superman and other superheroes
team up, opened to an estimated $96 million in the U.S.
and Canada this weekend.
Though not a flop, that is well
below the studio’s hopes and
less than any DC superhero
movie since the 2011 flop
“Green Lantern.”
The Time Warner Inc.owned studio spent nearly
$300 million to make “Justice
League,” due to a combination
of big ambitions and obstacles
in production. Other superhero
team-up movies, like Marvel’s
“Avengers,” have grossed more
than films featuring the individual heroes who come together, and Warner had the
same hope.
But 2013’s “Man of Steel,”
2016’s “Batman v Superman:
Dawn of Justice” and “Suicide
Estimated Box-Office Figures, Through Sunday
SALES, IN MILLIONS
1.
2.
3.
4.
5.
FILM
DISTRIBUTOR
WEEKEND* CUMULATIVE % CHANGE
Justice League
Wonder
Thor: Ragnarok
Daddy’s Home 2
Murder on the
Orient Express
Warner Bros.
Lions Gate
Disney
Paramount
Twentieth
Century Fox
$96
$27.1
$21.8
$14.8
$13.8
*Friday, Saturday and Sunday
$96
$27.1
$247.4
$50.6
$51.7
---62
-50
-52
Source: comScore
Squad” and June’s “Wonder
Woman” all opened to more
than $100 million, with “Batman v Superman” posting a
high of $166 million.
Overseas, “Justice League”
opened to $185.5 million. That
is less than the approximately
$256 million foreign debut of
“Batman v Superman.” “Justice
League” was huge in Brazil,
where it had the biggest opening weekend for a movie ever,
with $14.2 million.
It also performed well in
China, the U.K., Mexico and
South Korea but opened below
“Batman v Superman” in all
those countries.
“While we were hoping for
a higher box office domestically and world-wide, we’re
encouraged by the audience
reactions to the movie,” said
the Warner Bros.’ president of
domestic distribution, Jeff
Goldstein.
Despite weak reviews, opening-night audiences gave the
movie a B+, according to market-research firm CinemaScore. “Batman v Superman”
received a B, while “Wonder
Woman” got an A.
It remains to be seen what
kind of momentum “Justice
League” takes into the potentially lucrative Thanksgiving
weekend. Past DC movies have
had very different lives postopening, depending on audience reactions. “Wonder
Woman” ultimately grossed
quadruple its $103 million
opening in the U.S. and Canada, while “Batman v Superman” grossed less than double
its opening.
Regardless, the soft start is
a disappointment for Warner
not just financially but as a
sign of weakened enthusiasm
among fans for its superhero
films. Many critics and hardcore fans disliked “Batman v
Superman” and “Suicide
Squad.” More positive responses to “Wonder Woman”
seemed to turn the tide, but
“Justice League” was more of a
direct follow-up to “Batman v
Superman.” Both movies were
directed by Zack Snyder.
“Justice League” faced the
additional challenge of opening two weeks after “Thor:
Ragnarok,” the latest well-received hit from Walt Disney
Co.’s Marvel. It has grossed
$738.1 million globally so far.
Warner made changes before and during production of
“Justice League” to lighten its
tone compared with “Batman v
Superman.” Joss Whedon, who
wrote and directed “Avengers,”
was tapped to write new
scenes after principal photography was completed and then
took over directing duties
when Mr. Snyder stepped aside
due to a death in his family.
Also this weekend, the family drama “Wonder,” from Lions Gate Entertainment Corp.
and co-financed with Participant Media and Walden Media, opened to a better-thanexpected $27.1 million. The
low-budget animated Bible tale
“Star,” from Sony Pictures
Entertainment and Walden,
made its debut to a weak $10
million.
The revised standard
will force businesses
to change how they
recognize revenue.
must publicly disclose that
they have assessed the impact.
Deutsche Telekom AG is one
company that expects a material change to its financials.
The German telecommunications company’s 2018 opening
balance sheet will reflect a
one-time increase of €3 billion
to €4 billion ($3.5 billion to
$4.7 billion) in retained earnings.
The last opportunity for
companies to disclose the potential impact of the new rules
is in their financial results for
the period ending Dec. 31, said
KPMG’s Mr. Chandler. These
are usually filed six to eight
weeks after companies close
their books.
Germany’s SAP SE has indicated the new accounting
standard won’t be material for
its revenue. Still, some components of the balance sheet at
SAP could look different next
year, said finance chief Luka
Mucic. “The transition to the
new standard requires a considerable amount of work,” he
said.
Contract Feud Flares at NFL
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! 1
BY ANDREW BEATON
Dallas Cowboys owner
Jerry Jones continued sparring with his National Football League partners through
the weekend, as the two sides
escalated their feud with
fresh accusations about a
proposed contract extension
for commissioner Roger
Goodell.
The latest volley in the
conflict came from Mr. Jones
in a letter Friday in which he
alleged the other owners and
Mr. Goodell are “trying to
subvert” the league’s constitution.
In the letter, sent to the
league’s owners and reviewed
by The Wall Street Journal,
Mr. Jones said Mr. Goodell’s
impending contract extension
should be reviewed and voted
on by all owners.
The missive drew condemnation from other owners,
who replied Saturday morning
that a unanimous vote of owners in May serves as the authorization Mr. Jones is demanding, and that they had
been “hoping to avoid the
need for further letters.”
Mr. Jones has said he is
concerned about transparency
in the negotiations and the potential compensation awarded
to Mr. Goodell in a potential
extension. In a letter to Mr.
Goodell earlier this week that
was forwarded to the compensation committee, Mr. Jones
cited the league’s declining
television ratings and other issues such as “high-profile litigation concerning player suspensions” and wrote that “this
is not the time for the League
to undertake massive contractual obligations which are inconsistent with the League’s
performance.”
Terms of the potential contract extension haven’t been
disclosed. Under the agreedupon framework, Mr. Goodell’s
new deal would have a base
THEARON W. HENDERSON/GETTY IMAGES
While not a flop, the
film’s box-office sales
were less than studio
executives had hoped
Finance managers at RollsRoyce Holdings PLC two years
ago predicted a plunge in the
aircraft engine maker’s 2018
revenue and profit.
Starting Jan. 1, 2018, RollsRoyce will no longer be able to
put money from maintenance
contracts on its books years
before it begins to do the
work. The company must wait
to record that revenue until
the actual service is provided,
said John Dawson, director of
investor relations. This is typically years after the company
sells the engines at a loss.
The change is the result of
a new accounting standard
that will force businesses in
more than 100 countries to rejigger how they recognize revenue. It is similar to a rule U.S.
public companies will have to
follow as of Dec. 15.
The new rules come as
Rolls-Royce’s order book is
growing. Customers have
placed around 500 orders for
large engines that include
Rolls-Royce’s
“TotalCare”
maintenance program for next
year, up from 450 this year
and around 320 in 2016. When
executives at Rolls-Royce recalculated some of the company’s 2015 results using the
new accounting rules, both
revenue and profit were £900
million ($1.18 billion) lower
than reported.
Rolls-Royce started updating investors, analysts and
other stakeholders about potential changes to its financials about a year and a half
ago, earlier than most other
companies. “We have been
proactive in handling this,”
said Mr. Dawson.
The new rules will supersede virtually all existing revenue-recognition requirements
under International Financial
Reporting Standards. A similar
change is under way with U.S.
Generally Accepted Accounting
Principles. Under both standards, companies will be required to provide more detailed information about their
contracts and accounting judgments, some of which they haven’t gathered before.
Some sectors, such as telecommunications, media and
pharmaceuticals, are expected
to be affected more than others. So far, 29% of FTSE 100
companies still haven’t disclosed an impact assessment,
according to a September report by KPMG LLP.
“The impact will vary, depending on the individual
company, their sector and
their business model,” said
Nick Chandler, a partner at
KPMG. The new revenue standard “requires a far deeper
understanding of companies’
contracts than previous rules.
It’s a huge exercise,” Mr.
Chandler said.
According to the KPMG
study, only a small number of
firms—9%—expect the new
rules to have a material effect.
Still, all listed companies filing
results under international financial reporting standards
Cowboys owner Jerry Jones has clashed with his league partners.
salary under $5 million, with
the vast majority of his compensation contingent on incentives, according to people familiar with the matter.
In their response to Mr.
Jones, the owners on the
league’s compensation committee wrote that his letter
“entirely ignores the May 2017
Resolution, unanimously approved by the owners (including by you), which expressly
approved a contract extension
with Roger and specifically authorized the Committee to finalize the terms of that extension,” according to a copy of
the letter reviewed by the
Journal.
“Such statements are disappointing and undermine the
spirit of partnership that has
served our sport so well for so
many decades,” the letter from
the compensation committee
concluded.
The rancor could reach a
boiling point in coming weeks
with owners’ committee meetings scheduled for the last
week of November and then a
league meeting Dec. 13. Those
face-to-face encounters could
bring the opportunity for a
resolution or widen the divide
between Mr. Jones and the
rest of the league. Mr. Jones,
who has been able to rally
owners behind him on other
key measures, currently has at
most a handful of owners who
agree with his stance about
Mr. Goodell’s extension, according to people familiar
with the matter.
A spokesman for Mr.
Jones couldn’t be reached for
comment. Mr. Jones has long
been one of the sport’s most
powerful and influential
voices, and his battle with
other owners threatens to
further roil a league already
beset by a host of other issues this season.
In recent weeks he hired
high-profile litigator David
Boies and threatened to sue
the league over Mr. Goodell’s
contract negotiations, resulting in his ouster from his
status as an ad hoc member
of the compensation committee, which comprises owners
from the Falcons, Chiefs, Patriots, Giants, Texans and
Steelers.
The latest letters in the
dispute were previously reported by the New York
Times.
ForP2JW324000-0-B00700-1--------XA
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | B7
BUSINESS & FINANCE
Departing Regulator Would Answer Call
Acting comptroller
won’t rule out another
public role ‘if right
person asked’
BY RYAN TRACY
Washington may not have
heard the last of Keith Noreika.
The acting comptroller of
the currency is ending an
eventful and unusual tenure in
charge of a federal banking
regulator, where he spent
about 200 days criticizing
other regulators, unilaterally
changing policies and provoking arguments.
With his successor, former
banker Joseph Otting, set to
be sworn in Monday, Mr. Noreika said in an interview Friday that he was ready for a
vacation stretching into 2018
but wasn’t ready to rule out
taking a future job in public
service.
“If the right person asked
me and the right job presented
itself and it was the right time
in my life, absolutely I would
answer the call,” he said, adding that he had received of-
fers. “There are a lot of people
in government who want me
to do a lot of things.”
“On the other hand,” he
said, “I am not the person who
either wants to or feels comfortable being in the public
sector for most of my life.”
Mr. Noreika said he hadn’t
yet discussed returning to his
old job at Simpson Thacher &
Bartlett LLP, where he was a
partner before being appointed in early May as temporary head of the Office of
the Comptroller of the Currency, which regulates federally chartered banks, including
many of the nation’s largest.
His quick transition from
banking lawyer to bank regulator drew bipartisan concern,
particularly given that his status as a temporary government employee allowed him to
skirt ethics restrictions that
would normally apply to
someone at the head of the
OCC, including restrictions on
his ability to work with banks
after leaving government.
Those criticisms grew
louder as he took actions that
could benefit former clients
such as Wells Fargo & Co., including loudly opposing a rule
from the Consumer Financial
Protection Bureau that would
have made it easier for people
to sue banks in groups by limiting the use of arbitration in
financial contracts. Congress
scrapped the rule last month.
“My client was the American people for the last six
months, and hopefully I have
advocated their interest to the
best of my ability,” said Mr.
Noreika when asked about
those criticisms. He said the
policy changes he made aimed
to reduce excessive regulations and help the economy.
Taking the comptroller job,
he said, “is obviously buying
me a lot of postemployment
restrictions, and maybe you
don’t feel those are enough,
but there are a lot of them
that last longer than my tenure here, including the self-imposed ones.”
Mr. Noreika has said he
would voluntarily submit to a
one-year cooling-off period
during which he won’t represent clients before the OCC.
Looking back on his brief
tenure, Mr. Noreika said he
Keith Noreika
said he had
rebalanced the
OCC to
empower rankand-file bank
supervisors.
hoped he had rebalanced the
OCC to empower rank-and-file
bank supervisors—a dig at his
predecessor, former Comptroller Thomas Curry, who some
viewed as asserting more control over major supervisory
decisions.
“We have made a lot of
progress really communicating
to the supervisory staff that
they are there for a reason,
that we trust their judgment
and that it is up to them to
sort of set the priorities for
their institution and spot the
risks because they are the
boots on the ground,” Mr. Noreika said. “I think we have become a little bit centralized
here in Washington and that
doesn’t always make for the
best supervision, certainly not
the best morale, and not the
best policy either.”
Mr. Curry has said he made
changes to ensure consistency
in the OCC’s decisions and to
reduce the perception that the
regulator was too cozy with
the banks it oversees. In a
May interview, Mr. Curry said
he “never questioned the technical experience and competence of the OCC and its supervisors” and “I think most
people [at the OCC] have em-
braced change.”
Mr. Noreika said he thought
he had helped start “a conversation, a very healthy one, on
right sizing of regulation.”
One of his proudest moments, he said, was his public
criticism of the CFPB’s arbitration rule.
The consumer bureau said
the rule would leave consumers better off. Mr. Noreika disagreed, in trademark fashion:
He repeatedly questioned both
the bureau’s analysis and its
motives, sounding at times
more like a politician than a
bank regulator.
After Congress voted to extinguish the rule, Mr. Noreika
issued a public statement declaring “a new day in Washington, when policy makers
are actually concerned about
the consequences that regulations have on working Americans.”
DEALPOLITIK | Ronald Barusch
A Broadside From
Broadcom Adds to
Qualcomm’s Pain
Closing a
deal to buy
NXP
Semiconduct
ors NV was
going to be
complicated enough by itself
for Qualcomm Inc. Closing
the deal while fending off a
hostile takeover by Broadcom Ltd. could make for an
even bigger headache for the
board.
Last week, Qualcomm said
its board didn’t want the $70
a share in cash and stock
offered by Broadcom because
the bid “dramatically
undervalues” the company
and “comes with significant
regulatory uncertainty.”
Meanwhile, Qualcomm is
still trying to obtain the
foreign regulatory approvals
relating to its acquisition of
NXP for $110 a share. Its
greatest challenge for that
deal may not be the
regulatory approvals but
rather the market’s signal
that the $110 price might not
be sufficient to get the deal
done.
NXP shares are trading
around $115 and hedge fund
Elliott Management Corp.,
which disclosed a 6% stake in
August, is pushing for a
higher price than NXP’s deal.
Broadcom says its
Broadcom hasn’t
expressed support for
a rise in Qualcomm’s
price for NXP.
proposal is good whether
Qualcomm closes its deal
with NXP at the current
price or the deal is
terminated. But one thing
Broadcom hasn’t expressed
support for is an increase in
the price for NXP.
Since the Qualcomm board
has determined it doesn’t
want the Broadcom deal as
proposed, from a legal
perspective it is free to offer
an increased price for NXP as
long as the business case
supports the move and the
board believes $110 a share
won’t get the deal done.
Most likely, that final
determination to increase
the price wouldn’t be made
until the regulatory
approvals for the NXP deal
are obtained, allowing that
deal to be completed.
But even if Qualcomm’s
board is legally free to make
that move, it could be a
tactical disaster. Qualcomm
has only limited ability to
defend itself from a hostile
bid from Broadcom that its
shareholders find attractive.
It could adopt a poison pill,
which would effectively stop
a takeover of the company
without approval of the
board, but its governance
documents have a clear path
to defeat such a defense
relatively quickly.
Although all of
Qualcomm’s directors oppose
Broadcom’s current bid, they
are up for election at the
next annual meeting, which
Qualcomm announced on
Thursday would be held on
March 6. If Broadcom intends
to run a proxy fight, its
nominations for replacement
directors are due by Dec. 8.
Assuming Broadcom
pursues a change of
directors, which would be
the standard play in an
unsolicited offer, the
Qualcomm board could be
faced with a difficult
dilemma: The board’s
business judgment may make
it inclined to pay more for
NXP to complete the deal
and create a company it
believes has more value than
Broadcom’s current offer.
Qualcomm would generally
not have a duty to negotiate
with Broadcom first to
obtain a higher bid, and
doing so could undercut a
strategy of squeezing
Broadcom for its best price.
But increasing the price it
pays for NXP could hinder its
ability to win a proxy fight.
Broadcom would likely argue
an increase in the deal price
is effectively a transfer of
value from Qualcomm
shareholders to NXP
shareholders and use that as
Exhibit A in its campaign to
replace Qualcomm’s directors
with Broadcom nominees,
who will likely campaign on
a platform of enhancing
shareholder value.
That puts the Qualcomm
directors in a difficult
position if they can’t get the
NXP deal done without a
price increase: Do they
pursue a deal they view as
more favorable to
shareholders than
Broadcom’s existing bid, or
do they abandon the NXP
deal if they think that will
help with a proxy fight with
Broadcom?
Or do they, in what would
be an unusual move, try to
negotiate a deal with Broadcom first? Another
alternative might be to try to
negotiate a more
complicated deal with NXP in
return for a higher price: a
right to terminate the NXP
deal if Broadcom comes up
with an offer Qualcomm
wants. But that could still
cost Qualcomm shareholders
money because it could
involve agreeing to a
significant breakup fee.
Qualcomm’s directors will
have their work cut out for
them if both deals continue
down the current path.
Mr. Barusch is a retired
M&A lawyer who writes
about deal making for The
Wall Street Journal
Asma Usmani, CFA, CFP®
Senior Portfolio Manager
Edward Jones Trust Company
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THE WALL STREET JOURNAL.
B8 | Monday, November 20, 2017
MARKETS DIGEST
Last Year ago
23358.24 t 63.97, or 0.27% last week
High, low, open and close for each of
the past 52 weeks
New to the Market
S&P 500 Index
Dow Jones Industrial Average
2578.85 t 3.45, or 0.13% last week
High, low, open and close for each of
the past 52 weeks
Trailing P/E ratio 20.56 20.58
P/E estimate *
19.17 17.74
Dividend yield
2.20
2.55
All-time high 23563.36, 11/08/17
Current divisor 0.14523396877348
Last
Year ago
Trailing P/E ratio 24.44 24.19
P/E estimate *
19.36 18.25
Dividend yield
1.93
2.14
All-time high: 2594.38, 11/08/17
2575
24000
Week's high
UP
Friday's close
t
DOWN
Monday's open
65-day moving average
Monday's open
t
Friday's close
2500
23000
2425
22000
21000
2350
20000
2275
200-day moving average
19000
2200
2125
18000
Bars measure the point change from Monday's open
2050
17000
A
M
J
J
A
S
O
t
Primary
market
NYSE weekly volume, in billions of shares
N D
N
t
M
Composite
J
F
M
A
M
J
J
A
S
O
J
F
M
A
M
J
J
A
S
O
N
High
N
Industrial Average 23492.19 23242.75 23358.24
Transportation Avg 9600.76 9420.16 9483.09
Utility Average
778.80 757.27
758.08
Total Stock Market 26803.04 26430.06 26718.22
687.39
Barron's 400
688.67 671.88
% chg
52-Week
Close (l)
Low
6782.79
6314.51
-0.27
-0.19
-63.97
-18.27
1.13
14.14
8.45
High
2578.85
1840.74
908.91
l 23563.36
18867.93
8783.74
0.15
626.66
0.05 22691.17
1.24
581.60
l
10038.13
774.47
l 26830.6
l
691.56
l
23.8
7.1
20.9
17.7
18.2
18.2
4.9
14.9
14.8
14.3
9.8
1.7
8.5
8.0
8.5
0.47
0.09
31.85
5.44
-0.13
-3.45
14.99
15.14
l
5251.11
4734.10
l
l
2181.90
0.82 1605.93
1.69 803.00
l
l
1.19
-0.16
-6.86
l
1313.80
10709.51
0.89
494.76
1.52 3075.02
0.27
463.78
1.63
85.30
0.34
73.03
117.79
0.30
836.79
1.24
9.14
6793.29
6345.81
2594.38
1843.36
918.72
1512.09
l 12430.52
l
545.98
l
4304.77
560.52
l
102.31
96.72
192.66
l 1321.13
16.04
l
l
l
l
Philadelphia Stock Exchange
27.5
31.3
26.0
29.8
13.2
14.4
6750
6700
15.2
10.8
8.5
18.2
14.6
13.2
10 13 14 15 16 17
November
8.1
8.8
10.5
Close
Americas
Brazil
Canada
Mexico
Chile
DJ Americas
Sao Paulo Bovespa
S&P/TSX Comp
S&P/BMV IPC
Santiago IPSA
Latest Week
% chg
–0.34
–0.18
–0.36
2428.04
316.53
206.73
620.22
73437.28
15998.57
47857.14
4089.35
–0.06
526.47
57110.99
14864.03
44364.17
3137.71
1.76
–0.25
–0.36
–0.05
Stoxx Europe 600
Stoxx Europe 50
Eurozone
Euro Stoxx
Euro Stoxx 50
Austria
ATX
Belgium
Bel-20
France
CAC 40
Germany
DAX
Greece
Athex Composite
Israel
Tel Aviv
Italy
FTSE MIB
Netherlands AEX
Portugal
PSI 20
Russia
RTS Index
South Africa FTSE/JSE All-Share
Spain
IBEX 35
Sweden
SX All Share
Switzerland Swiss Market
U.K.
FTSE 100
383.80
3137.46
386.45
3547.46
3314.70
3954.04
5319.17
12993.73
712.46
1405.60
22092.95
536.62
5258.75
1132.45
60128.41
10010.40
577.36
9183.61
7380.68
–1.26
–1.26
–1.14
–1.29
–2.31
–1.79
–1.14
–1.02
–2.95
–0.83
–2.07
–1.95
–0.81
–2.10
Asia-Pacific
Australia
China
Hong Kong
India
Japan
Malaysia
Singapore
South Korea
Taiwan
5957.30
3382.91
29199.04
33342.80
22396.80
1721.66
3382.38
2533.99
10701.64
–1.20
–1.45
EMEA
S&P/ASX 200
Shanghai Composite
Hang Seng
S&P BSE Sensex
Nikkei Stock Avg
FTSE Bursa Malaysia KLCI
Straits Times
Kospi
Weighted
52-Week Range
Close
Low
2953.40
384.19
258.50
The Global Dow
DJ Global Index
DJ Global ex U.S.
0.59
–0.82
–0.81
0.54
–0.70
0.27
0.08
–1.25
–1.18
–1.10
–0.35
–0.29
339.36
2810.21
323.64
3015.13
2480.75
3426.21
4504.35
10513.35
604.06
1363.50
16217
449.60
4392.12
973.33
48935.90
8607.1
514.43
7741.82
6730.72
5351.3
3052.79
21574.76
25765.14
17967.41
1617.15
2816.67
1963.36
9008.79
Consumer Rates and Returns to Investor
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
High
YTD
% chg
26640
26520
Selected rates
A consumer rate against its
benchmark over the past year
New car loan
t
Prime rate
t
New car loan
2984.71
386.89
260.93
16.7
17.8
20.8
623.60
76989.79
16131.79
51713.38
4255.93
14.8
21.9
4.7
4.9
26.9
396.77
3276.11
400.44
3697.40
3445.23
4118.51
5517.97
13478.86
858.08
1478.96
23046
555.22
5475.67
1195.61
60182.60
11135.4
600.20
9322.05
7562.28
6.2
4.2
10.3
7.8
26.6
9.6
9.4
13.2
10.7
–4.4
14.9
11.1
12.4
–1.7
18.7
7.0
8.0
11.7
3.3
6049.4
3447.84
29199.04
33731.19
22937.60
1792.35
3423.91
2557.97
10840.34
5.1
9.0
32.7
25.2
17.2
4.9
17.4
25.0
15.6
D J FMAM J J A S O N
2017
1.89%
800-288-3425
UniBank for Savings
Whitinsville, MA
2.24%
800-578-4270
3.00
TrustCo Bank
Orlando, FL
2.37%
407-422-7129
2.50
Lake City Bank
Warsaw, IN
2.49%
888-522-2265
Broadway National Bank
San Antonio, TX
2.50%
210-283-6500
Yield/Rate (%)
Last (l)Week ago
Federal-funds rate target
1.00-1.25 1.00-1.25
Prime rate*
4.25
4.25
Libor, 3-month
1.41
1.44
Money market, annual yield
0.32
0.32
Five-year CD, annual yield
1.49
1.48
30-year mortgage, fixed†
3.88
3.90
15-year mortgage, fixed†
3.25
3.30
Jumbo mortgages, $424,100-plus† 4.26
4.23
Five-year adj mortgage (ARM)† 3.55
3.48
New-car loan, 48-month
3.01
2.99
3-yr chg
52-Week Range (%)
Low 0 2 4 6 8 High (pct pts)
0.25 l
l
3.50
0.92 l
0.26 l
1.19 l
l
3.73
l
2.99
l
4.21
l
3.20
l
2.85
3.49
–15.3
...
scPharmaceuticals
SCPH Nov. 17/$14.00
Sterling Bancorp
SBT Nov. 17/$12.00
14.10
0.7
...
13.00
–7.1
...
12.16
1.3
...
10.00
...
...
Stitch Fix
SFIX Nov. 17/$15.00
15.15
1.0
...
5.55
–7.5
...
13.93
39.3
–0.7
8.3
...
Arsanis
ASNS Nov. 16/$10.00
Jianpu Technology
JT Nov. 16/$8.00
13.00
7.20 –10.0 –14.3
TR/CC CRB Index
1.25
4.25
1.44
0.36
1.49
4.33
3.50
4.88
4.03
3.36
56.55
Crude oil, $ per barrel
Natural gas, $/MMBtu 3.097
Gold, $ per troy oz.
1295.80
1.00
1.00
1.21
-0.11
-0.07
-0.16
0.07
-0.04
0.01
-0.24
Bankrate.com rates based on survey of over 4,800 online banks. *Base rate posted by 70% of the nation's largest
banks.† Excludes closing costs.
Sources: SIX Financial Information; WSJ Market Data Group; Bankrate.com
1
3 6
month(s)
“Shelf registrations” allow a company to prepare a stock or bond for
sale, without selling the whole issue at once. Corporations sell as
conditions become favorable. Here are the shelf sales, or takedowns,
over the last week:
Issuer/Industry
Takedown date/ Deal value Registration
Registration date ($ mil.)
(mil.)
AxoGen
Healthcare
Nov. 16
Nov. 5,315
BofA ML, Credit Suisse
Talend
Computers & Electronics
Nov. 15
Sept. 29,317
$110.7
$513.7
Citi, Barclays
Mirati Therapeutics
Healthcare
Nov. 15
Nov. 6,315
$80.0
$300.0
Cowen & Co, Barclays
$50.5
$328.4
GS, Leerink Prtnrs
BofA ML, Credit Suisse
Achillion Pharmaceuticals Nov. 15
Healthcare
Feb. 23,317
Nov. 14
Jan. 5,316
$300.0
...
JPM, GS, MS
Third Point Reinsurance
Insurance
Nov. 14
Nov. 13,317
$236.3
...
JPM
ProQR Therapeutics
Healthcare
Nov. 14
Oct. 2,315
$16.2
$200.0
-2.85 -0.46 8.08
-1.26 -0.66 -1.10
Alnylam Pharmaceuticals Nov. 13
Healthcare
May 5,317
$805.0
...
GS, JPM, Barclays
-0.19 -0.33
Synergy Pharmaceuticals Nov. 13
Healthcare
Nov. 13,317
$56.0
...
Jefferies
23.40
%Chg
YTD
% chg
5.27
Public and Private Borrowing
Yen, per dollar
U.K. pound, in dollars
Monday, November 20
1.32 0.0026
0.19
7.06
52-Week
Low Close(l) High
% Chg
l
l
Crude oil, $ per barrel 42.53
l
l
l
1127.80
616.58 14.05
195.14
3.93
8.93
1346.00
7.22
91.35
l
103.25 -7.45
WSJ Dollar Index
84.49
l
93.56 -4.96
U.K. pound, in dollars
l
l
1.20
118.18
1.10
1.36
7.05
Real-time U.S. stock
quotes are available on
WSJ.com. Track mostactive stocks, new
highs/lows, mutual
funds and ETFs.
WSJ
.COM
Plus, get deeper money-flows data and
email delivery of key stock-market
data.
All are available free at
WSJMarkets.com
Yen, euro vs. dollar; dollar vs.
major U.S. trading partners
10%
3.00
5
2.25
0
1.50
–5
0.75
–10
0.00
s
Euro
s Yen
s
WSJ Dollar index
–15
30
Auction of 26 week bill;
Public and Municipal Finance
Deals of $ 150 million or more expected this week
Sale
Final
maturity Issuer
Sources: Ryan ALM; Tullett Prebon; WSJ Market Data Group
Corporate Borrowing Rates and Yields
Bond total return index
Spread +/- Treasurys,
Yield (%)
in basis pts, 52-wk Range
Last Wk ago
Last
Low High
10-yr Treasury, Ryan ALM
DJ Corporate
Aggregate, Barclays Capital
High Yield 100, Merrill Lynch
Fixed-Rate MBS, Barclays
Muni Master, Merrill
EMBI Global, J.P. Morgan
2.352
3.162
2.660
5.587
2.890
2.045
5.587
35
307
12
-4
303
47
450
34
18
393
Total Return
52-wk
3-yr
2.02 1.84
5.46 3.94
2.97 2.40
8.394 3.894
1.84 2.04
4.392 2.734
9.913 5.867
Sources: J.P. Morgan; Ryan ALM; S&P Dow Jones Indices; Barclays Capital; Merrill Lynch
Rating
Bookrunner/
Fitch Moody’s S&P Bond Counsel(s)
Nov. 20 prelim.
Massachusetts
200.0 N.R.
N.R.
N.R. Barclays/—
Nov. 24 prelim.
Louisiana Gov
Env Facs &
Comm Dev Auth
250.0 N.R.
N.R.
N.R. J P Morgan
Securities
LLC/—
Nov. 24 prelim.
Metropolitan
Transport Auth
(MTA)
2,000.0 N.R.
N.R.
N.R. BoA Merrill/—
Nov. 24 prelim.
North Broward
Hospital Dt
318.2 N.R.
N.R.
N.R. BoA Merrill/—
Source:Thomson Reuters/Ipreo
Closed-End Funds | WSJ.com/funds
Listed are the 300 largest closed-end funds as
measured by assets.
Closed-end funds sell a limited number of shares and
invest the proceeds in securities. Unlike open-end
funds, closed-ends generally do not buy their shares
back from investors who wish to cash in their holdings.
Instead, fund shares trade on a stock exchange.
a-The NAV and market price are ex dividend. b-The
NAV is fully diluted. c-NAV is as of Thursday’s close. dNAV is as of Wednesday’s close. e-NAV assumes rights
offering is fully subscribed. f-Rights offering in process.
g-Rights offering announced. h-Lipper data has been
adjusted for rights offering. j-Rights offering has
expired, but Lipper data not yet adjusted. l-NAV as of
previous day. o-Tender offer in process. v-NAV is
converted at the commercial Rand rate. w-Convertible
Note-NAV (not market) conversion value. y-NAV and
market price are in Canadian dollars. NA signifies that
the information is not available or not applicable. NS
signifies fund not in existence of entire period.
12 month yield is computed by dividing income
dividends paid (during the previous twelve months for
periods ending at month-end or during the previous
fifty-two weeks for periods ending at any time other
than month-end) by the latest month-end market price
adjusted for capital gains distributions.
Source: Lipper
Fund (SYM)
39
351
25
9
321
Total
($mil.)
Friday, November 17, 2017
2017
2.397
3.172
2.670
5.572
2.910
2.000
5.662
Auction of 2 year FRN;
announced on November 16; settles on November 24announced on November 16; settles on November 24
0.96 -10.19
l
Tuesday, November 21
Auction of 13 week bill;
Auction of 4 week bill;
announced on November 16; settles on November 24announced on November 20; settles on November 24
3.96
57.35 23.77
U.S. Dollar Index
0.83
HC Wainwright & Co
1.84 12.68
-1.42 -1.25 -4.18
107.84
MS
$325.2
Treasurys
Yen, per dollar
...
$115.0
112.11
Euro, per dollar
$543.5
Bookrunner(s)
Leerink Prtnrs
Nov. 15
Oct. 3,317
0.8480 -0.0093 -1.08 -10.79
Gold, $ per troy oz.
$100.0
Sage Therapeutics
Healthcare
-0.12 -3.61 -16.84
2.56
$41.1
Everbridge
Computers & Electronics
Euro, per dollar
One year ago
1 2 3 5 710
years
maturity
Off the Shelf
JPM
-0.49 -0.56 -6.29
Natural gas, $/MMBtu
Roth Cptl Ptnrs
...
87.09
166.50
4.70
$304.5
WSJ Dollar Index
TR/CC CRB Index
4.9
Nov. 14
April 13,316
U.S. Dollar Index
532.01
MYO
A
Genpact
Professional Services
26400
-0.73 -0.77 -8.36
3.75%
Friday
Myomo
Healthcare
Friday’s
price ($) Bookrunner(s)
$325.2
93.67
DJ Commodity
Primary Amount
exchange ($mil.)
$17.5
Net chg
613.09
190.39
DJ Commodity
Yield to maturity of current bills,
notes and bonds
t
2.99%
Think Mutual Bank
Rochester, MN
2.00
AMERI Hldgs
AMRH Nov. 17/$4.12
Bluegreen Vacations
BXG Nov. 17/$14.00
% Chg From
Friday3s Offer 1st-day
close ($) price close
Company SYMBOL
IPO date/Offer price
Nov. 15
Oct. 3,317
Benchmark Yields and Rates
Treasury yield curve Forex Race
Bankrate.com avg†:
3.50
% Chg From
Friday3s Offer 1st-day
close ($) price close
Everbridge
Computers & Electronics
10 13 14 15 16 17
November
Close
t
U.S. consumer rates
Interest rate
26760
Commodities and
Currencies
Last Week
Source: SIX Financial Information;WSJ Market Data Group
4.00%
180 days
Norwegian Cruise Line HoldingsNov. 15
Leisure & Recreation
March 3,317
s 14.14, or 0.05%
10.0
8.6
11.3
4.2
7.2
3.1
35.0
8.3
11.0 -0.2
8.1 10.9
2.6
4.0
-28.6 -18.5
44.2 26.7
-18.6 -6.5
13.5
14.9
9.7
23.1
11.9
15.7
2.0
-20.0
49.8
-11.1
International Stock Indexes
World
6650
DJ US TSM
Sources: SIX Financial Information; WSJ Market Data Group
Region/Country Index
180 days
–41.2
Performance of IPOs, most-recent listed first
Nov. 20
last week
17.55
-19.71
4.77
61.94
1.43
1.59
0.28
-9.67
3.87
0.14
66.8
356.5
Symbol/
6800
Other Indexes
1454.17 1492.82
12178.89 12302.89
530.33
542.76
3997.18 4150.01
529.52
534.52
96.79
99.18
79.52
80.88
128.85
131.31
1283.71 1306.93
11.43
11.00
86.3
17.00
IPO Scorecard
Expected Issuer/Business
last week
Standard & Poor's
2590.09 2557.45
1843.34 1807.15
912.60 884.25
12.00
Secondaries and follow-ons expected this week in the U.S. market
s 31.85, or 0.47%
% chg
YTD 3-yr. ann.
% chg
Nasdaq Stock Market
6806.67 6667.31
6352.47 6227.99
APPN
WOW
Sources: WSJ Market Data Group; FactSet Research Systems
Nasdaq Composite
Latest Week
Close
Net chg
Low
May 24, ’17 WideOpenWest
Other Stock Offerings
Dow Jones
Russell 2000
1496.86
NYSE Composite
12328.16
Value Line
543.73
NYSE Arca Biotech 4154.32
NYSE Arca Pharma
535.50
KBW Bank
99.92
PHLX§ Gold/Silver
81.16
PHLX§ Oil Service
140.12
PHLX§ Semiconductor 1320.16
CBOE Volatility
14.51
Offer Offer amt Through Lockup
Symbol price($) ($ mil.) Friday (%) provision
Issuer
American Express Co. said President Kenneth Chenault
would succeed Harvey Golub as chief executive at the
end of 2000.
Major U.S. Stock-Market Indexes
500 Index
MidCap 400
SmallCap 600
Lockup
expiration Issue date
Level Brands
LEVB Nov. 17/$6.00
SailPoint Tech
SAIL Nov. 17/$12.00
Weekly P/E data based on as-reported earnings from Birinyi Associates Inc.
Nasdaq Composite
Nasdaq 100
Below, companies whose officers and other insiders will become eligible
to sell shares in their newly public companies for the first time. Such
sales can move the stock’s price.
Legacy Acquisition
LGC.U Nov. 17/$10.00
Financial Flashback
The Wall Street Journal, November 20, 2000
30
20
10
0
N D
Lockup Expirations
Company SYMBOL
IPO date/Offer price
200-day moving average
F
None expected this week
Sources: Dealogic; WSJ Market Data Group
65-day moving average
J
IPOs in the U.S. Market
Nov. 20 May 24, ’17 Appian
Week's low
N D
Public Offerings of Stock
Prem
NAV Close /Disc
General Equity Funds
Adams Divers Equity Fd ADX 18.16 15.78
Boulder Growth & Income BIF 12.30 10.33
Central Securities CET 32.20 26.53
CohSteer Opprtnty Fd FOF 13.60 12.70
Cornerstone Strategic CLM 13.49 14.82
EtnVnc TaxAdvDiv EVT
22.33
Gabelli Dividend & Incm GDV 23.80 21.95
Gabelli Equity Trust GAB 6.43 6.06
Genl American Investors GAM 39.27 33.04
Guggenheim Enh Fd GPM 8.90 8.57
HnckJohn TxAdv HTD 26.12 25.44
Liberty All-Star Equity USA 6.63 5.97
Royce Micro-Cap RMT 10.38 9.24
Royce Value Trust RVT 17.49 15.63
Source Capital SOR 44.84 40.29
Tri-Continental TY
29.25 25.83
Specialized Equity Funds
52 wk
Ttl
Ret
-13.1
-16.0
-17.6
-6.6
+9.8
NA
-7.8
-5.8
-15.9
-3.7
-2.6
-10.0
-11.0
-10.6
-10.1
-11.7
29.2
24.5
30.5
19.7
20.3
19.8
19.8
22.9
19.4
24.3
27.4
31.6
24.7
29.8
16.5
25.8
Fund (SYM)
Prem
NAV Close /Disc
52 wk
Ttl
Ret
Adams Natural Rscs Fd PEO 22.58 19.34 -14.3 3.2
AllnzGI NFJ Div Interest NFJ 14.61 13.15 -10.0 15.5
AlpnGlblPrProp AWP 7.27 6.33 -12.9 40.2
ASA Gold & Prec Metals ASA 12.94 11.08 -14.4 0.4
BlkRk Enh Cap Inco CII 16.69 15.72 -5.8 26.6
BlkRk Engy Res Tr BGR 14.86 13.42 -9.7 4.1
BlackRock Enh Eq Div Tr BDJ 9.70 8.87 -8.6 20.1
BlackRock Enh Gl Div Tr BOE 14.26 13.24 -7.2 24.2
BlkRk Intl Grwth&Inco BGY 6.97 6.48 -7.0 29.6
BlkRk Health Sci BME 35.25 35.41 +0.5 10.7
BlackRck Rscs Comm Str Tr BCX 10.00 8.77 -12.3 18.3
BlackRock Science & Tech BST 28.43 26.20 -7.8 49.5
BlackRock Utility & Infr BUI 21.30 20.80 -2.3 26.1
CBREClarionGlblRlEstIncm IGR 8.89 7.77 -12.6 17.3
Central Fund of Canada CEF 13.61 13.46 -1.1 11.6
ClearBridge Amer Engy CBA
7.55 NA -6.5
ClearBridge Engy MLP Fd CEM
13.05 NA -5.8
Clearbridge Engy MLP Opp EMO
10.70 NA -9.6
Clearbridge Engy MLP TR CTR
11.24 NA -3.7
Cohen & Steers Infr Fd UTF 25.42 22.80 -10.3 27.7
C&S MLP Incm & Engy Opp MIE 10.06 9.27 -7.9 -0.8
Cohen & Steers Qual Inc RQI 13.71 12.54 -8.5 20.8
CohnStrsPfdInco RNP 22.94 20.73 -9.6 23.8
Cohen & Steers TR RFI 13.51 12.52 -7.3 13.8
CLSeligmn Prem Tech Gr Fd STK 22.45 22.83 +1.7 41.4
Duff & Phelps DNP
9.99 11.27 +12.8 21.8
Duff&PhelpsGblUtilIncFd DPG 17.47 15.44 -11.6 13.2
Eaton Vance Eqty Inco Fd EOI
14.09 NA 24.7
Eaton Vance Eqty Inco II EOS
14.97 NA 21.9
EtnVncRskMngd ETJ
9.15 NA 13.1
Etn Vnc Tax Mgd Buy-Write ETB
16.62 NA 4.1
Eaton Vance BuyWrite Opp ETV
15.15 NA 11.2
Eaton Vance Tax-Mng Div ETY
11.81 NA 24.8
EatonVanceTax-MngdOpp ETW
11.85 NA 24.5
EtnVncTxMngGlDvEqInc EXG
9.29 NA 25.2
Fiduciary/Clymr Opp Fd FMO 11.41 10.91 -4.4 -20.7
Continued on Page B9
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | B9
BANKING & FINANCE
Barclays’s New Investment-Banking Strategy Falters
After Jes Staley was appointed chief executive of Barclays PLC, the U.S. banker
made the rounds in London,
presenting himself as nothing
like the lender’s last American
boss, Bob Diamond.
For some investors, the
message has gotten lost.
Mr. Diamond aggressively
built Barclays’s investment
bank, but it stumbled in the
fallow years following the financial crisis. Mr. Staley is
trying to build it back up by
reinvesting in a business line
that has produced poor returns of late.
Barclays investors, burned
by years of weak share performance, aren’t pleased. Barclays shares are down 18%
since the start of the year—the
worst performance among major European banks—and pressure is building on the former
J.P. Morgan Chase & Co. executive to prove them wrong.
“If you think a return to the
swashbuckling days of 1990s
investment banking is what
the market is looking for, it
absolutely isn’t,” said Barrington Pitt-Miller, a portfolio
manager at Janus Henderson.
“Reincarnating a previous
strategy brings unpalatable
memories.”
The recent selloff underlines the strategic dilemma
haunting Barclays as it has cycled through four bosses in
the past five years: Can a welterweight British bank afford
to go toe to toe with bigger
U.S. competitors in investment
banking?
“The potential upside is
huge, but investors are questioning whether they can successfully regain market share,”
Claire Kane, an analyst at
Credit Suisse Group AG, said.
A Barclays spokesman declined to comment.
Barclays became a much
bigger player in investment
banking in 2008 when it
bought part of the collapsed
Lehman Brothers franchise.
After Mr. Diamond quit in
2012 amid a rate-rigging scandal, swaths of its trading floor
were cut as regulations increased and made the business
less lucrative.
Mr. Staley’s current plan is
less grandiose than Mr. Diamond’s: He wants Barclays to
become the sixth-largest investment bank in the world by
revenue, rather than the seventh, effectively leapfrogging
Credit Suisse or Deutsche
Bank AG.
The newfound attention on
investment
banking
has
boosted morale in the division.
But shareholders are looking
on with worry. “Can you grow
an investment bank without
bucketloads of capital?” asked
one major Barclays investor
who recently trimmed his
firm’s holding.
Mr. Staley’s bet, forged by
his time running J.P. Morgan’s
investment bank, is that you
need a credible wholesale bank
as a counterweight to a big retail unit. An economic crash
hurts mortgages and creditcard lending. But it also creates market volatility that
jacks up trading revenue at the
investment bank. “That’s happened through every economic
cycle that I’ve lived through,”
he recently told investors.
Following his arrival at Barclays in 2015, investors cautiously backed Mr. Staley’s vision for a smaller diversified
bank doing business in the U.S.
and U.K. The bank sold most
of its Barclays Africa unit and
quickly disposed of unwanted
businesses in Asia and Europe.
It cut the dividend to fund the
cleanup.
This summer, Mr. Staley declared the restructuring complete and said the bank had
plenty of capital. But he didn’t
say when the dividend would
come back. The shares tanked.
Barclays recently said it would
give an update on dividends
early next year after a stress
test this fall.
Trying to reconcile the two
different faces of Barclays—
the fast-moving international
investment bank and the staid
British retail lender—is a challenge that has taken the 60year-old Mr. Staley from New
York trading floors to a farm
52 wk
Ttl
Ret
Prem12 Mo
Fund (SYM)
NAV Close /Disc Yld
BlackRock Corp Hi Yd Fd HYT 12.14 10.95 -9.8 7.9
BlackRockDurInco Tr BLW 16.94 15.80 -6.7 7.8
Brookfield Real Assets RA 24.99 23.41 -6.3 NS
Credit Suisse High Yld DHY 2.77 2.80 +1.1 9.4
DoubleLine Incm Solutions DSL NA 20.18 NA 8.6
Dreyfus Hi Yd Strat Fd DHF 3.52 3.34 -5.1 8.8
Fst Tr Hi Inc Lg/Shrt Fd FSD 17.96 16.30 -9.2 8.3
Guggenheim Strat Opps Fd GOF 19.65 21.39 +8.9 10.2
Ivy High Income Opps Fund IVH 15.84 14.74 -6.9 9.4
Neuberger Berman HYS NHS NA 11.71 NA 7.4
NexPoint Credit Strat Fd NHF 25.55 23.79 -6.9 10.1
Nuveen Credit Opps 2022 JCO NA 9.76 NA NS
Nuveen Gl Hi Incm Fd JGH NA 16.34 NA 8.2
Nuveen High Incm Dec18 JHA NA 9.87 NA 5.2
Nuveen High Incm Dec19 JHD NA 9.99 NA 5.8
Nuveen Hi Incm Nov 2021 JHB NA 9.90 NA 5.9
Pioneer High Income Trust PHT 10.71 9.72 -9.2 8.2
Prud Gl Shrt Dur Hi Yd GHY 16.32 14.48 -11.3 7.8
Prudentl Sh Dur Hi Yd Fd ISD 16.50 14.74 -10.7 7.7
Wells Fargo Incm Opps Fd EAD NA 8.40 NA 8.7
Wstrn Asset Glbl Hi Inco EHI NA 10.06 NA 8.7
Wstrn Asset High Inco II HIX NA 6.98 NA 8.7
Wstrn Asset Opp Fd HIO NA 4.99 NA 7.2
West Asst HY Def Opp Fd HYI NA 15.19 NA 7.8
Other Domestic Taxable Bond Funds
Apollo Tactical Incm Fd AIF 17.41 15.75 -9.5 8.8
Ares Dynamic Credit Alloc ARDC NA 16.28 NA 6.9
Barings Corp Investors MCI NA 15.47 NA 3.7
BlackRock Multi-Sector IT BIT 19.82 18.24 -8.0 9.5
BlackRock Taxable Mun Bd BBN 23.90 23.09 -3.4 6.8
Doubleline Oppor Credit DBL NA 22.57 NA 8.7
Duff & Phelps Utl & Cp Bd DUC 9.67 8.91 -7.9 6.5
EtnVncLtdFd EVV
15.01 13.62 -9.3 7.1
Franklin Ltd Duration IT FTF NA 11.75 NA 11.4
GuggenheimTaxableMuni GBAB 23.41 22.56 -3.6 6.8
Invesco High Incm 2023 IHIT 10.06 10.09 +0.3 NS
John Hancock Investors JHI 18.59 17.46 -6.1 7.2
KKR Income Opps Fund KIO NA 15.89 NA 9.4
MFS Charter MCR
9.23 8.43 -8.7 8.7
MFS Multimkt MMT 6.60 6.04 -8.5 8.7
Nuveen Build Am Bd Fd NBB NA 21.72 NA 5.7
PIMCO Corporate & Incm PTY NA 16.63 NA 10.3
PIMCO Corporate & Incm PCN NA 16.67 NA 10.4
PIMCO HiInco PHK
NA 7.57 NA 13.1
PIMCO Inco Str Fd PFL NA 11.70 NA 8.9
PIMCO Incm Strategy Fd II PFN NA 10.43 NA 8.9
Putnam Mas Inco PIM 5.01 4.70 -6.2 6.5
Putnam Premier Income Tr PPT 5.55 5.21 -6.1 5.8
Wells Fargo Multi-Sector ERC NA 12.95 NA 9.4
World Income Funds
Abeerden Asia-Pacific FAX 5.41 4.94 -8.7 8.3
Etn Vnc Short Dur Fd EVG 15.29 13.95 -8.8 6.9
Legg Mason BW Glbl Incm BWG NA 12.78 NA 8.3
MS EmMktDomDebt EDD 8.77 7.71 -12.1 8.4
PIMCO Dynamic Credit PCI NA 22.45 NA 11.4
PIMCODynamicIncomeFund PDI NA 30.03 NA 13.5
PIMCO Income Opportunity PKO NA 26.04 NA 9.9
PIMCO Strat Income Fund RCS NA 8.93 NA 9.7
Templeton Emerging TEI 12.97 11.48 -11.5 4.5
Templeton Global GIM 7.38 6.54 -11.4 6.1
Wstrn Asset Emerg Mkts EMD NA 15.38 NA 7.5
Wstrn Asset Gl Def Opp Fd GDO NA 18.03 NA 7.5
National Muni Bond Funds
AllianceBrnstn NtlMun AFB 14.93 13.62 -8.8 4.6
Blackrock Invest BKN 15.94 14.65 -8.1 5.3
BlackRockMun2030Target BTT 24.23 22.46 -7.3 4.1
BlackRock Municipal Trust BFK 14.48 14.08 -2.8 5.7
BlackRockMuni BLE 15.04 14.60 -2.9 6.1
BlackRockMuni Tr BYM 15.21 14.26 -6.2 5.3
BlkRk MuniAssets Fd MUA 14.17 15.00 +5.9 4.6
BlkRk Munienhanced MEN 11.93 12.21 +2.3 5.7
BlkRk MuniHldgs Inv MFL 14.69 15.06 +2.5 5.7
BlkRk MuniHldgs Qlty II MUE 14.05 13.93 -0.9 5.6
BlkRk MuniVest MVF 9.66 9.71 +0.5 5.8
BlkRk MuniVest II MVT 15.26 15.50 +1.6 5.9
Prem12 Mo
Fund (SYM)
NAV Close /Disc Yld
BlkRk MuniYield MYD 14.88 14.51 -2.5 6.0
BlkRk MuniYld Quality MQY 15.83 15.62 -1.3 5.6
BlkRk MuniYld Qlty II MQT 13.91 13.09 -5.9 5.6
BlRkMunyldQltyIII MYI 14.45 14.12 -2.3 5.8
Deutsche Mun Income Tr KTF 12.61 11.92 -5.5 6.6
Dreyfus Mun Bd Infr Fd DMB 14.23 13.10 -7.9 4.9
Dreyfus Strat Muni Bond DSM 8.35 8.43 +1.0 5.9
Dreyfus Strategic Munis LEO 8.57 8.74 +2.0 5.9
Eaton Vance Mun Bd Fd EIM 13.71 12.73 -7.1 5.0
Eaton Vance Mun Income EVN 13.39 12.54 -6.3 5.4
EV National Municipal Opp EOT 22.00 22.24 +1.1 4.7
Invesco Adv Mun Incm II VKI 12.14 11.39 -6.2 5.8
Invesco Mun Incm Opps Tr OIA 7.60 7.94 +4.5 5.2
Invesco Mun Opportunity VMO 13.52 12.49 -7.7 6.1
Invesco Municipal Trust VKQ 13.51 12.42 -8.1 5.9
Invesco Qlty Mun Inco IQI 13.63 12.41 -9.0 5.5
Invesco Inv Grade Muni VGM 14.00 13.13 -6.2 5.8
Invesco Value Mun Incm Tr IIM 16.27 14.71 -9.6 5.0
MainStay DefinedTerm MMD 20.10 19.68 -2.1 5.6
MFS Munl Inco MFM 7.36 6.90 -6.3 5.5
Nuveen AMT-Free Quality NEA NA 13.73 NA 5.4
Nuveen AMT-Free Mun NVG NA 15.43 NA 5.7
Nuveen Mun Credit Incm Fd NZF NA 15.22 NA 5.9
Nuveen Enhncd Mun Val Fd NEV NA 14.37 NA 5.7
Nuveen Intermed Dur Mun NID NA 13.09 NA 4.9
NuveenMuniIncoOpp Fd NMZ NA 13.66 NA 6.0
Nuveen Muni Value Fund NUV NA 10.17 NA 3.8
Nuveen Qual Mun Incm Fd NAD NA 14.01 NA 5.6
Nuveen Sel Tax Free NXP NA 14.81 NA 3.7
Nuveen Sel TF NXQ
NA 14.22 NA 3.6
PIMCO MuniFd PMF 12.85 13.04 +1.5 5.9
Pimco Muni Inc II PML 12.11 13.32 +10.0 5.9
PIMCO Muni Inc III PMX 11.04 11.73 +6.3 5.9
Pioneer Mun Hi Inc Adv Tr MAV 11.87 11.44 -3.6 5.3
Pioneer Mun Hi Incm Tr MHI 12.75 11.94 -6.4 5.1
Putnam Tr PMM
8.00 7.55 -5.6 5.4
PutnamMuniOpportunities PMO 13.38 12.65 -5.5 5.2
Wstrn Asset Mngd Muni MMU NA 14.29 NA 5.4
WesternAssetMunTrFund MTT NA 21.89 NA 4.9
Single State Muni Bond
BlackRock CA Municipal Tr BFZ 15.25 14.38 -5.7 5.1
BlkRk MuniHldgs CA Qlty MUC 15.47 14.87 -3.9 5.0
Blkrck MunHl NJ Qlty MUJ 15.66 14.40 -8.0 5.6
BlRk MuHldg NY Qlty MHN 14.81 13.87 -6.3 5.0
BlkRk MuniYld CA Fd MYC 15.55 15.28 -1.7 5.1
BlkRk MuniYld CA Quality MCA 15.70 14.90 -5.1 5.1
BlkRk MuniYld MI Qlty MIY 15.43 14.04 -9.0 5.5
BlRk Muyld NY Qlty MYN 14.19 13.08 -7.8 5.0
Eaton Vance CA Mun Bd EVM 12.38 11.88 -4.0 4.9
Invesco CA Value Mun Incm VCV 13.41 12.86 -4.1 5.0
Invesco PA Value Mun Incm VPV 14.04 12.06 -14.1 5.1
Invesco Inv Grade NY Muni VTN 14.57 13.82 -5.1 5.0
Nuveen CA AMT-Free Qual NKX NA 15.67 NA 5.0
Nuveen CA Muni Value NCA NA 10.58 NA 3.9
Nuveen CA Quality Muni NAC NA 14.73 NA 5.5
Nuveen MD Qual Muni NMY NA 12.70 NA 5.0
Nuveen MI Qual Muni NUM NA 13.31 NA 4.8
Nuveen NJ Qual Muni NXJ NA 13.66 NA 5.2
Nuveen NY AMT-Free NRK NA 13.08 NA 4.9
Nuveen NY Qual Muni NAN NA 14.09 NA 5.1
Nuveen OH Qual Muni NUO NA 14.88 NA 4.7
Nuveen PA Qual Muni NQP NA 13.40 NA 5.2
Nuveen VA Qual Muni NPV NA 13.01 NA 4.3
PIMCO California Muni PCQ 14.14 17.16 +21.4 5.3
PIMCO California Mun II PCK 8.64 10.11 +17.0 5.6
52 wk
Prem Ttl
Fund (SYM)
NAV Close /Disc Ret
General Equity Funds
Specialized Equity Funds
Griffin Inst Access RE:A 26.97 NA NA 7.2
Griffin Inst Access RE:C 26.53 NA NA 6.4
Griffin Inst Access RE:I 27.13 NA NA 7.5
Griffin Inst Access RE:L 26.95 NA NA NS
Griffin Inst Access RE:M 26.84 NA NA 6.7
NexPointRlEstStrat;A 20.57 NA NA 7.6
LUCAS JACKSON/REUTERS
BY MAX COLCHESTER
Jes Staley hopes to jump to the No. 6 investment-bank ranking.
show in northern England.
Currently, the British retail
unit is much more profitable
than the investment bank. It
made a return on equity of
18% in the last quarter, three
times that of the corporate
and investment bank. Yet
some 60% of Barclays’s capital
is locked up in the latter unit.
The attention and capital
being lavished on the investment bank have left some executives in the retail unit feeling sidelined, according to
people familiar with the bank.
But Mr. Staley believes the
bank must show the trading
business some love. “You cannot cut yourself to glory, and
those that have tried to do
that will ultimately fail,” Mr.
Staley said last month.
To increase returns, Barclays is working on ways to
move capital from corporatelending books to its markets
unit. Barclays is providing
bankers £50 billion ($66.08
billion) of extra balance-sheet
leverage to finance deals, and
management is urging staff
not to shy away from taking
more risk.
52 wk
Prem Ttl
Fund (SYM)
NAV Close /Disc Ret
NexPointRlEstStrat;C 20.51 NA NA 6.8
NexPointRlEstStrat;Z 20.52 NA NA 7.9
Resource RE Div Inc:A 10.07 NA NA 6.3
Resource RE Div Inc:C 10.06 NA NA 5.6
Resource RE Div Inc:D 10.22 NA NA 5.8
Resource RE Div Inc:I 10.50 NA NA 6.4
Resource RE Div Inc:L 10.07 NA NA NS
Resource RE Div Inc:T 10.04 NA NA 5.5
Resource RE Div Inc:U 10.08 NA NA 6.3
Resource RE Div Inc:W 10.22 NA NA 6.2
SharesPost 100;A
26.37 NA NA -2.1
Tot Inc+ RE:A
29.54 NA NA 6.8
Tot Inc+ RE:C
28.77 NA NA 6.0
Tot Inc+ RE:I
29.87 NA NA 7.0
Tot Inc+ RE:L
29.50 NA NA NS
USQ Core Real Estate:I USQIX 25.23 NA NA NS
USQ Core Real Estate:IS USQSX 25.23 NA NA NS
Versus Cap MMgr RE Inc:F 27.59 NA NA 6.5
Versus Cap MMgr RE Inc:I 27.65 NA NA 6.8
Versus Capital Real Asst VCRRX 25.07 NA NA NS
Wildermuth Endwmnt Str 12.77 NA NA 11.6
Wildermuth Endwmnt S:C 12.60 NA NA 10.8
Wildermuth Endwmnt S:I 12.83 NA NA NS
Income Preferred Stock Funds
MultiStrat Gro & Inc:A 15.24 NA NA 4.5
MultiStrat Gro & Inc:C 14.91 NA NA 3.7
MultiStrat Gro & Inc:I 15.44 NA NA 4.9
MultiStrat Gro & Inc:L 15.02 NA NA 4.0
The Relative Value:CIA VFLEX 25.34 NA NA NS
Convertible Sec's. Funds
Calmos Dyn Conv and Inc CCD NA 20.52 NA NA
World Equity Funds
BMO LGM Front ME 10.21 NA NA 13.8
CalamosGlbTotRet CGO NA 13.86 NA NA
Prem12 Mo
Fund (SYM)
NAV Close /Disc Yld
U.S. Mortgage Bond Funds
Vertical Capital Income 12.64 NA NA 3.2
Loan Participation Funds
504 Fund
9.78 NA NA 3.7
FedProj&TrFinanceTender 10.07 NA NA NS
Highland Flt Rt Opp 15.04 NA NA 4.3
Invesco Sr Loan A
6.64 NA NA 4.2
Invesco Sr Loan B
6.64 NA NA 4.2
Invesco Sr Loan C
6.65 NA NA 3.5
Invesco Sr Loan IB
6.64 NA NA 4.4
Invesco Sr Loan IC
6.64 NA NA 4.3
Invesco Sr Loan Y
6.64 NA NA 4.4
RiverNorth MP Lending RMPLX NA NA NA 6.6
Sierra Total Return:T SRNTX 25.17 NA NA NS
Voya Senior Income:A 12.51 NA NA 5.3
Voya Senior Income:C 12.48 NA NA 4.8
Voya Senior Income:I 12.47 NA NA 5.6
Voya Senior Income:W 12.52 NA NA 5.6
High Yield Bond Funds
Griffin Inst Access Cd:A NA NA NA NS
Griffin Inst Access Cd:C NA NA NA NS
Griffin Inst Access Cd:F NA NA NA NS
Griffin Inst Access Cd:I NA NA NA NS
Griffin Inst Access Cd:L NA NA NA NS
PIMCO Flexible Cr I;Inst NA NA NA NS
PionrILSInterval
9.62 NA NA 10.5
WA Middle Mkt Dbt
NA NA NA 11.2
WA Middle Mkt Inc WMF NA NA NA 11.2
Other Domestic Taxable Bond Funds
Capstone Church Capital 11.43 NA NA 1.5
CION Ares Dvsfd Crdt;A NA NA NA NS
CION Ares Dvsfd Crdt;C NA NA NA NS
CION Ares Dvsfd Crdt;I NA NA NA NS
CNR Select Strategies 7.88 NA NA NS
GL Beyond Income
3.68 NA NA NE
Palmer Square Opp Income NA NA NA 5.0
Resource Credit Inc:A 11.15 NA NA 6.4
Resource Credit Inc:C 11.26 NA NA 5.7
Resource Credit Inc:I 11.17 NA NA 6.7
Resource Credit Inc:L 11.14 NA NA NS
Resource Credit Inc:W 11.14 NA NA 6.3
Closed-End Funds | WSJ.com/funds
Continued from Page B8
Fund (SYM)
Prem
NAV Close /Disc
52 wk
Ttl
Ret
FT Energy Inc & Growth Fd FEN 22.37 22.11 -1.2
FstTrEnhEqtIncFd FFA 16.39 15.37 -6.2
First Tr Engy Infr Fd FIF 18.44 18.00 -2.4
First Tr MLP & Engy Incm FEI 13.96 14.14 +1.3
Gabelli Hlthcr & Well GRX 11.21 9.71 -13.4
Gabelli Utility Tr GUT 5.50 7.05 +28.1
GAMCOGlblGoldNatRscs&Inc GGN 5.36 5.28 -1.5
GoldmanSachsMLPIncOpp GMZ
8.37 NA
Goldman Sachs MLP Energy GER
5.90 NA
John Hancock Finl Opps Fd BTO 35.85 35.70 -0.4
Macquarie Glbl Infrstrctr MGU 27.57 24.42 -11.4
NeubergerBermanMLPIncm NML 9.21 8.42 -8.6
Neubrgr Brm Rl Est Sec Fd NRO 5.75 5.36 -6.8
Nuveen Dow 30 Dynamic DIAX
17.66 NA
Nuveen Core Eq Alpha JCE
15.82 NA
Nuveen Diversified Div JDD
12.28 NA
Nuveen Engy MLP Fd JMF
10.28 NA
NuvNASDAQ100DynOver QQQX
23.94 NA
Nuveen Real Est Incm Fd JRS
11.06 NA
NuvS&P500DynOverwrite SPXX
16.11 NA
NuveenS&P500Buy-Write BXMX
13.95 NA
Reaves Utility Fund UTG 33.01 30.58 -7.4
Tekla Hlthcr Investors HQH 24.06 22.69 -5.7
Tekla Healthcare Opps Fd THQ 18.84 17.15 -9.0
Tekla Life Sciences HQL 19.93 19.18 -3.8
Tekla World Hlthcr Fd THW 14.38 13.40 -6.8
Tortoise Energy TYG 24.18 26.36 +9.0
Tortoise MLP Fund NTG 16.16 16.51 +2.2
Voya Gl Equity Div IGD 8.14 7.75 -4.8
Income Preferred Stock Funds
Calamos Strat Fd CSQ
11.99 NA
Cohen & Steers Dur Pfd LDP 27.21 26.05 -4.3
Cohen & Strs Sel Prf Inco PSF 27.83 27.73 -0.4
FT Interm Duration Pfd FPF 24.98 24.70 -1.1
Flaherty & Crumrine Dyn DFP 26.43 26.50 +0.3
Flaherty & Crumrine Pfd FFC 20.48 20.74 +1.3
John Hancock Pfd Income HPI 21.23 21.30 +0.3
John Hancock Pfd II HPF 20.99 21.28 +1.4
-4.3
24.5
7.8
-2.0
6.0
29.5
12.2
-4.8
-10.0
15.3
38.4
-1.6
15.7
28.5
29.4
24.0
-15.2
37.7
20.2
23.0
17.1
16.0
3.2
11.8
13.2
5.0
-9.4
-9.1
23.8
30.6
21.7
21.2
25.5
25.1
14.8
18.7
17.3
Prem
NAV Close /Disc
Fund (SYM)
John Hancock Pfd Inc III HPS 18.73 18.22
JHancock Pr Div PDT 15.82 16.72
LMP Cap & Inco Fd SCD
13.76
Nuveen Pfd & Incm Opps Fd JPC
10.37
Nuveen Pfd & Incm Secs Fd JPS
10.22
Nuveen Preferred & Incm JPI
25.16
TCW Strategic Income Fund TSI
5.56
Virtus Global Dividend ZTR 12.84 13.14
Convertible Sec's. Funds
AdvntClymrFd AVK 17.37 15.70
AllianzGI Conv & Incm NCV 6.59 6.92
AllianzGI Conv & Incm II NCZ 5.91 6.13
AllianzGI Div Incm ACV 22.51 21.74
AllianzGI Equity & Conv NIE 22.95 20.79
Calamos Conv Hi Inco Fd CHY
11.74
Calamos CHI
11.35
World Equity Funds
Alpine Tot Dyn Div AOD 9.94 8.99
Cdn Genl Inv CGI
32.24 23.25
China Fund CHN
23.87 21.65
Clough Global Opp Fd GLO 12.21 10.83
EtnVncTxAdvGblDiv ETG
16.96
EatonVance TxAdv Opport ETO
24.34
First Trust Dynamic Eur FDEU 19.21 18.04
Gabelli Glbl Multimedia GGT 9.31 8.51
GDL Fund GDL
11.58 9.97
India Fund IFN
30.93 27.29
Japan Sml Cap JOF 14.57 12.84
Korea Fund KF
50.03 44.00
Mexico Fund MXF
18.07 15.72
Morgan-Stanley Asia-Pac APF 20.72 17.89
MS China a Shr Fd CAF 28.53 24.08
MS Emerging Fund MSF 20.04 17.47
MS India Invest IIF
39.86 35.40
New Germany Fund GF 21.24 19.00
Swiss Helvetia Fund SWZ 13.68 12.45
Templeton Dragon TDF 24.72 21.52
Templeton Emerging EMF 19.67 17.11
Virtus Total Return Fund ZF 13.31 12.38
52 wk
Ttl
Ret
-2.7
+5.7
NA
NA
NA
NA
NA
+2.3
16.6
32.4
16.4
22.6
28.4
18.4
11.6
38.4
-9.6
+5.0
+3.7
-3.4
-9.4
NA
NA
19.4
24.6
26.0
30.9
21.4
25.6
29.5
-9.6
-27.9
-9.3
-11.3
NA
NA
-6.1
-8.6
-13.9
-11.8
-11.9
-12.1
-13.0
-13.7
-15.6
-12.8
-11.2
-10.5
-9.0
-12.9
-13.0
-7.0
33.3
33.8
43.1
36.2
30.5
32.2
32.9
25.7
11.0
34.3
35.5
39.8
13.9
31.9
35.1
33.5
44.0
56.2
23.7
39.6
49.7
25.2
Fund (SYM)
Prem
NAV Close /Disc
Voya Infr Indls & Matls IDE 16.46 15.69 -4.7 28.9
Wells Fargo Gl Div Opp EOD
6.12 NA 29.9
Prem12 Mo
Fund (SYM)
NAV Close /Disc Yld
U.S. Mortgage Bond Funds
BlackRock Income Trust BKT 6.63 6.17
Nuveen Mtg Opp Term Fd JLS
25.56
Investment Grade Bond Funds
Blackrock Core Bond Tr BHK 14.79 14.05
BlkRk Credit Alloc Incm BTZ 14.73 13.29
John Hancock Income Secs JHS 15.51 14.72
MFS Inc Tr MIN
4.42 4.17
WstAstClymr InfLnkd Fd WIW NA 11.28
WstAssetClymr InflLnk Sec WIA NA 11.53
Loan Participation Funds
Apollo Sr Fltg Rate Fd AFT 17.97 16.20
BlkRk Debt Strat Fd DSU 12.65 11.57
BlackRock FR Incm Strat FRA 14.90 13.82
Blkrk FltRt InTr BGT 14.38 13.80
BlackstoneGSO Strat Cred BGB NA 15.74
Blackstone GSO Sr Float BSL NA 17.28
Eagle Point Credit ECC NA 18.79
Eaton Vance FR Incm Tr EFT 15.52 14.17
EatonVnc SrFltRate EFR 15.19 14.22
Eaton Vance Sr Incm Tr EVF 7.13 6.43
First Trust Sr FR Fd II FCT 14.03 12.85
FT Sr Floating Rate 2022 FIV 9.70 9.18
Invesco Credit Opps Fund VTA 12.97 11.54
Invesco Senior Income Tr VVR 4.84 4.36
Nuveen Credit Strt Inc Fd JQC NA 8.11
NuvFloatRteInco Fd JFR NA 11.01
Nuv Float Rte Opp Fd JRO NA 10.84
Nuveen Senior Income Fund NSL NA 6.47
Pioneer Floating Rate Tr PHD 12.40 11.52
Voya Prime Rate Trust PPR 5.65 5.08
High Yield Bond Funds
AllianceBernstein Glbl AWF NA 12.54
Barings Glbl Short Dur HY BGH 21.03 19.84
-6.9
NA
5.1
5.2
-5.0
-9.8
-5.1
-5.7
NA
NA
5.5
6.3
5.4
9.2
3.6
3.3
-9.8
-8.5
-7.2
-4.0
NA
NA
NA
-8.7
-6.4
-9.8
-8.4
-5.4
-11.0
-9.9
NA
NA
NA
NA
-7.1
-10.1
7.4
6.9
5.6
5.3
8.4
6.7
8.3
5.7
6.0
5.6
6.1
NS
7.1
6.0
7.4
6.9
7.3
6.9
6.0
6.0
NA
-5.7
6.7
8.9
Insider-Trading Spotlight
Trading by ‘insiders’ of a corporation, such as a company’s CEO, vice president or director, potentially conveys
new information about the prospects of a company. Insiders are required to report large trades to the SEC
within two business days. Here’s a look at the biggest individual trades by insiders, based on data received by
Thomson Financial on November 17, and year-to-date stock performance of the company
KEY: B: beneficial owner of more than 10% of a security class CB: chairman CEO: chief executive officer CFO: chief financial officer
CO: chief operating officer D: director DO: director and beneficial owner GC: general counsel H: officer, director and beneficial owner
I: indirect transaction filed through a trust, insider spouse, minor child or other O: officer OD: officer and director P: president UT:
unknown VP: vice president Excludes pure options transactions
Biggest weekly individual trades
Based on reports filed with regulators this past week
Date(s)
Company
Symbol
Title
Insider
No. of shrs in Price range ($) $ Value
trans (000s) in transaction (000s)
Close ($) Ytd (%)
Buyers
384
65.10
25,000
64.93
Nov. 14-15 Immunomedics
IMMU
B. Aghazadeh
DOI
1,325
10.39-10.97
13,868
11.75 220.2
Nov. 14
Leap Therapeutics
Nov. 14
Nov. 14
Nov. 13
Dentsply Sirona
Nov. 13
Nov. 10-14 Drive Shack
LPTX
COI
CEOI
GCI
CEO
CFOI
D
1,058
1,058
1,058
77
50
561*
6.09
6.09
6.09
66.04
65.85
4.07-4.12
6,437
6,437
6,437
5,085
3,293
2,298
52.44
2,000
Nov. 8
Restaurant Brands International
P. Fribourg
QSR
DI
DS
A. Lawlor
C. Mirabelli
D. Onsi
M. Thierer
N. Alexos
W. Edens
Nov. 8
Sarepta Therapeutics
SRPT
D. Ingram
CEO
38
Nov. 10
Prospect Capital
PSEC
J. Barry
CEO
293*
5.71
1,673
RHP
C. Reed
CEO
20
65.81-66.15
1,320
MKL
J. Buchheim
F. Fink
L. Lewis
D
CEO
D
250
230
1
5.18
4.80-5.13
1080.96
LendingTree
TREE
G. Thompson
D
4
264.90
XRAY
Nov. 10-13 Ryman Hospitality Properties
Nov. 14
Maxwell Technologies
Nov. 13-14
Nov. 8
Markel
Nov. 8
MXWL
36.2
7.14
-9.2
67.55
17.0
5.14
36.7
56.11 104.6
6.89 -17.5
67.34
6.9
5.45
1,295
1,145
1,081 1069.00
6.4
18.2
1,060 290.10 186.2
2.85 -44.3
1,043
Nov. 9
ADMA Biologics
ADMA
A. Grossman
CEOI
485
2.15
Nov. 15
Akamai Technologies
AKAM
F. Leighton
CEOI
19
53.91
1,000
55.44 -16.9
Oct. 25
AT&T
DI
30
33.48-33.55
999
34.51 -18.9
G. Yang
T
November 17, 2017
Key annual interest rates paid to borrow or lend money in U.S. and international markets. Rates below are a
guide to general levels but don’t always represent actual transactions.
Sellers
Nov. 14
Nov. 14
Nov. 10
Borrowing Benchmarks | WSJ.com/bonds
Money Rates
Bright Horizons Family Solutions
BFAM
OneMain Holdings
OMF
Nov. 16
Facebook
Nov. 14-15
Nov. 13
James River Group Holdings
Nov. 13
Nov. 9-10 Willis Towers Watson
Nov. 14-15 Solaris Oilfield Infrastructure
Nov. 14-15
Nov. 14
Q2 Holdings
FB
JRVR
WLTW
SOI
QTWO
J. Bekenstein
J. Hitch
W. Edens
DOI
DOI
DOI
3,505
3,505
10,000
87.26
87.26
26.00
J. Koum
M. Zuckerberg
B. Martin
D. Zwillinger
J. Ubben
DI
CEOI
DOI
DOI
DI
594
239
2,600
2,600
440
179.26-179.63
177.09-178.52
38.10
38.10
161.15-161.39
W. Keenan
W. Zartler
J. Diehl
DI
DO
DI
2,660
1263*
800
15.04
15.04
41.50
87.55
25.0
24.91
12.5
106,577 179.00
42,499
99,060 38.31
99,060
70,935 160.07
55.6
15.22
31.8
42.45
47.1
305,846
305,846
260,000
40,013
18,994
33,200
Nov. 15
WEX
WEX
J. Neary
177
120.00
Nov. 9
Snap
SNAP
E. Spiegel
CEO
1,653
12.42
20,527
Nov. 9
Nexstar Media Group
NXST
P. Sook
CEOI
300
66.13
19,838
Nov. 8-9
Allstate
ALL
T. Wilson
CEO
195
98.80-99.32
Nov. 10
IAC/InterActiveCorp
IAC
V. Kaufman
OD
150
DI
U.S. consumer price index
30.9
All items
Core
7.5
21,265 119.95
12.99 -46.9
65.95
4.2
35.1
123.68-124.42
96.4
Nov. 14-16 ServiceNow
NOW
F. Luddy
D
149* 122.60-125.77
18,520 127.54
71.6
Nov. 13-14 Choice Hotels International
CHH
B. Bainum
BI
250
18,513
75.90
35.4
* Half the transactions were indirect **Two day transaction
p - Pink Sheets
246.663
253.638
Latest
Week
ago
U.S.
Canada
Japan
Basic Industries
Business services
Capital goods
Consumer durables
Consumer nondurables
Consumer services
Energy
567,417
204,770
0
1,019,939
924,329
2,688,608
502,404
12,895,766
34,572,805
0
17,246,178
54,396,943
137,904,223
17,187,319
Buying
Finance
Health care
Industrial
Media
Technology
Transportation
Utilities
7,059,327
11,447,007
3,961,705
0
4,537,534
404
1,093,727
Selling
125,326,177
73,637,021
52,105,751
21,394,175
108,429,654
1,661,421
14,186,171
Sources: Thomson Financial; WSJ Market Data Group
Secondary market
Fannie Mae
52-Week
High
Low
30-year mortgage yields
30 days
60 days
0.00
0.50
0.50
1.50
0.00
0.50
0.50
1.50
1.21
1.15
0.00
0.50
0.50
1.50
0.00
0.50
0.25
1.50
Other short-term rates
0.15
Six month
One year
—52-WEEK—
High Low
1.63211 1.61461 1.63211 1.27433
1.90622 1.88150 1.90622 1.62067
Euro Libor
One month
Three month
Six month
One year
-0.403
-0.379
-0.313
-0.239
-0.399
-0.378
-0.314
-0.247
-0.376
-0.325
-0.218
-0.080
-0.405
-0.381
-0.322
-0.251
One month
Three month
Six month
One year
52-Week
high
low
-0.373
-0.329
-0.274
-0.192
Latest
-0.371
-0.329
-0.275
-0.191
Value
Traded
-0.366
-0.312
-0.216
-0.076
-0.375
-0.332
-0.276
-0.192
52-Week
High
Low
DTCC GCF Repo Index
3.00
3.00
3.00
2.25
Treasury
MBS
1.22
1.25
1.35
0.67
Libor
1.28719 1.24606 1.28719 0.56600
1.44067 1.41289 1.44067 0.91622
1.254 43.350 1.366 0.244
1.262 104.060 1.506 0.257
Open Implied
Settle Change Interest Rate
Commercial paper (AA financial)
One month
Three month
U.S. government rates
Week
ago
Call money
90 days
1.38
Week
Latest ago
Euro interbank offered rate (Euribor)
3.471 3.481 3.865 3.253
3.490 3.500 3.899 3.281
Latest
U.S.
Sector
1.045 1.035 1.300 0.305
1.240 1.185 1.240 0.480
1.360 1.300 1.360 0.590
4 weeks
13 weeks
26 weeks
Policy Rates
Euro zone
Switzerland
Britain
Australia
—52-WEEK—
High Low
Treasury bill auction
4.25 4.25 4.25 3.50
3.20 3.20 3.20 2.70
1.475 1.475 1.475 1.475
Overnight repurchase
Selling
2.0
1.8
Prime rates
Based on actual transaction dates in reports received this past week
Buying
–0.06
0.28
International rates
Buying and selling by sector
Sector
Chg From (%)
Sept. '17 Oct. '16
-7.8
19,330 100.17
18,592 127.22
73.99-74.14
Week
Latest ago
Inflation
Oct. index
level
DTCC GCF Repo Index Futures
Treasury Nov
Treasury Dec
Treasury Jan
98.795 0.005 8942 1.205
98.650 -0.005 2069 1.350
98.550 -0.005 458 1.450
Discount
1.75
1.75
1.75
1.00
1.1800
1.3125
1.0000
1.1600
1.1800
1.2000
1.3125
1.1600
1.1700
1.1900
0.3500
0.5625
0.2500
0.3000
0.3200
Federal funds
Effective rate
High
Low
Bid
Offer
1.1700
1.3125
1.0300
1.1600
1.1700
Notes on data:
U.S. prime rate is the base rate on corporate loans posted by at least 70% of the 10 largest U.S. banks,
and is effective June 15, 2017. Other prime rates aren’t directly comparable; lending practices vary
widely by location; Discount rate is effective June 15, 2017. DTCC GCF Repo Index is Depository
Trust & Clearing Corp.'s weighted average for overnight trades in applicable CUSIPs. Value traded is in
billions of U.S. dollars. Federal-funds rates are Tullett Prebon rates as of 5:30 p.m. ET. Futures on the
DTCC GCF Repo Index are traded on NYSE Liffe US.
Sources: Federal Reserve; Bureau of Labor Statistics; DTCC; SIX Financial Information;
General Electric Capital Corp.; Tullett Prebon Information, Ltd.
For personal non-commercial use only. Do not edit or alter. Reproductions not permitted.
To reprint or license content, please contact our reprints and licensing department at +1 800-843-0008 or www.djreprints.com
B10 | Monday, November 20, 2017
THE WALL STREET JOURNAL.
MARKETS
Index Shifts to Alter ETFs
BY BEN EISEN
media-and-entertainment industry group within it that
will inherit the media companies that are currently classified in the consumer-discretionary sector.
After the change, the current telecom stocks will be
side by side with the likes of
advertising, publishing and interactive media firms.
There are a couple of other
changes.
Internet retail, a subindustry within the consumer discretionary sector, will absorb
some e-commerce companies
that are currently in the tech
sector.
Also, the internet and software and services subindustry
in tech will be discontinued,
with the companies being classified elsewhere.
A new tech subindustry
called internet services and infrastructure will also be created in its place.
More guidance is expected
Crossed Lines
Major U.S. stock indexes are
scheduled for a face-lift.
S&P Dow Jones Indices and
MSCI Inc., whose indexes are
tracked by trillions of dollars
held in exchange-traded funds,
rolled out a series of planned
changes to their company sector groupings this past week.
The changes will affect
where companies are grouped
within benchmarks like the
S&P 500 and could alter what
stocks are held in certain industry-focused ETFs.
The latest shifts reflect the
way the corporate landscape
has changed in recent years.
Foremost, the index will update the telecommunications
sector, which now looks like a
relic of a past era.
The telecom sector made up
9.8% of the S&P 500 in 1989
but has shrunk to a 1.8%
weighting, according to S&P
Dow Jones Indices.
Telecommunications companies
make up a smaller share of the
S&P 500 than they once did.*
10%
8
6
4
2
0
1990
2000
2010
*Figures as of year-end; 2017 as of Nov. 15.
Source: S&P Dow Jones Indices
THE WALL STREET JOURNAL.
After a long period of consolidation, it holds just three
companies.
The telecom sector will be
broadened to encompass communications.
That means creating a new
in January, when some of the
affected companies are announced.
The changes will go into effect next September.
Some of those affected may
include the big tech firms,
given the updates to the tech
sector, analysts say.
This could also change what
sector-tracking ETFs hold,
though it will be up to the ETF
providers to decide how to account for those changes.
The real-estate sector’s
spinout from the financial sector may offer one template.
At the time, the Financial
Select Sector SPDR, the largest financial sector ETF, issued
a special dividend to investors
in the form of shares in a
newly created real-estate sector ETF.
It remains to be seen how
the sector shifts will affect investors, but it is clear index
creators are trying to keep up
with the times.
Gold Advances as Dollar Weakens
Gold prices rose Friday,
supported by a weaker dollar
as investors focused on the
Senate’s debate over its tax
bill.
Gold for
COMMODITIES D e c e m b e r
delivery advanced 1.4%
to $1,296.50 a troy ounce on
the Comex division of the New
York Mercantile Exchange—its
highest close in a month.
Prices had stayed between
$1,270 and $1,290 for much of
the past month before Friday’s
surge—their best day in six
months. They are still roughly
4% off their year-to-date highs
from early September, with a
stronger dollar and interestrate concerns weighing on the
precious metal recently.
The dollar rising makes
gold and other dollar-denominated commodities more expensive for foreign buyers. But
on Friday, the dollar fell as
traders monitored tax-bill
news and possible hurdles out
of the Senate. The House
passed its own bill Thursday,
lending brief support to the
U.S. currency. The WSJ Dollar
Index, which tracks the dollar
against a basket of 16 other
currencies, was down 0.3%
Friday.
DHIRAJ SINGH/BLOOMBERG NEWS
BY DAVID HODARI
AND AMRITH RAMKUMAR
A jewelry store in India. Uncertainty on the fate of the U.S. tax plan is helping support gold prices.
“I think the whole world is
waiting to see if this tax plan
comes through,” said Walter
Pehowich, senior vice president at Dillon Gage Metals. “I
think we have upside potential
[in gold] if anything is derailed in the Senate with the
tax bill.”
Investors are also monitoring central-bank signals lead-
ing up to the Federal Reserve’s
December meeting for clues
about the future of monetary
policy.
Although the market expects the Fed to raise rates
again in December, changes to
its outlook for future rate increases could move gold out
of its current trading range,
investors and analysts have
said.
“The short-term outlook
looks a bit bleak for gold,”
said Matthew Turner, precious-metals analyst at Macquarie, pointing to recent
weak demand figures revealed
by the World Gold Council and
resilient U.S. economic data
that could justify further rate
increases.
Tax-Bill Provision
Exempts Fund Firms
But Not Individuals
BY LAURA SAUNDERS
The Senate Finance Committee has decided that a littleknown provision that would
change tax rules on certain securities sales shouldn’t apply to
mutual-fund firms. Even so, it
would still apply to individual
investors.
The provision would prevent
investors from minimizing
taxes, when they sell part of a
position, by choosing the specific shares being sold. Instead,
investors would have to sell
their oldest shares first.
As first proposed, the
change would have applied to
fund companies as well as individuals.
But senators exempted fund
firms after some of the largest
ones, including Vanguard
Group and Eaton Vance Corp.,
protested by saying the proposed change would tie their
portfolio managers’ hands,
make markets less efficient and
raise taxes on investors.
If the change is enacted for
individual investors, “it will
take tax planning out of the
hands of investors and advisers, and it could make them
less inclined to sell,” said Tim
Steffen, director of advanced
planning with Robert W. Baird
& Co.
It would also affect firms
like Parametric Portfolio Associates, a unit of Eaton Vance,
and online financial advisers
Betterment LLC and Wealthfront Inc. These firms offer
computerized tax-efficient investing strategies to individuals that typically use sales of
specific groups of shares, or
lots, to help boost after-tax returns.
“This would be another blow
to individual investors, who are
already suffering from the delay in the fiduciary-standard
rules,” said Joe Ziemer, a vice
president of Betterment.
The current provision is only
in the Senate bill, not in the bill
passed by the House. It requires investors who are selling
part of a holding to assume
that lots of securities bought at
different prices are sold on a
“first-in, first-out” basis. Although the change would no
longer affect securities sold by
managers of active or passive
mutual funds and exchangetraded funds, it would affect individuals who sell part of their
investment in such funds.
Say an investor owns two
lots of a sector fund bought at
different prices, and they are in
a taxable account rather than a
tax-deferred retirement account. If the fund is trading at
$90 a share now, each one acquired five years ago for $65
would have a $25 taxable gain.
But each share bought two
years ago for $110 would have a
$20 loss.
Under current law, investors
can choose which fund shares
to part with. So selling the
ones that cost $110 would produce a loss to offset other
gains, while selling the ones
that cost $65 would produce a
taxable gain.
If the provision is enacted,
the first shares sold would be
assumed to have a cost of $65
each, and the investor couldn’t
sell the $110 shares until the
$65 shares were gone.
The provision would, however, allow investors in funds
and
dividend-reinvestment
plans who can use the “average
‘This would be
another blow to
individual investors,’
says one adviser.
cost” method of computing taxable gain to continue to use it.
Other details of the provision are unclear. For example,
it isn’t known how the Internal
Revenue Service could tell if an
investor with many lots of one
security moved one of them to
a different brokerage firm and
then sold it. Brokers only report to the IRS information
about what is held at that firm.
The change also would affect taxpayers’ ability to maximize the value of charitable donations of appreciated shares.
Under current law, investors
often can skip paying capitalgains tax on donated shares,
while getting deduction for
their full market value. But the
best shares to give may not be
the first acquired.
Advisers urge investors who
already intended to sell or donate specific lots that aren’t the
first acquired to do it before
year-end. “State taxes will also
rise if that deduction is repealed, so parting with securities now may be a good option,”
said tax strategist Robert Gordon of Twenty-First Securities.
THE TICKER | Market events coming this week
Leading indicators
Sept., prev.
down 0.2%
Oct., expected
up 0.9%
Dollar Tree
0.90/0.81
HP Inc.
0.44/0.36
Lowe’s Cos.
1.02/0.88
Medtronic
0.98/1.12
salesforce.com 0.37/0.24
EIA status report
Wednesday
U.Mich. consumer index
Nov., prelim.
97.8
Nov., final
98
Earnings expected*
Estimate/Year Ago($)
Agilent
0.62/0.59
Intuit
0.05/0.06
Palo Alto Networks
0.68/0.55
Tuesday
Existing-home sales
Sept., previous 5.39 mil.
Oct., expected 5.41 mil.
Earnings expected*
Estimate/Year Ago($)
Initial jobless claims
Previous
249,000
Expected
241,000
Previous change in stocks in
millions of barrels
Crude oil
Gasoline
Distillates
Earnings expected*
Estimate/Year Ago($)
Deere & Co.
Mort. bankers indexes
Purch., previous up 0.4%
Refinan., prev.
up 6%
EIA report: natural gas
Previous change in stocks in
billions of cubic feet
Analog Devices 1.36/1.05
down 18
up 1.9
up 0.9
down 0.8
1.45/0.90
Thursday
LUKE SHARRETT/BLOOMBERG NEWS
Monday
U.S. markets are closed for
Thanksgiving Day
Friday
U.S. stock market will close early
at 1 p.m. ET, and bond market at 2
p.m.
* FACTSET ESTIMATES EARNINGS-PER-SHARE ESTIMATES DON’T INCLUDE EXTRAORDINARY ITEMS (LOSSES IN
PARENTHESES) ADJUSTED FOR STOCK SPLITNOTE: FORECASTS ARE FROM DOW JONES WEEKLY SURVEY OF
ECONOMISTS
Analysts expect Deere & Co., maker of farming and heavy equipment, to post quarterly profit of $1.45 a share Wednesday.
Currencies
3.9%
The advance for the SPDR S&P Retail
exchange-traded fund last week, the
biggest since December 2016
Retailers Aren’t Dead Yet
Shares of traditional retailers,
long under pressure from the
rising threat of e-commerce,
staged a big comeback last week
on the back of surprisingly
strong earnings reports.
Stock surges from the likes
of Wal-Mart Stores Inc. and
Foot Locker Inc. propelled the
SPDR S&P Retail ETF to a gain
of 3.9%, its biggest weekly
advance since December 2016.
The ETF is often considered a
proxy for the U.S. retail sector.
Investors had been ditching
department-store operators and
mall-based sellers of late,
wagering that the flood of
consumer dollars streaming into
e-commerce giants including
Amazon.com Inc. would only
accelerate. Store closures, dour
corporate outlooks and the
threat of bankruptcy for smaller
players pushed the ETF down
nearly 9% in 2017 heading into
MONEYBEAT
last week.
Skepticism was so extreme
that a pair of new ETFs
designed to profit from the
demise of brick-and-mortar
sellers made debuts last
Thursday. One of them sports
the ticker “EMTY,” describing the
supposed state of U.S. malls.
Ironically, the date of the
ETFs’ launch coincided with
blowout sales growth at WalMart that vaulted the stock 7.2%
higher for the week. Mallfocused retailer Foot Locker
surged 35% last week after its
quarterly sales decline wasn’t as
bad as feared. Abercrombie &
Fitch Co. added 25% after
investors cheered a boost in
same-store sales. DSW Inc. and
Children’s Place Inc. both
jumped 12%.
Of course, the threat of
Amazon hasn’t gone away, but
major price moves show that
investors are hunting for
bargains and that the sector is
likely to remain volatile for the
foreseeable future.
—Chris Dieterich
ONLINE
WSJ
.COM
For more
MoneyBeat blog
posts go to
blogs.wsj.com/
MoneyBeat
U.S.-dollar foreign-exchange rates in late New York trading
Country/currency
in US$
US$vs,
YTDchg
Fri
per US$ (%)
Americas
Argentina peso
.0572 17.4785
Brazil real
.3070 3.2578
Canada dollar
.7832 1.2768
Chile peso
.001598 625.80
Ecuador US dollar
1
1
Mexico peso
.0529 18.9179
Uruguay peso
.03389 29.5100
Venezuela b. fuerte .095622 10.4579
in US$
US$vs,
YTDchg
Fri
per US$ (%)
Europe
10.1
0.1
–5.0
–6.6
unch
–8.8
0.5
4.6
Asia-Pacific
Australian dollar
.7565 1.3219
China yuan
.1509 6.6287
Hong Kong dollar
.1280 7.8115
India rupee
.01540 64.940
Indonesia rupiah .0000740 13515
Japan yen
.008920 112.11
Kazakhstan tenge .003012 331.96
Macau pataca
.1243 8.0451
Malaysia ringgit
.2406 4.1555
New Zealand dollar
.6818 1.4667
Pakistan rupee
.00949 105.360
Philippines peso
.0197 50.831
Singapore dollar
.7375 1.3560
South Korea won .0009136 1094.54
Sri Lanka rupee
.0065079 153.66
Taiwan dollar
.03324 30.085
Thailand baht
.03043 32.860
Vietnam dong
.00004403 22713
Country/currency
–4.8
–4.6
0.7
–4.4
–0.1
–4.2
–0.5
1.6
–7.4
1.6
0.9
2.5
–6.3
–9.4
3.5
–7.3
–8.2
–0.3
Czech Rep. koruna
Denmark krone
Euro area euro
Hungary forint
Iceland krona
Norway krone
Poland zloty
Russia ruble
Sweden krona
Switzerland franc
Turkey lira
Ukraine hryvnia
UK pound
.04611 21.688 –15.6
.1585 6.3094 –10.7
1.1793 .8480 –10.8
.003780 264.54 –10.1
.009676 103.35 –8.5
.1214 8.2393 –4.7
.2784 3.5919 –14.2
.01696 58.964 –3.8
.1186 8.4326 –7.4
1.0114 .9887 –3.0
.2579 3.8776 10.0
.0378 26.4530 –2.3
1.3216 .7567 –6.6
Middle East/Africa
Bahrain dinar
Egypt pound
Israel shekel
Kuwait dinar
Oman sul rial
Qatar rial
Saudi Arabia riyal
South Africa rand
2.6466 .3779 0.2
.0567 17.6460 –2.7
.2845 3.5150 –8.7
3.3116 .3020 –1.2
2.5979 .3849 –0.01
.2590 3.861 6.1
.2666 3.7503 –0.01
.0715 13.9874 2.1
Close Net Chg % Chg YTD%Chg
WSJ Dollar Index 87.09 –0.25–0.28 –6.29
Sources: Tullett Prebon, WSJ Market Data Group
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | B11
HEARD ON THE STREET
FINANCIAL ANALYSIS & COMMENTARY
Email: heard@wsj.com
WSJ.com/Heard
No Stock Bubble but Rising Risks Worriers
(Usually)
When is it going to end?
And how?
In a year when asset
prices have surged, those are
questions that should be
nagging at investors’ minds.
Stocks, hardly cheap at
2017’s onset, have gotten
progressively more expensive. Prices on junk bonds
and emerging-market debt
have risen sharply, driving
yields even lower.
Do these markets count as
bubbles? Probably not. That
is because many of the usual
hallmarks of bubbles—euphoric optimism, excessive
trading and a belief that no
matter how crazy prices are,
someone will be crazy
enough to pay even more—
are absent. If there is eu-
phoric optimism, it is in the
prices of Silicon Valley’s unicorns and in impossible-tovalue bitcoin which is up
more than 700% this year.
Still, an asset doesn’t have
to be in a bubble for it to be
excessively valued, or for its
price to drop. One danger is
that after the dot-com bust
and the financial crisis, investors now believe that the
only time markets fall
sharply are when there is a
bubble.
High prices don’t mean
the market will fall, though
when it does, the selloffs
tend to be more intense. A
fresh reminder came when a
sharp fall in the high-yield
bond market this month led
investors to pull money out
How to Spot a Market Top
PE to decline to its average
level over the past half-century.
When markets fall, they
usually fall for a reason. The
usual culprits are recessions,
falling corporate profits and
central banks aggressively
pushing up rates. When the
Federal Reserve raised rates
in the late 1960s, helping to
push the U.S. economy into
recession, stocks fell sharply.
And while the economy
weathered rapid rate increases in 1994, it was a trying year for stocks.
At the moment, such risks
don’t seem to be in the offing. Rather, the world is in
the midst of an unusual moment in which countries all
over are growing while low
of junk-bond funds at the
third-highest pace ever.
By one popular yardstick,
U.S. stocks have rarely been
so expensive. The cyclically
adjusted price earnings ratio
devised by Nobel Prize winning economist Robert
Shiller has gone to 31.3 from
27.9 this year. That level has
only been eclipsed twice: just
before the 1929 crash when
the measure peaked at 32.6,
and in the years surrounding
the dot-com bubble when it
reached 44.2.
Mr. Shiller’s measure may
be elevated, in part, for technical reasons, which can offer investors some solace,
but maybe not too much. The
S&P 500 would have to fall
by one-third for the Shiller
inflation is keeping central
banks at bay.
Perhaps that is why surveys show investors putting
lower-than-usual odds on the
chances of stocks crashing.
And maybe that is part of
why markets are showing so
little volatility: If the risk of
a big decline seems low, then
any little jog down looks like
a buying opportunity.
That in itself is a reason
to be wary. If investors are
almost all confident, there
will be a lot of sellers when
the environment sours. And
if markets don’t pause here—
if the benign outlook is justification for pushing valuations higher—the eventual
panic, and losses, will be
greater.
—Justin Lahart
Investors are more optimistic about the markets than at any time since the tech bubble.
Wells Fargo/Gallup Investor and Retirement Optimism Index*
200
Investors are about to celebrate another fantastic
year. Global growth is healthy, stocks are up and,
the big surprise, bonds did well too. What could
go wrong?
Recession
150
100
Heard on the Street walked through the extremes
and the risks in markets. It is impossible to call a
top, but there are some worrisome signs that
investors should be watching.
50
0
–50
–100
1997 ’98
’99
2000 ’01
Wall Street's ‘fear gauge’ is at record lows...
’02
’03
’04
’05
’06
’07
’08
’09
Cyclically adjusted S&P 500 price/earnings ratio
40
50 times
40
30
20
10
0
30
20
10
0
’06
’07
’08
’09
’10
’11
’12
’13
’14
’15
’16
’11
’12
’13
’14
’15
’16
’17
2000
’10
Treasury yields have remained
low and junk bond yields have
fallen dramatically.
Prices are up because there
is so much cash rushing
into the market.
Risky investments have posted
impressive gains, and one of the
riskiest—bitcoin—has soared
Tech stocks now have a bigger
share of the market than anytime
since the tech boom.
Bank of America Merrill Lynch effective yield
10-year Treasury yield
25%
Private equity dry powder
$1.50 billion
Total return since Nov. 14, 2014
Tech stocks as a share of the
S&P 500 market cap
40%
1,730.0%
1.25
Bitcoin
20
1.00
15
0.75
Short VIX†
191.4%
30
10
0.50
FAANG stocks**
155.5%
20
5
0.25
0
0
MSCI EM Index
33.6%
1996
2000
’10
’17
...and stock valuations are highest since the dot-com bust.
CBOE Volatility Index average
’05
’10
2000
’05
’10
’15 ’17
10
0
Merrill U.S.
17.0%
High-Yield Index
1990
2000
’10
*Index not measured between October 2009 and November 2011 †XIV, the VelocityShares Daily Inverse VIX Short-Term ETN **Equal-weighted total return of Facebook, Apple, Amazon, Netflix, Google (Alphabet)
Sources: Gallup (optimism); FactSet (VIX, short VIX, FAANG, MSCI, tech share,); Robert Shiller (ratio); St. Louis Fed (effective yield, Merrill), Treasury Department (10-year); CoinDesk (bitcoin); Prequin (dry powder)
THE WALL STREET JOURNAL.
If There Is a
Bubble, It Is
Most Likely
In Bitcoin
If the markets are at a
top, bitcoin has scaled the
highest peak.
Past episodes of market
euphoria have often been
marked by extreme optimism
over new technologies. Today, the innovations fueling
investor dreams include
video streaming and electric
cars. But none have inspired
as much zeal as blockchain,
the distributed ledger technology underpinning bitcoin
and other digital currencies.
Blockchain has the potential to change how commerce
is conducted. Bitcoin itself
has risen more than 700%
this year. The currency is
still seldom used to buy
goods or services, making it
for now almost entirely a vehicle for speculation.
Even more worrying has
been the wave of initial coin
offerings, in which startup
companies issue new digital
currencies to investors.
There have been more than
160 coin offerings this year,
collectively raising more
than $3 billion, according to
research firm CoinDesk.
The coins typically work
like tokens exchangeable for
the startup’s future goods or
services, but in some cases
the offering firms give little
or no information as to how
they will use the proceeds or
what the coins will be good
for. This sparked a recent
warning from Securities and
Exchange Commission Chairman Jay Clayton that many
offerings are susceptible to
manipulation or fraud.
Schemes to lure credulous
investors also tend to proliferate near market tops. Investors should proceed with
caution.
—Aaron Back
Pricey Segment With Room to Run
The market for packaging
risky loans is running hot as
hell. It may not be a bubble
yet, but troubling traits
make it an area to watch.
Money has flooded of late
into leveraged loans, which
have the credit quality of
junk bonds and are arranged
by banks often to help private-equity firms leverage up
companies they buy. The
banks then sell the loans on
to investors.
U.S. retail investors in
particular have piled into
loan-focused mutual funds
and ETFs. There have been
outflows in recent weeks,
but these funds still hold
$97 billion of investors’
money compared with less
than $18 billion a decade
ago, according to Lipper.
Insurers and pension
funds also have invested
heavily, both with specialist
managers and through buying structured funds known
as collateralized loan obligations. U.S. and European CLO
volumes could hit totals in
2017 that rank as their second- or third-biggest year
ever.
With such huge demand,
yields on such loans have
been crushed. In Europe,
they are at record lows and
still falling, according to S&P
Global LCD; in the U.S., they
are very low. Demand from
investors has outstripped
supply as private-equity
firms have found it hard to
close really big buyouts. And
this is the source of worrying signs.
Funds struggling to put
investors’ money to work
have been accepting cheaper
and looser terms. Borrowers
now have the whip hand.
This has allowed them to
slash interest rates on their
debt by refinancing quickly.
They also have managed to
kill the traditional covenants,
which protect lenders from
businesses developing problems in repaying their debt.
Fewer covenants mean
fewer defaults as borrowers
have no conditions to
breach. But this also could
mean that when defaults do
come, borrowers will be in a
much worse state and lend-
Chasing Yield
Weekly flows into and out of U.S.
mutual and exchange-traded
funds investing in loans
$2 billion
Yields on U.S. and European loans
sold in capital markets
U.S. All Loans
European Leveraged Loans
25%
1
20
0
15
–1
10
–2
5
–3
0
2003
’10
Sources: Lipper (flows); S&P Global LCD (yields)
2002
’10
THE WALL STREET JOURNAL.
ers get less back.
These loans and the CLOs
that invest in them are typically less easily tradable
than securities such as corporate bonds. It is this illiquidity that gives them the
extra sliver of yield that investors desire. As such,
loans and CLOs fit into the
broader pattern of investors’
drift into illiquid and private
assets in the hunt for better
returns.
If this sounds worrying,
there could be a leg up to
keep the loan market going:
Supply has been held back
partly because U.S. regulators have restricted how
much debt can be used in
buyout deals. The White
House is pushing to change
this.
A bubble occurs and ultimately pops when fundamental demand is misjudged
and too many assets of ever
poorer quality are mistakenly—or cynically—supplied
to the market. The loan market is fertile ground for such
conditions to take root, but
there may be a way to go before things get really dangerous.
—Paul J. Davies
GetMarket
Wrong
Sir John Templeton
famously said “this time is
different” are the four most
dangerous words in
investing. While anyone
caught up in a speculative
bubble would do well to
heed him, the four costliest
words for a long-term
investor may be “this is the
top.”
The fear of buying risky
assets such as stocks and
watching as prices tumble
can have a paralyzing effect,
sapping potential returns.
There is almost always a
reason to be nervous, but the
vast majority prove false.
For example, in February
2014 a chart made the
rounds on Wall Street
showing an eerie correlation
between the Dow Jones
Industrial Average in 1928
and 1929 and the S&P 500
from mid-2012 through early
2014. A continuation of the
pattern would have meant an
almost imminent crash.
Anyone who sold has missed
out on a 56% total return for
the S&P 500. In December
1996, Federal Reserve
Chairman Alan Greenspan
warned about “irrational
exuberance” in markets, and
the S&P 500 doubled over
the following three years
including dividends.
Even something as
concrete as valuation is
disastrous as a markettiming tool. A widely used
metric popularized by
Professor Robert Shiller of
Even something as
concrete as valuation
is disastrous as a
market-timing tool.
Yale University, the cyclically
adjusted price/earnings ratio,
has been elevated before
sharp stock market reversals.
Nevertheless, it has spent
about half of the past decade
in the most expensive decile
of readings in its 136-year
history, and stocks have
doubled over that time
including dividends.
Today, investors aren’t
worried about many things,
which itself is worrisome.
Take the Wells Fargo/Gallup
Investor and Retirement
Optimism Index: It hasn’t
been as high since 2000, just
as the technology bubble
was bursting.
Another measure cited by
Mr. Shiller, whose book
“Irrational Exuberance” was
published the month the
tech bubble peaked, shows
that wealthy investors are
more confident that a crash
won’t occur in the next six
months than any time since
June 2015. History shows
that high levels of
confidence usually occur
before crashes, as they did
before the past two bear
markets. The confidence
level is higher now than it
was either of those times.
An even longer-running
poll, the Investors
Intelligence survey of
advisers, recently registered
the highest bullish reading
since a few months before
the 1987 stock market crash.
Investors have been right
not to call a top, but they are
starting to act like this time
is different.
—Spencer Jakab
Even U.S. Blue-Chip Corporate Bonds Aren’t So Safe
If the great bond rally of
the past decade is nearing a
top, the losses could be bigger than many people think.
Even blue-chip U.S. corporate
bonds could harbor nasty
surprises.
One measure already
shows potential complacency: The difference between yields on U.S. investment-grade corporate bonds
and Treasurys—or the extra
interest investors get for
lending to companies that
might go bust rather than to
the government—is at its
narrowest point since the
summer of 2007. The gap hit
a milestone in October at
just 1 percentage point.
There is another indicator
that should be just as important: duration, a measure of
how sensitive a bond’s price
is to movements in yield. If
bond yields rise, prices fall,
but low-duration bonds will
suffer less and offer more
protection to investors than
long-duration bonds.
But low rates have made it
attractive for companies to
sell long-term debt, and right
now corporate-bond duration
is remarkably high, meaning
small movements in rates
can have an outsize impact
on bond prices. For instance,
when yields rose around 0.5
percentage point in the
weeks after Donald Trump
won the presidency in 2016,
it wiped some $200 billion
off the market value of U.S.
corporate bonds.
It is the combination of
tight spreads and higher duration that is unsettling, as it
has eroded the cushion bondholders have if the tide
turns. And it has led to a
vast transfer of credit and interest-rate risk from compa-
nies to lenders. This year will
mark the sixth consecutive
year U.S. investment-grade
supply tops $1 trillion, according to industry body
Sifma.
The dynamics of a market
rally this long work differently in corporate bonds and
equities. Sure, reasonable
global growth and low inflation for now provide a benign backdrop; default rates
are low.
But once bond spreads
reach such tight levels, more
of the benefit of growth accrues to shareholders. Share
prices can always go higher,
while bond spreads can’t
narrow much more. Bond investors’ risk is skewed to the
downside, since any downturn in earnings will result in
corporate leverage turning
out to be higher than appreciated, as cash flows contract
relative to debt outstanding.
It may take time for these
concerns to hit the corporate-bond market, since the
search for yield is a powerful
force. But for bondholders,
the pursuit of higher returns
is only getting riskier.
—Richard Barley
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THE WALL STREET JOURNAL.
B12 | Monday, November 20, 2017
MILLENNIALS NO LONGER
SHOP IN STORES.
SHOPPING
FOR
THE
FALSE
TRUTH
TRUE
THE TRUTH
LEARN THE TRUTH
ABOUT THE EVOLUTION OF RETAIL REAL ESTATE
AT SHOPPINGFORTHETRUTH.COM
ACCORDING TO CBRE
Millennials do 70% of their
shopping in-store.
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JOURNAL REPORT
THE WALL STREET JOURNAL.
© 2017 Dow Jones & Company. All Rights Reserved.
Monday, November 20, 2017 | R1
BETSY
DEVOS
MIKE
PENCE
‘We still
fundamentally
operate on a
model that was
brought to us 150
years ago by the
Prussians.’
‘By eliminating
the mandate, we
will enact tax relief for
working families.’
THE BUSINESS
AGENDA,
ONE YEAR IN
At the annual gathering of The
Wall Street Journal’s CEO Council,
top executives heard from the
administration about what it has
accomplished—and the prospects
for more change in the near future
GARY
COHN
AMY
‘We need to
make our
businesses
more
competitive.’
KLOBUCHAR
‘My issue with this
reform bill is the debt
piece, the $1.5
trillion.’
STEVEN
WILBUR
MNUCHIN
ROSS
‘This is
about
middleincome tax
cuts and
making our
business
taxes
competitive.’
‘Job creation is
the real purpose
of reducing the
trade deficit.’
KEVIN
HASSETT
‘This is not
your father’s
Democratic Party.
There are very
few moderate
Democrats left.’
‘We’re going
into next
year with a
significant
amount of
momentum.’
INSIDE
Mike Pence on tax reform, trade
and the president’s leadership
qualities, R2
Mitch McConnell on taxes,
bipartisanship and divisions in the
Republican Party, R6
Anne Case and Angus Deaton
discuss the dire state of white,
working-class Americans, R12
Lawrence Summers sees dangers
in the Trump administration’s
approach to trade, R14
Jay Walker imagines a lie-detecting app at the intersection of
biology and business, R9
Steven Mnuchin says with reform
the corporate tax rate isn’t going
above 20%, R4
Amy Klobuchar and Mark
Warner lay out the Democrats’
vision of tax reform, R8
Kevin Hassett tells how the U.S.
can get to sustained 3% GDP
growth, R12
PLUS
John Ford on how who is benefitting most from innovation, R6
Jerry Kaplan on the effects of
artificial intelligence on society
and labor, R11
Wilbur Ross explains why the
administration prefers bilateral
trade deals, R4
Gary Cohn on the GOP tax plan’s
impact on productivity and the
housing market, R11
Betsy DeVos says the education
system needs to turn around and
look forward, R13
John Ferriola on the Trump
administration’s engagement with
manufacturers, R8
Chris Liddell says the White
House will listen to businesses
of all kinds, R13
PAUL MORSE FOR THE WALL STREET JOURNAL
MITCH
McCONNELL
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THE WALL STREET JOURNAL.
R2 | Monday, November 20, 2017
JOURNAL REPORT | CEO COUNCIL
The Vice President on Taxes and Trade
The Trump administration
is one of the most pro-business
in recent memory. What do its
agendas mean for companies?
Vice President Mike Pence
spoke on the state of the nation, and then discussed a
range of issues with The Wall
Street Journal’s executive
Washington editor, Gerald F.
Seib. Here are edited excerpts.
Where we are
MR. PENCE: The president is
winging his way back from a
journey across the Asia Pacific. He has been about the
business of restoring American leadership on the world
stage. He joined President Xi
in China to announce agreements that will benefit the
American economy.
President Trump earlier
this year made the decision to
withdraw from the Trans-Pacific Partnership. America will
pursue bilateral trade agreements. We expect that markets
will be open to an equal degree on both sides.
America’s economy, and
confidence in America, is rebounding. Businesses from the
outset of this administration
have created 1.5 million new
jobs. The stock market is setting new records. The economy has grown by at least 3
percentage points for the past
two quarters. Before the end
of this year, we’re going to cut
taxes for working families and
businesses.
Let me also say that the
president and I welcome word
that the Senate Finance Committee will include the repeal
of the individual mandate of
Obamacare. By eliminating the
mandate, we will enact tax relief for working families.
The trade issue
MR. SEIB: In his work in Asia,
the president enunciated a
paradigm shift in trade. We’re
going to focus on bilateral
deals that are better for the
U.S. But let me pose the problem that some people see with
that approach, which is that
by leaving the multilateral
arena, you’re creating a vacuum, in Asia in particular, that
China will step in and fill. Is
that a concern to you?
MR. PENCE: President Trump
believes in free and fair trade,
but that multilateral deals result in the United States losing
leverage. He believes we’ll be
able to advance the interests
of our country and the countries we’re trading with more
effectively with arm’s-length
relationships.
MR. SEIB: When the other 11
countries in the Trans-Pacific
Partnership say, “We’re moving on,” is that a train leaving
with us left behind?
MR. PENCE: We don’t think so.
This is the most powerful
economy in the history of the
world. We’re in the midst of
renegotiating the North American Free Trade Agreement.
The president is very passionate about this, that the United
States has not pressed our interests enough in recent years.
I have heard it many times
in private, but the president
has said it very much in public
this week, “Well, I don’t blame
China for a bad trade deal.” He
blamed the policy makers in
the United States who have allowed that kind of a relationship to evolve.
So I think the honesty of
that kind of dialogue, the
strength of the American
economy, puts us in a position
to move toward what the president envisions, bilateral winwin trade relationships.
MR. SEIB: Let me turn to your
sales pitch on the tax bill. We
did a national poll in which
only 16% said they favored
cutting corporate taxes. And
37% said businesses are paying less than their fair share,
which would suggest you’ve
PAUL MORSE FOR THE WALL STREET JOURNAL
Mike Pence says the
administration thinks they have
the votes for tax reform—and
offers a defense of the
president’s leadership qualities
MIKE PENCE | ‘We believe that we’ve isolated North Korea economically and diplomatically in ways that have never occurred.’
got a way to go to make the
sale about a combination of a
corporate tax cut and an individual cut. Can you do that?
MR. PENCE: I think we can. I
traveled around the country,
meeting with businesses large
and small, and people get it.
They understand what a barrier our tax code has been to
growth and to jobs. But we
need business leaders in this
country to tell that story too.
MR. SEIB: Are you going to
have 52 Senate votes going
forward, or is this problem in
Alabama going to cost you one
of those?
MR. PENCE: We believe we’ll
have the votes. We believe
that we’re making steady
progress in the United States
Senate and in the House of
Representatives and that we’ll
have the votes. But we’re taking nothing for granted.
Dealing with Korea
MR. SEIB: Is there an opening
for diplomacy to solve the
North Korea nuclear problem?
MR. PENCE: President Trump
made very clear what our policy is. First and foremost, the
era of strategic patience is
over. We’re absolutely committed to resolving this issue.
All options are on the table,
but we continue to hope and
we continue to work to resolve
this issue peaceably, by bringing economic and diplomatic
pressure to bear.
We believe that we’ve isolated North Korea economi-
do you put up with all the
chaos and periodic silliness?”
MR. PENCE: I couldn’t be more
proud to be vice president for
Donald Trump. The American
people elected the right man
at the right time.
When we got the call about
being considered for this job,
I’d only met the president
twice. We said we were honored, but never expected we
would be asked.
I said, “There’s two things
I’d want to know. Number one,
I’d like to know the job description.” Because there’s
only one person that writes it.
The second thing I said is,
“We’d need to know them as a
family.” I said, “Now, I know
none of that’s possible.” This
was late June. I said we
wouldn’t be able to spend the
kind of time together that we
could get to know each other.
Two days later I got a call
that said, “Not only did the
candidate like your response,
but he wanted to invite you to
spend Fourth of July weekend
with him, and bring your
whole family. And his family’s
going to be there.” We arrived
on a Friday night. We went to
the clubhouse. My wife and
my daughter were with me.
Dave’s been running Bedminster since the president
bought it a number of years
ago. He walked over to the table and he said to me, “I just
wanted to check and make
sure everything’s OK, and you
guys have what you need.” I
said, “Oh, it’s wonderful.”
Dave said, “You know how
he is. He’s called a couple of
times from the car to make
sure everything is squared
away.”
There were two things in
that moment that I’ve seen every single day with President
Donald Trump. Number one is,
he has high standards. Things
have to be right. I’ve spoken
to the president every day
during this trip, with few exceptions, and every day he’s
talked to me about tax cuts.
He’s totally focused.
The other thing I saw was
another quality of leadership,
because when Dave said to me,
“He’s going to want to make
sure things are right,” he said
it with a smile. There’s two
great qualities of leaders. Vision and standards. Number
two, you’ve got to inspire people to want to work for you.
That’s the kind of leader President Trump is.
Ginni Rometty, IBM
John Rosanvallon, Dassault
Falcon Jet
Panu Routila, Konecranes
Mitchell Rudin, Vice
Chairman, Mack-Cali
Gisbert Ruehl, Kloeckner
Tim Ryan, U.S. Chairman,
PwC
Amy Schabacker Dufrane,
HR Certification Institute
George Schindler, CGI
David Seaton, Fluor Corp.
Jahja Setiaatmadja,
President Director, PT
Bank Central Asia Tbk
Charles Shaver, Axalta
Takumi Shibata, Nikko
Asset Management
Michael Silvestro, Flexjet
Keith Skeoch, Standard Life
Frederick Smith, FedEx
Gerry Smith, Office Depot
Martin Sorrell, Group CEO,
WPP PLC
K.R. Sridhar, Bloom Energy
Arthur Steinmetz,
OppenheimerFunds Inc.
Todd Stevens, California
Resources Corp.
Motokuni Takaoka,
Airweave
Anthony Tersigni,
Ascension
Robert Thomson,
News Corp
Alan Trefler, Pegasystems
Paul Tufano, AmeriHealth
Caritas
N.V. Tyagarajan, Genpact
Tien Tzuo, Zuora
Jing Ulrich, Managing Director, Vice Chairman of
Asia Pacific, J.P. Morgan
C. Vijayakumar, HCL
Jay Walker, Upside
Jeffrey Walker, CIMC
Capital
Timothy Wallace, Trinity
Industries Inc.
Mark Weinberger, EY
Dion Weisler, HP Inc.
Elliot Weissbluth,
HighTower
Jim Whitehurst, Red Hat
Michael Wolf, Activate
Mark Wrighton, Washington
University in St. Louis
JefferyYabuki, Fiserv Inc.
Yuanqing Yang, Lenovo
Harold Yoh, Day &
Zimmermann
Wei Zhao, Executive
Director, President, ZTE
PARTICIPATING GUESTS
Anne Case, Professor of
Economics and Public
Affairs, Emeritus,
Princeton University
Gary Cohn, Director, National Economic Council
Angus Deaton, Nobel
Laureate in Economics;
Senior Scholar and
Professor of Economics
and International Affairs,
Emeritus, Princeton
Betsy Devos, U.S. Secretary
of Education
John Ferriola, Chairman,
President and CEO, Nucor
Martin Ford, Author, “Rise
of the Robots: Technology and the Threat of a
Jobless Future”
Michael Froman,
Distinguished Fellow,
Council on Foreign
Relations; former U.S.
Trade Representative
Kevin Hassett, Chairman,
White House Council of
Economic Advisers
Jerry Kaplan, Adjunct Professor, Stanford; Author,
“Humans Need Not
Apply: A Guide to Wealth
and Work in the Age of
Artificial Intelligence”
Sen. Amy Klobuchar
(D., Minn.)
Chris Liddell, Assistant to
the President, Director of
Strategic Initiatives, The
White House
Steve Mnuchin, U.S.
Secretary of the Treasury
Theresa Payton, President
and CEO, Fortalice
Solutions; former CIO,
The White House
Mike Pence, Vice President
of the United States
Wilbur L. Ross Jr., U.S.
Secretary of Commerce
Matthew J. Slaughter,
Dean, Tuck School of
Business, Dartmouth
Lawrence H. Summers,
President Emeritus,
Harvard; former U.S. Secretary of the Treasury
Jay Walker, Founder and
CEO, Upside; Founder,
Priceline.com; Founder,
Library of the History of
Human Imagination
Sen. Mark Warner (D., Va.)
Biggest Worries
Percentage of CEOs in the U.S. who say they are extremely concerned
about these threats to their organization's growth prospects
56%
Overregulation
Cyberthreats
50%
Increasing tax burden
41%
38%
Uncertain economic growth
Geopolitical uncertainty
34%
Speed of technological change
Protectionism
27%
cally and diplomatically in
ways that have never occurred
before. China’s taken action
that they’ve never taken before. We believe they need to
do more. Other countries in
the region need to do more.
President Trump is absolutely committed to achieve
what is the consensus objective of the world community,
and that is that North Korea
would abandon its nuclear and
ballistic missiles program. And
that we would have a nuclearfree Korean Peninsula.
MR. SEIB: We earlier today
canvassed this group and
asked them for questions that
I might pose to you. One person said, “I voted for Trump
12 months ago. I would vote
for him today. I believe our
system needs to be shaken up,
but it’s painful to watch at
times. Being a sensible Midwesterner,” that’s you, “how
32%
Source: PricewaterhouseCoopers
survey of 114 CEOs in the U.S. as
part of the 2017 Global CEO
Survey, conducted from
September to November 2016.
THE WALL STREET JOURNAL.
CEO COUNCIL MEMBERS
(Chief executive officers
except as noted)
Dennis Abboud, Readerlink
Nicholas Akins, American
Electric Power
Keith Allman, Masco Corp.
Mukesh Ambani, Chairman
and Managing Director,
Reliance Industries Ltd.
Carl Armato, Novant Health
Johan Aurik, Global
Managing Partner and
Chairman, A.T. Kearney
Ziv Aviram, OrCam
Mitch Barns, Nielsen
John Barrett, Western &
Southern Financial Group
Dominic Barton, Global
Managing Director,
McKinsey & Co.
Patrick Bass, Thyssenkrupp
North America Inc.
Inga Beale, Lloyd’s
Brendan Bechtel, Bechtel
Todd Becker, Green Plains
Swan Gin Beh, Chairman,
Singapore Economic
Development Board
Marc Benioff, Salesforce
Aneel Bhusri, Workday Inc.
Richard Bielen, Protective
Life Corp.
Benjamin Breier, Kindred
Healthcare Inc.
Heather Bresch, Mylan
Vincent Brun, President,
Vacheron Constantin
North America
Michael Burke, Aecom
Gregory Cappelli, Executive
Chairman, Apollo Global
William Carstanjen,
Churchill Downs Inc.
Anil Chakravarthy,
Informatica
Jim Chirico, Avaya
Michael Choe, Charlesbank
Andrew Collins, Sentient Jet
Steven Collis, AmerisourceBergen Corp.
Steven Corwin, NewYorkPresbyterian Hospital
Roger Crandall, Massachusetts Mutual Life
Bal Das, Chairman, BGD
J. Roberto Delgado,
Founder and Group
Chairman, Transnational
Diversified Group Inc.
Douglas DeVos, President,
Amway Corp.
Craig Donohue, Options
Clearing Corp.
Michael Dowling, Northwell
Health
Gina Drosos, Signet
Jewelers
Francisco D’Souza,
Cognizant
Joachim Eberhardt,
President, Jaguar Land
Rover North America LLC
Richard Edelman, Edelman
Bilal Eksi, Turkish Airlines
Hikmet Ersek, Western
Union
Sharb Farjami, Global CEO,
Storyful
Michael Farrell, ResMed
Thomas Farrell, Dominion
Energy
Bradley Feldmann, Cubic
John Ferriola, Nucor Corp.
Dan Florness, Fastenal Co.
John Forsyth, Wellmark Inc.
Eric Foss, Aramark
Simon Freakley,
AlixPartners
Adena Friedman, Nasdaq
Jack Fusco, Cheniere Energy
Ignacio Galan, Iberdrola SA
Mark Ganz, Cambia Health
Robert Garrett, Co-CEO,
Hackensack Meridian
Health
Thomas Gayner, Co-CEO,
Markel
Eli Gelman, Amdocs
Patrick Gelsinger, VMware
Mike George, QVC
Kristalina Georgieva, World
Bank
Eric Gernath, SUEZ North
America
Seifi Ghasemi, Air Products
& Chemicals Inc.
Susan Gilchrist, Group CEO,
Brunswick Group
Daniel Glaser, Marsh &
McLennan Cos.
Alex Gorsky, Johnson &
Johnson Services Inc.
C.P. Gurnani, Tech
Mahindra Ltd.
Mauricio Gutierrez, NRG
Jim Hagedorn, Scotts
Miracle-Gro Co.
John Haley, Willis Towers
Watson
Gregory Hayes, United
Technologies Corp.
Tom Hayes, Tyson Foods
Edward Heffernan, Alliance
Data Systems Inc.
David Holmberg, Highmark
Health
Lisa Hook, Neustar Inc.
David Hunt, PGIM
Basheer Janjua, Integnology
Barbara Jenkins,
Superintendent, Orange
County Public Schools
Jo Ann Jenkins, AARP
Alan Joyce, Qantas Airways
Rana Kapoor, Yes Bank
Alex Karp, Palantir
Michael Kasbar, World Fuel
Services Corp.
Brad Katsuyama, IEX Group
Margaret Keane, Synchrony
Declan Kelly, Teneo
Brian Kesseler, Tenneco Inc.
Christopher Klein, Fortune
Brands Home & Security
Daniel Knotts, RRD
Henry Kravis, Co-Chairman
and Co-CEO, KKR & Co.
Sarah Krevans, Sutter
Health
Vinod Kumar, Group CEO,
Tata Communications
Donald Layton, Freddie Mac
Claude LeBlanc, Ambac
William Lewis, Dow Jones
Jim Lico, Fortive
Robert Livingston, Dover
James Loree, Stanley Black
& Decker
Peter Lowy, Co-CEO,
Westfield Corp.
Rob Lynch, VSP Global
Elie Maalouf, CEO, the
Americas, IHG
Alex Mahon, Channel 4
Kevin Mandia, FireEye Inc.
William Mansfield, MUFG
Securities Americas Inc.
Kathryn Marinello, Hertz
Global Holdings
Masahiro Maruyama,
Mainichi Newspapers
Timothy Mayopoulos,
Fannie Mae
John McAvoy, Con Edison
Bill McDermott, SAP SE
Karl McDonnell, Strayer
Education Inc.
Tom McGee, ICSC
Thomas McInerney,
Genworth Financial Inc.
Michael McKelvy, Gilbane
Building Co.
Richard McKenney, Unum
William McMullen, Kroger
Manoj Menda, Corporate
Chairman, RMZ Corp.
Fernando Mercé, Nestlé
Waters North America
Larry Merlo, CVS Health
Chris Michalak, Alight
Solutions
Shunichi Miyanaga, Mitsubishi Heavy Industries Ltd.
Matthew Moynahan,
Forcepoint
Deanna Mulligan, Guardian
Life Insurance
Oscar Munoz, United
Airlines
Rupert Murdoch, Executive
Chairman, News Corp
Clarke Murphy, Russell
Reynolds Associates
Eileen Murray, Co-CEO,
Bridgewater Associates
Albert Nahmad, Watsco
Pierre Nanterme, Accenture
Ronald Nersesian, Keysight
C.L. Max Nikias, President,
University of Southern
California
Ray Nolte, Managing
Partner, Chief Investment
Officer, SkyBridge Capital
Indra Nooyi, PepsiCo Inc.
Gary Norcross, FIS
John Noseworthy, Mayo
Clinic
Patrick Pacious, Choice
Hotels International Inc.
Paul Perreault, CSL Behring
Stefano Pessina, Walgreens
Boots Alliance
Yitzhak Peterburg,
Teva Pharmaceutical
Douglas Peterson, S&P
Global
Charles Phillips, Infor
Nicholas Pinchuk, Snap-on
Richard Plepler, Home Box
Office Inc.
Anne Pramaggiore, ComEd
Anthony Pratt, Executive
Chairman, Visy Industries
Lawrence Prior, CSRA Inc.
Serge Pun, Chairman, SPA
Myanmar
Joel Quadracci,
Quad/Graphics
Thomas Quinlan, LSC
Communications Inc.
Karan Rai, Asgard Partners
Krishnan Rajagopalan,
Heidrick & Struggles
D. Rajkumar, Chairman and
Managing Director,
Bharat Petroleum Corp.
Nitin Rakesh, Mphasis Ltd.
Punit Renjen, Global CEO,
Deloitte
Gina Rinehart, Executive
Chairman, Hancock
Prospecting Group
Girish Rishi, JDA Software
Chuck Robbins, Cisco
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R3
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THE WALL STREET JOURNAL.
R4 | Monday, November 20, 2017
JOURNAL REPORT | CEO COUNCIL
The Bottom Line on the Tax Cuts
Treasury Secretary Steven Mnuchin, optimistic
about completing tax reform before year-end,
says the corporate rate isn’t going above 20%
are, I’m comfortable that we
will get them together.
PAUL MORSE FOR THE WALL STREET JOURNAL (2)
MR. BAKER: Is that 20% rate
STEVEN MNUCHIN | ‘Fundamentally we believe that the federal government should get out of
the business of subsidizing the states.’
It’s a time of tremendous
confidence in the U.S. economy
and stock market. But there
are large question marks
about the immediate and longterm prospects—from proposed tax changes to the fate
of trade deals.
To put those matters in perspective, Wall Street Journal
Editor in Chief Gerard Baker
spoke with Treasury Secretary
Steven Mnuchin. Here are edited excerpts of the discussion.
MR. BAKER: Does it worry you
that expectations in the market and in business and consumer confidence are maybe
too high?
MR. MNUCHIN: No, it doesn’t
worry me. People are very excited about what the Trump
administration’s economic policies are. The president has
been very clear this is all
about creating growth. That
we’ve been in a period for the
last eight years of very low
growth. The president fundamentally believes we can get
back to 3% or higher sustained
GDP.
We have a high degree of
confidence in getting tax reform done between now and
the end of the year. It’s critical
to the economy.
MR. BAKER: Taxes are very
much a moving target right
now because we have the
House proposal for tax reform
and the Senate proposal, and
obviously those two have to be
reconciled in some way.
Twenty percent corporate rate
of tax. The House proposal is
to have it begin immediately in
the next fiscal year. The Senate defers it for a year. Does
that worry you? Given that we
have these high expectations
for a lower-tax environment,
does it concern you that the
Senate defers that tax cut?
MR. MNUCHIN: It doesn’t. Our
preference is to start this
sooner. But let me just put this
in perspective. When you look
at fundamentally where we
are, the president’s objectives,
the House’s objectives and the
Senate’s objectives are all
aligned.
We want to create a competitive business-tax system.
We have one of the highest tax
rates in the world. We have a
crazy concept of, “If you leave
the money offshore, you don’t
pay taxes.” So it’s not a surprise trillions of dollars are
sitting offshore.
The president also wants us
to have middle-income tax
cuts. That’s what the House
plan is about. That’s what the
Senate plan is about. When
you look at them, there are
some minor differences. But
the good news is, the objectives are exactly the same.
Whatever differences there
low enough in terms of the international environment to get
the kind of boost to investment
in the U.S., investment in jobs
that you want? How important
is it that it stays as close to
20% as possible? Because
there is some suggestion that
as part of the compromise
process it might drift up.
MR. MNUCHIN: No, it’s not going up. I can tell you this is
one of the things that the
president feels very strongly
about. Twenty percent. So this
will be a significant tax cut for
corporations.
MR. BAKER: Turning to some of
the provisions on the personaltax side, one that’s causing a
lot of neuralgia for a lot of
members of Congress, particularly Republican members of
Congress in high state- and local-tax states, is the provision
to eliminate or to significantly
reduce the deductibility of
state and local taxes.
You know very well there
are a number of Republicans
who have already come out in
the House and said they can’t
support it. The Senate does
away with it completely in its
proposal. Is that something
that you’ll be willing to be
flexible about?
MR. MNUCHIN: The issue here
is fundamentally we believe
that the federal government
should get out of the business
of subsidizing the states. Having said that, if you’re in New
York, you’re in New Jersey or
you’re in California, for a median income of $75,000, a family of four, you’re going to get
a tax cut that’s over $1,000.
For someone who makes
$300,000, you’re going to get
a tax cut, even in the high-tax
states, of several thousand
dollars.
For someone who makes $1
million in the high-tax states,
you are going to get an increase. But those people will
get the benefit of lower busi-
ness taxes. As the president
said, this is not about cutting
taxes for rich people. This is
about middle-income tax cuts
and making our business taxes
competitive.
MR. BAKER: Almost the very
first thing the president did as
he took office was to take the
U.S. out of the Trans-Pacific
Partnership. The other 11 TPP
signatories or planned signatories have agreed to go ahead
and push on with their own
trade pact. The worry is that
the U.S. is missing out here on
an opportunity for leadership
that other countries in the region are seizing. Isn’t it a risk
that you’re not going to be
part of critical discussions as
this critical region continues to
grow and seek opportunities
for growth?
MR. MNUCHIN: We fundamentally disagree with that interpretation. When I showed up
at my first G-20 meeting, it
was right after the president
had been elected. People were
concerned. People were concerned about our policies on
trade. People were concerned
about protectionism.
Let me be clear. The presi-
dent believes in free and fair
trade. We are one of the largest trading partners in the
world. We have one of the
most, if not the most, open investment market in the world.
The president wants to make
sure that other markets are as
open to us as we are to them.
Two of the conversations
the president had with President Xi were on trade and
North Korea. The president
wants to make sure these
other markets are open and
that we have fair trade for the
U.S.
MR. BAKER: What about Nafta?
The president keeps threatening to withdraw the U.S. from
Nafta if it doesn’t get the kind
of concessions it wants. The
Wall Street Journal polls economists, and 89% of the economists polled said for the U.S.
to pull out of Nafta would hurt
the U.S. economy. Are they
wrong?
MR. MNUCHIN: If the end result
is we have a better deal, which
is what the president wants,
that will be better for the U.S.
economy and for U.S. business.
I’m optimistic that we will renegotiate this deal.
Deficit Outlook Before Tax Reform
The Congressional Budget Office's comparison of its baseline
estimate of federal budget deficits and its estimate of deficits under
President Trump's proposed budget, in billions of dollars
$1,500
Baseline
1,250
Budget
1,000
750
500
250
0
2018
’19
’20
’21
’22
’23
’24
’25
’26
’27
Note: The amounts shown do not include estimated macroeconomic feedback effects on
the federal budget. Taking into account the smaller deficits under the president’s budget,
the CBO estimates that the effects of that economic feedback would further reduce the
cumulative deficit between 2018 and 2027 by roughly $160 billion. The resulting cumulative
deficit would be 2.8% of estimated gross domestic product, compared with 2.9% of GDP
excluding such feedback.
Source: Congressional Budget Office
THE WALL STREET JOURNAL.
Talking About Trade
Wilbur Ross explains why the administration
prefers bilateral deals to multilateral ones
President Donald Trump,
who has called for new trade
deals since he hit the campaign trail, made it clear on
his recent trip to Asia that the
U.S. will drop out of the
Trans-Pacific Partnership. The
North American Free Trade
Agreement, meanwhile, is being renegotiated. Secretary of
Commerce Wilbur Ross discussed what revamped trade
policies could mean for the
U.S. and its trading partners
with Paul Gigot, editorial page
editor of The Wall Street Journal. Edited excerpts follow.
Out of TPP?
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MR. GIGOT: You don’t think
there’s a chance the U.S. might
enter the TPP, even to be able
to renegotiate some of the
terms?
MR. ROSS: First of all, why do
we favor bilateral versus multilateral? The problem we see
with multilateral is, first of all,
it takes too long to do. TPP itself took something like 10
years, then never even came
into being. Now, during that
kind of a period you’ve got a
sort of negotiation exhaustion.
Can you imagine if at the end
of 10 years you go back to your
spouse and you say, “You
know, dear, I just blew 10 years
of my life. We couldn’t make a
deal.” That’s a tough, tough
thing. So by the end of it, you
get to where people want a
deal even if it isn’t the deal.
Second problem is, let’s say
you’re China and let’s pretend
you were going to be part of
TPP, and I say, “I want these
reforms from you,” intellectual-property rights, so on.
You’ll say, “Sure, but here’s
what I want in return.” So we
get a little nick for that.
Then maybe he’s Japan and
I say, “Well, we need from you
more agricultural reforms.”
And he says, “Fine, but I need
this from you.”
What does that mean? You
both benefit from the nicks
each other took out of us, even
the ones you didn’t ask for.
Reproduce that 12 times and
you have a pretty well nickedup body.
WILBUR ROSS | ‘The problem we see with multilateral is, first
of all, it takes too long to do.’
MR. GIGOT: But you’re talking
about having what the president announced on this trip.
He’s willing to do bilaterals
with all comers. That means 11
different bilaterals. Those are
not easy either.
MR. ROSS: Let’s take a look at
Nafta. Nafta is on a very short
time fuse. It’s a very large
agreement, a very complicated
agreement, needs a tremendous amount of revision. If in
fact that’s accomplished by
more or less March of next
year, which is what the current hope and plan is, mostly
due to the political calendar,
that would be an enormously
complex thing done in a year.
MR. GIGOT: You’ll line up any
number of bilateral deals
those TPP countries are interested in? You’ll knock ’em off?
MR. ROSS: I think so. And one
of the things we hope will
come out of Nafta, even
though it’s a trilateral rather
than a bilateral, is some language that we can roll out in
other agreements. For example,
intellectual-property
rights is not a particularly
huge issue between us and
Canada and Mexico. So we
should be able to get a decent
set of wording for intellectualproperty rights. Same thing
with some of the other sections. We think that having
some standardized language,
rather than starting with a
blank book every time you negotiate, will also save a lot of
time.
Tax bill
MR. GIGOT: Would you agree
that one of the goals of the tax
bill, particularly the corporate
reform, is to make the U.S. a
real Mecca for investment?
MR. ROSS: Absolutely.
MR. GIGOT: Let’s say it passes
in a form close to what the
House and the Senate have
now submitted. Have you told
the president that, if that happens, the dollar is likely to go
up, because investment’s going
to flow here, and you’re likely
to see a big increase in the
dollar?
MR. ROSS: The dollar going up
would be a function of a whole
lot of things. Monetary policy
comes into effect. The amount
of the federal budget deficit is
going to have an impact.
There’s a lot other than taxes
that would have an impact on
where the dollar trades.
MR. GIGOT: If you get that big
capital inflow, you’re going to
get an increase in the trade
deficit, almost by definition.
And that’s not something the
president says he wants.
MR. ROSS: It is true, obviously,
that both sides must balance
Please see ROSS page R9
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R5
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R6 | Monday, November 20, 2017
THE WALL STREET JOURNAL.
NY
JOURNAL REPORT | CEO COUNCIL
McConnell on Taxes
And Bipartisanship
MR. SEIB: We’ve had a lot of
conversations about tax cuts,
tax bills, tax reform. You’re
the guy who has to make it
happen. Will this happen, and
will it happen by the end of
this year? [The House passed
a tax bill after this interview
took place.]
SEN. MCCONNELL: Yes, it will
happen. Everybody believes
it’s important for the country,
and obviously it’s important to
us politically.
We’ll pick it up in the Senate the week after Thanksgiving. The markup, the drafting
of the bill in the finance committee, is going on as we
speak this week. It’ll be on the
floor the week after Thanksgiving.
MR. SEIB: The president’s made
it clear via Twitter that he
hopes you will include in the
tax bill an elimination of the
individual mandate under
Obamacare. That complicates
the picture because you’re
commingling taxes and health.
Are you going to do that?
SEN. MCCONNELL: The Senate
finance committee has decided
to include that. It helps in several ways. The additional revenue helps do a couple of
things that are important. I
think it gives us a shot at
making the corporate tax rate
permanent, and it provides
some additional funding to
middle-class tax relief. So it’s
pretty appealing to us.
MR. SEIB: What do you want to
happen in Alabama? You said
you hope Roy Moore withdraws from the race. Do you
think that’s going to happen?
If that doesn’t happen, what
recourse do you have?
SEN. MCCONNELL: First, it will
not impact taxes. No matter
who’s elected they won’t be
certified till Dec. 23, and so
we’re pretty confident that the
tax issue will be dealt with by
the current members of the
Senate.
With regard to the Alabama
VOICES FROM THE CONFERENCE
“Once machines were clearly tools. They were
something that workers used that made those
workers more valuable. Now, increasingly, at least
relative to many workers, the machines are becoming autonomous. This means that rather than
complementing workers and making workers
more valuable, the machines are, in many cases,
substituting for workers.
“In fact, making those workers less valuable.
And I think that that is one of the things that’s
driving this significant gap between compensation and productivity. In essence, what’s happening here is that the fruits of
innovation and of progress are now accruing almost entirely to people at
the top of the income-distribution scale. It’s business owners, managers,
investors. And average people are really getting very little of that.”
John Ford, Author, “Rise of the Robots: Technology and the
Threat of a Jobless Future”
SEN. MITCH McCONNELL | ‘I think the administration’s doing an outstanding job to begin to
roll back regulations.’
race, Roy Moore should withdraw. The women who’ve
come forward are completely
credible.
His campaign is collapsing,
and from a Republican point
of view it produces a dilemma
because the ballots have been
printed. I’ve spoken with the
president. He called me from
Vietnam. I talked to Gen. Kelly
and the vice president.
We’re in discussion about
how to salvage this seat if
possible. It appears as if the
only option would be a writein, and that’s very seldom successful, although we had an
example of it in 2010. Lisa
Murkowski from Alaska ran a
write-in campaign in the general election and actually won.
The name being most often
discussed may not be available, but the Alabamian who
would fit that standard would
be the attorney general. That
obviously would be a big move
for him and for the president,
but as the president is winding his way back to the United
States, I’m confident this is an
issue they’re discussing.
MR. SEIB: If he wins, would you
seat him or would you seek to
have him expelled?
SEN. MCCONNELL: The Supreme
Court in a case in 1969 said
the act of seating someone,
swearing them in, is limited to
constitutional qualifications.
For example, are you a resident? Are you 30 years old?
Continued service is a different matter. It’s safe to say that
if he were sworn in, he would
immediately be in a process
before the Senate ethics committee under which the
women would be sworn in. He
would be asked to testify under oath as well. It would be a
rather unusual beginning.
MR. SEIB: Does it bother you
that we are continuing to try
to enact big domestic, social
and economic changes along
partisan lines?
SEN. MCCONNELL: It’s a pretty
partisan period. This is not
your father’s Democratic
Party. There are very few
moderate Democrats left.
We look at the last eight
years and find not achieving
one year of 3% growth a
pretty underperforming economy. I think the administration’s doing an outstanding
job to begin to roll back regulations. If we can put on top of
that pro-growth tax reform,
we think there’s a legitimate
shot at getting the growth of
our country up.
They don’t look at it the
same way. They think the
economy’s stagnant, and no
matter how you arrange taxes,
behavior doesn’t change. If
you’re looking for bipartisanship, I don’t think you’re going
to see it on this issue.
MR. SEIB: It’s not your father’s
Republican party, either, and
Steve Bannon is busy proving
that. He says you should be
out of your job by the end of
the year, or the end of next
year at least. There’s a deep
rift in your party, and is that
going to stop you from having
cohesion on important legislation?
SEN. MCCONNELL: We’ve dealt
with this element for several
years. I remind people that
those who win elections make
policy, and losers go into another line of work.
This is an element that
emerged in 2010 and 2012,
succeeded in nominating candidates who lost in November
and kept us from taking the
Senate back.
I said, “This is not working.
We need to start being assertive in primaries, start nominating people who can actually win.” We did that in 2014,
took the majority. Did it again
in 2016, kept the majority.
MR. SEIB: Did not do it, argu-
ably, in Alabama in 2017.
SEN. MCCONNELL: Very unusual
situation in Alabama. A special
election. It’s an odd time. And
we’re optimistic that we’re not
going to allow people like Roy
Moore to be nominated in any
other state.
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As the GOP tax bill heads
toward completion, are congressional Republicans in sync
with the president?
Gerald F. Seib, The Wall
Street Journal’s executive
Washington editor, spoke with
Mitch McConnell, the U.S. Senate majority leader. Here are
edited excerpts.
PAUL MORSE FOR THE WALL STREET JOURNAL (2)
The Senate majority leader also weighs in on
the Alabama race and the divisions within the
Republican party
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R7
Seizing Opportunity
Despite Uncertainty
What will America look like in 2026,
when it reaches its 250th birthday?
CEOs across industries agree that this is a period of
unprecedented change. But opportunities abound
for those who can see what’s coming down the road.
Consumers@250
Retailers and branded consumer-goods
companies need to understand the ongoing
consumer shift from affluence to influence.
Health@250
Providers, payers, manufacturers, and
patients will experience an accelerating
disruption of centuries-old approaches
to managing human health.
Manufacturing@250
The Fourth Industrial Revolution will
fundamentally remake global value chains
and create entirely new business models.
Join the discussion:
AmericaAt250.com
#America250
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THE WALL STREET JOURNAL.
R8 | Monday, November 20, 2017
JOURNAL REPORT | CEO COUNCIL
Amy Klobuchar and Mark Warner
Sens. Amy Klobuchar and Mark Warner say they are for tax
reform. But not the way the Republicans are going about it.
With Republicans in control
of all three branches of the
federal government, Paul Beckett, Washington bureau chief
of The Wall Street Journal,
asked two Democratic senators—Amy Klobuchar of Minnesota and Mark Warner of
Virginia—what their party’s
message will be heading into
the 2018 elections. Edited excerpts follow.
Social-media ads
MR. BECKETT: You are both
sponsors [along with Sen.
John McCain] of a bill that
would require disclosure of
sponsorship for political advertising on social media, as is
required in other media, like
television. What’s behind that
bill and does it have any
chance of passage?
SEN. KLOBUCHAR: I think it
does have a chance of passage.
First of all, there’s the obvious
national-security issues with
finding out that Russia actually used rubles to buy ads on
Facebook. But it is bigger than
that: $1.4 billion was spent on
these online ads by political
campaigns, by issue groups,
just in the last election. So
this isn’t about regulating the
internet. You’re going to have
another set of eyes looking at
these ads, to help ferret out
where they came from.
GOP tax plan
MR.
BECKETT: Republicans
sound very optimistic about
getting tax cuts through. That
will give them some momentum going into 2018, and an
economic
stimulus
and
achievement they can tout.
What is the Democratic message to counter that?
SEN. WARNER: We need substantial tax reform; having the
highest nominal corporate rate
does not keep us competitive.
But the real disadvantage
spot right now is for low- and
moderate-income people not
having the training they need
to continue to upgrade their
skills.
If we’re going to do repatriation, which I agree, and give
folks an enormously advantageous rate, why not say part
of the price of that repatriation would be a meaningful
worker-training program for
anybody that makes less than
$80,000 a year so that there is
some assurance that the benefits that are going to go, writ
large, to corporate America,
will at least flow through to
some of the workforce?
Why not think about a portable-benefit system so that
people can move from job to
job? We have a social-benefits
system where you only get social benefits if you work long-
term as a full-time employee.
Those jobs, again, are disappearing. Think about a taxcode reform that’s going to be
forward-leaning. And unfortunately, I don’t think that’s
what’s taking place right now.
PAUL MORSE FOR THE WALL STREET JOURNAL (2)
How Democrats See It
MR. BECKETT: Do you, yes or
no, approve of a 20% corporate tax rate?
SEN. KLOBUCHAR: I don’t approve of the bill right now
with that rate in it, for a lot of
the reasons Mark just outlined. But I do want to bring
down the corporate tax rate. I
want to simplify the taxes.
My issue with this reform
bill is the debt piece, the $1.5
trillion. I wish, when the president had gotten elected, that
he had worked with Sen.
Chuck Schumer—who wanted
to do something about the
overseas money—and tied it in
with infrastructure, which had
always been our plan, and
then combined that with
things that could truly help
the middle class, which would
include a minimum-wage increase that we haven’t seen
for years, doing something
about the student-loan refinancing.
There are a number of
things that we could’ve done.
But right now, this waited till
after all this divisiveness, and
we are where we are.
MR. BECKETT: Should I take
that as a long no?
SEN. KLOBUCHAR: OK.
SEN. WARNER: At $20 trillion
in debt, a 100-basis-point increase in interest rates adds
about $150 billion, $160 billion
a year, in additional debt payments. That’s more than we
spend federally at the Education Department and Homeland Security together.
There’s nothing in this tax
code that will discourage in-
for their generous support.
© 2017 Dow Jones & Co. Inc. All rights reserved. 6DJ6150
MR. BECKETT: Democrats had
very good elections in Virginia
and in New Jersey and Washington state last week. One
lesson from each of you, succinctly please, on what we
should take away from that.
SEN. WARNER: If the Republican party continues down this
civil war, and an agenda that
is anti-immigrant, divisive in
an America that is increasingly diverse, they’re going to
get wiped out in not just traditional areas but in the suburbs. And increasingly, we
even saw in parts of rural Virginia, a shift around. So I
think those of us who are probusiness, who are pro-competitive, maybe there could be
some strange new alliances.
MR. BECKETT: Your one take-
away, Sen. Klobuchar?
SEN. KLOBUCHAR: People want
a positive message. They
didn’t like how Ed Gillespie
[the losing Republican candidate for governor in Virginia]
ran the campaign. And all this
negativity is going to boomerang back at the people that
run campaigns like that.
“This administration and particularly this president
has been very engaging with manufacturing companies, businesses in general. I think that’s somewhat expected, given his background. But I have
found the president and the administration to be
more open and willing to engage and have serious
discussions about the issues that face manufacturing, more so than in the past.”
John Ferriola, Chairman, President and Chief
Executive Officer, Nucor Corp.
sponsors of the 2017 CEO Council Annual Meeting
visit CEOCouncil.wsj.com
Recent gains
VOICES FROM THE CONFERENCE
The Wall Street Journal would like to thank the
For more information, please
ternational companies from
continuing to use tax havens
in a way that I think will even
see further abuse than we’ve
got right now. So whether the
rate is 20% or 25%, if you’ve
got large multinationals paying effective rates of 2% or 3%,
that is not fair to our domestic
core who are going to be paying a much, much higher rate
in the current plan.
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R9
JOURNAL REPORT | CEO COUNCIL
Continued from page R4
because that’s just the way the
math works.
MR. GIGOT: Correct.
MR. ROSS: But it is not inevita-
ble what that does to the currency because of other factors.
MR. GIGOT: But let’s just deal
with a trade deficit then. Everything works, you get the tax
bill through, growth pops up
like your White House Council
of Economic Advisers says,
you get an influx of capital,
and wages are going up, you
get 3% growth—uh-oh, the
trade deficit’s also going up.
Can you live with that if you’re
this administration?
MR. ROSS: We’re using trade
deficit as a shorthand way of
saying job creation. Job creation is the real purpose of reducing the trade deficit, and
it’s why the way we mainly
wish to reduce the deficit is by
increasing our exports as opposed to constricting imports.
That way you have more total
trade, and you have a reduction in the deficit.
MR. GIGOT: Nafta negotiations
resume again, I think, later
this week. Businesspeople are
concerned about some of the
U.S. negotiating positions, particularly the five-year sunset
clause. How as a businessperson can you make an investment decision about where to
invest multibillion dollars, perhaps, if the whole thing you’re
basing it on goes away in five
years?
MR. ROSS: Right now in Nafta,
businesses are exposed to a
six-month termination. Any of
the three countries can terminate it on six months’ notice.
MR. GIGOT: But there’s never
been an assumption anybody
would do that until—
MR. ROSS: It may not have
been an assumption, but it’s a
fact. So there’s right now a
shorter-term trigger than the
five years, plus the five years
just says in effect that the
president must make a conscious decision to continue it.
Assuming it’s an agreement
that’s working well, and that’s
the general assumption that
people are making, why would
anyone terminate it?
We think the discipline of
saying, “OK, we’ll do the best
trade agreement we can.
Chances are we’ll get something wrong in it that’ll need
fixing.” Having this formal period of five years is a good
way to deal with that.
MR. GIGOT: But your message
to CEOs who are thinking, “Do
I build that plant in Mexico or
do I go to Malaysia”—that
sunset provision shouldn’t
worry them?
MR. ROSS: There are lots of
parts of the world that are
very low-cost that have a lot
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more risk than a five-year sunset.
MR. GIGOT: You referred to the
politics of the timetable of
Nafta, and you have the Mexican election that’s coming up.
Obviously that will affect their
willingness, their ability to
compromise. If you can’t work
something out by March, is the
president prepared to unilaterally withdraw from Nafta?
MR. ROSS: I think the president
has spoken for himself on innumerable occasions. His general point of view is that no
deal is better than a terrible
deal.
MR. GIGOT: What do you think
the economic impact would be
of unilateral American withdrawal from Nafta?
MR. ROSS: For one thing, it
would be devastating to the
Mexican economy because it’s
such a big part. We are 80some-odd percent of all their
exports and I think the
amount of their exports to us
is something like 30% of their
economy. So you’re talking
about a big, big-time problem
for Mexico. And it’s also a bigtime problem for Canada. It
would be far more damaging
to them than to us.
MR. GIGOT: I can’t assume that
you, as U.S. Commerce Secretary, would enjoy economic
damage in two of our biggest
trading partners and neighbors. That certainly wouldn’t
help us.
MR. ROSS: No. I would certainly prefer them to come to
their senses and make a sensible deal.
VOICES FROM THE CONFERENCE
“Biology and business are about to intersect
more and more.…Imagine, for a second, a
group of app writers create a new app tomorrow to come up with a way to detect
whether or not you’re lying. It checks your
respiration, your pupil dilation, your tone of
voice. A bunch of things that are completely
unconscious.…Everybody would download
the app. If it were free, everybody would
have it in a matter of days. And supposing…you could use it the first 20 times free,
and after you were sure it worked, it was a
dollar every time. How big a business would you have with that app?
“How many industries would be changed if lying were not possible?”
Jay Walker, Founder, Library of the History of Human Imagination;
Founder and CEO, Upside; Founder, Priceline.com
PAUL MORSE FOR THE WALL STREET JOURNAL
Ross
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R10 | Monday, November 20, 2017
Revolutionize
Your Business.
Invest In Your HR.
71% of business executives believe having an HR team that is
certified would benefit their organizations.*
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* According to a June 2017 survey conducted by Dow Jones Customer Intelligence
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THE WALL STREET JOURNAL.
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R11
NY
JOURNAL REPORT | CEO COUNCIL
In Defense of the
Current Tax Bills
Taxes are front and center
in the minds of businesspeople
and citizens as the House and
Senate try to hash out a bill.
There are potentially sweeping
changes in the works, including removing the deduction for
state and local taxes.
Wall Street Journal Editor
in Chief Gerard Baker spoke
with Gary Cohn, a former
Goldman Sachs executive and
currently assistant to the president for economic policy and
director of the National Economic Council. Here are edited
excerpts of the conversation.
Why now?
MR. BAKER: Why is now a good
time to be cutting taxes, to be
increasing the deficit significantly?
MR. COHN: When you look at
what’s happened to the U.S.
workforce since the recession,
yes, we’ve created jobs. But
wages have been growing basically in line with low inflation. One of the big drivers of
our tax-reform policy is to get
Focused on Taxes
Percentage of CEOs who chose
each of these actions as the best
way to accelerate U.S. economic
growth in the following 12
months
Corporate
tax reform
71%
Regulatory
reforms
13%
12%
Other | 5%
Infrastructure
spending
Source: Business Roundtable survey of 119
CEOs in the U.S., conducted in April
THE WALL STREET JOURNAL.
real wage growth back into
the United States. When we
talk about lowering taxes on
businesses, one of the results
of that is that the businesses
are going to be able to pay
their workers more. We know
that individuals know how to
spend their money much more
efficiently than the government does. The multiplier effect of individuals spending is
substantially higher than the
multiplier effect of government spending.
MR. BAKER: U.S. economic
growth has been about 2% for
the last 10 years. A large part
of the reason why the trend
seems to have dropped from
3% 20 years ago seems to be
demographics. The other phenomenon is productivity,
which has been weak. What’s
going to go on with this tax
cut to raise productivity?
MR. COHN: One of the big components of the tax bill is immediate expensing for capital
expenditures. There’s an enormous amount of capital expenditures that can be spent in
the system that enhance productivity.
MR. BAKER: But we’ve seen this
enormous investment in technology in the last 25 years, yet
there has been no increase in
productivity in that time. Pro-
ductivity’s declined. How is
that going to change?
MR. COHN: The regulatory environment has had a huge impact on productivity. Nonproductive regulation is chewing
up enormous amounts of company earnings that they can’t
reinvest into what is really
productivity. We need to roll
back that regulation. We need
to make our businesses more
competitive. I’m not looking to
deregulate our businesses. But
we’re looking to allow them to
compete and be more productive than businesses around
the world.
a lot of damage.
I know that people think
that only affects the wealthy.
But actually, there’s a huge
number of people who have
loans in that range. There’s
concern that could do really
quite significant damage to
the housing sector. Do you
worry about that?
MR. COHN: I worry about everything. So of course I worry
about it. But I think when you
look at the data and you look
at the reality, people really
PAUL MORSE FOR THE WALL STREET JOURNAL (2)
Gary Cohn on removing the health-insurance
mandate, as well as why the plans will improve
productivity, and the impact on housing
GARY COHN | ‘The regulatory environment has had a huge impact on productivity.’
don’t buy houses because of
deductibility of interest. People buy houses because they’re
bullish on the economy,
they’re gainfully employed,
they think they’re going to be
employed for a long time, they
think the business they’re
working for is solvent, they
think their pay is going up, not
going down. Potentially, their
spouse is getting a job and is
in the same fundamental characteristics. That’s when people
tend to buy houses.
MR. BAKER: Is it really impor-
tant to have the tax bill done
by Dec. 31?
MR. COHN: We’ve got to get
taxes done this year. The legislative calendar is going to get
very crowded come the first,
second week of December.
There are a bunch of issues
that got punted for a few
months into the first and second week of December.
MR. BAKER: One item I want to
ask you about is a plan to reintroduce the removal of the
mandate requiring people to
sign up for health insurance.
There are concerns that once
you start pulling on that
string, all kinds of difficult
things arise. Would you welcome that?
MR. COHN: We’re supportive of
it. Tax reform is really important to us in the administration. I think it’s important to
the House and Senate. We
have to get that done. If we
can get the individual mandate
repealed as well, that to us is
a real windfall, and we’d love
to see that happen. But we’re
still plodding ahead on tax reform whether it happens or
whether it doesn’t happen.
Local matters
The complexity of
global currencies evolved 12-fold
over the last decade.
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and also the most deeply intertwined. In fact, there are currently more than
1,300 potential currency pairings. That shared opportunity also presents
shared risks. CME Group offers products designed to manage those risks
across currencies. This is how individuals and institutions can navigate an
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is how the world advances. Learn more at cmegroup.com/finance.
MR. BAKER: The state- and lo-
cal-tax deduction elimination.
Do you think there should be
at least some support for some
people who are going to be hit
who pay a lot in state and local taxes?
MR. COHN: I don’t think that’s
a proper characterization. The
question should be, do the
bills deliver middle-income tax
relief? And the answer is yes.
How they get there is different. The only way to grade
whether it’s successful or not
is to literally look at the tables, look at the distribution,
and say, “Does this do what
we want it to do? And does
this deliver tax relief to hardworking American families?”
And the answer to both bills is
yes, it does. So yes, they’ve attacked it different ways, but
ultimately they get to the
same answer.
MR. BAKER: The doubling of
the standard deduction will
for a lot of people mean that
there’s no point anymore in
deducting their mortgage interest because they have something that’s below the standard deduction. There’s a lot
of concern in the housing sector, lots of lobbying’s going
on, that this could really cause
VOICES FROM THE CONFERENCE
“Artificial intelligence
isn’t magic. In fact,
it’s not really about
intelligence at all. It’s
better understood as
simply the latest advance in automation.
Its effects on society
in general and labor
markets in particular
are likely to be very much like previous waves of
automation, such as the invention of the electric
lightbulb or air travel or the automobile or television or the digital computers. Now, each of
those innovations put plenty of people out of
work. But more importantly, they increased our
wealth and created a raft of new jobs and professions.”
Jerry Kaplan, Adjunct Professor, Stanford
University; Author, “Humans Need Not Apply”
CME Group is a trademark of CME Group Inc. The Globe logo is a trademark of Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners.
Copyright © 2017 CME Group. All rights reserved.
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THE WALL STREET JOURNAL.
R12 | Monday, November 20, 2017
JOURNAL REPORT | CEO COUNCIL
DR. CASE: In every state,
PAUL MORSE FOR THE WALL STREET JOURNAL (3)
deaths from suicide have increased between 1999 and
2015. In every state but two,
alcoholic liver disease and cirrhosis increases. In every
state, drug overdoses.
ANNE CASE | ‘It isn’t just about the financial crisis.’
ANGUS DEATON | ‘Something is very wrong.’
‘Two Americas,’ Updated
Angus Deaton and Anne Case discuss what’s behind the rising
mortality rates among white Americans without college degrees
Nobel Prize-winning economist Angus Deaton and his fellow Princeton University professor and wife, Anne Case,
made headlines two years ago
when they reported that mortality rates among white,
working-class Americans are
going up in contrast to other
demographic groups in the
U.S.
Since then, the two have
continued to dig into what is
behind the increase in “deaths
of despair” among white, middle-aged Americans with low
levels of education. They sat
down with Wall Street Journal
News Editor Janet Adamy to
discuss their latest findings.
Edited excerpts follow.
Two Americas
MS. ADAMY: You were here two
years ago. Since then, Donald
Trump has been elected president. The opioid crisis has
worsened. What has your research found since then?
DR. DEATON: We’ve dug a lot
deeper into the details. We’ve
discovered that it was no flash
in the pan. The numbers were
correct. Bad things are really
happening, and they’re continuing to happen.
We dug down a lot more
into the educational differences and found that it is very
much a two-Americas situation, where people with bachelor’s degrees are doing pretty
well and those without them
aren’t doing very well at all.
MS. ADAMY: And you discovered that the mortality rates
among this population of
white Americans have worsened in a way that has no historical precedent?
DR. DEATON: That’s right. You
can find episodes like the flu
epidemic or wartimes when
mortality rates go up, but sustained increases in mortality
for any major group in any society are really quite rare. It’s
an indication that something
is very wrong.
MS. ADAMY: Anne, why exactly
is this happening?
DR. CASE: I think there are sev-
eral answers to that. Mortality
rates for suicide, for drug
overdose, for alcoholism are
rising for people without a
college degree. Those are the
big increases that we’re seeing, and it isn’t just about the
financial crisis. This started
back as far as we can break
out education in death certificates, which is 1990. It has
been a slow, steady trend up
in all three of those for people
without a B.A.
In addition to that, we’ve
stopped making progress on
heart disease in the U.S.,
which is stunning. Every other
country continues to watch
mortality fall. Antihypertensives and people stopping
smoking had huge effects on
deaths from heart disease. But
our mortality rates from heart
disease have flatlined and
that’s a really big killer. So we
have to better understand why
that has happened in the U.S.
MS. ADAMY: There is a stark
difference in terms of what is
happening in the U.S. versus
our peer countries. Why is
white mortality going up in the
U.S., but not in other coun-
tries?
DR. DEATON: One of the immediate things is opioids. European countries have much
tighter controls on the way
opioids are distributed. There
has been none of this mass
prescribing of opioids that has
happened in the U.S. We have
to get that genie back in the
bottle. That’s very important,
but it isn’t all of it. Of the
three [types of] deaths we’ve
looked at, suicides, opioids,
and alcoholic liver disease, the
biggest single one is opioids.
But the other two together are
bigger than opioids.
DR. CASE: I think opioids made
it a perfect storm. But it was
the case that people were killing themselves slowly with alcohol or quickly with guns
even before the opioid crisis
started. OxyContin wasn’t
even on the market until 1996.
We also want people to understand that this [is affecting]
women, as well as men.
MS. ADAMY: What do you see
in terms of geography? Where
is this happening?
MS.
ADAMY: Interestingly,
among blacks and Hispanics,
mortality rates have fallen regardless of education level.
Why is that?
DR. CASE: That was one of the
first surprises to hit us. When
we think about bad things, we
usually think that the first
population to be hit are African-Americans. But the death
rates from alcohol and drugs
fell through the ‘90s and the
early 2000s until about 2010
for African-Americans, while
they rose for whites.
So then, if you’re digging
into what the underlying
causes are, we are beginning
to speculate about workingclass whites possibly having
the pillars that held up their
lives beginning to crumble.
Lost generation
MS. ADAMY: And what were
those pillars?
DR. CASE: Having a job with a
ladder up, with on-the-job
training, with benefits. Having
a job where you could actually
ask a woman to marry you and
she would marry you. Now,
marriage rates among working-class people are way
down. She doesn’t want to
marry him if he doesn’t have a
good job.
Cohabitation is way up. But
unlike in Europe, where those
cohabitations are quite stable,
in the U.S., they are fragile.
Neither of them has a good
job. They aren’t married, so
they don’t have that stability.
And they’ve moved away from
what we call legacy churches,
the Catholic and Protestant
churches, toward evangelical
churches, which focus on the
individual. It’s my personal relationship with my savior,
rather than it being about us
as a community.
So those pillars of life—
church, family, job—have disappeared for the white working class in a way that it
hasn’t really been the case for
blacks.
MS. ADAMY: You found that
those in middle age now are
likely to be worse off in old
age than the current population. Can anything be done
about that?
DR. DEATON: Several people
have used the term lost generation for those people. It’s
very unclear what to do with
them. Their economic status
will improve a little bit as they
move into old age, simply because initial Social Security
payments are indexed on average wages.
But we don’t think financial
security is the essence of this
matter. We think their lives
will come apart in the way
that Anne has been talking
about. You’re a 55-year-old
guy. You have never been married, but you’ve been in three
consecutive relationships. You
have three sets of kids, none
of whom you know anymore
because the younger ones are
living with other guys. The
community that you used to
have has disintegrated.
Many people have mixed
views about unions, but
unions used to give people
some measure of control at
work. They gave them a social
life and political representation in Washington, which
doesn’t really exist anymore.
MS. ADAMY: Can employers do
anything to help improve the
fortunes of this working-class
population?
DR. CASE: We don’t think the
answer is getting everyone to
go to college. That doesn’t
seem realistic. The problem,
we think, is that these people
don’t have any standing in the
labor market anymore.
The minimum wage hasn’t
increased since, what, 1997?
Noncompete clauses in labor
contracts, even for workingclass people, mean they can’t
take a job for higher wages
elsewhere. I think the lack of
enforcement of antitrust laws
means that some very large
employers have [too much]
power over the workforce.
And so I think that one of the
things that could happen is
trying to rebuild the social
contract between labor and
capital. We are all at risk if we
don’t do that.
The Basis for 3% Growth
Economist Kevin Hassett says it’s doable,
provided tax reform is passed
The Trump administration
has an ambitious economic
plan: It says the U.S. can
achieve gross-domestic-product growth of 3% or more annually, fueled in part by the
Republican tax-cut proposal
currently working its way
through Congress.
Whether 3% growth is likely
or even possible, however, remains a matter of debate
among analysts and economists.
Kevin Hassett, the chairman
of the White House Council of
Economic Advisers, sat down
with Jon Hilsenrath, the global
economics editor of The Wall
Street Journal, to discuss the
3% growth target and the
forces and trends that could
help or hinder it. Edited excerpts follow.
’Magic moment’
MR. HILSENRATH: So the ad-
ministration is looking for 3%
growth. Why do you think the
U.S. can sustain that level of
growth in the months ahead?
MR. HASSETT: We’ve had a
couple of quarters in a row of
3% growth. The first one of
those was something of a
weather-related phenomenon,
but the fourth quarter is looking like it’s going to be in
about the same range, so
we’re going into next year
with a significant amount of
momentum. And if you look
down into the nuts and bolts
of the numbers, the thing that
jumps out at me is that capital
formation is really starting to
pick up this year.
Business capital spending
was really, really bad over the
last few years. Now, business
pessimism seems to have
waned and capital spending is
heading back up, and I think
that has something to do with
optimism about tax reform
and something to do with the
president’s regulatory agenda.
MR. HILSENRATH: The Federal
Reserve projects long-term
growth around 1.8%. What do
you see that the Fed isn’t seeing right now in terms of the
economy’s long-run prospects?
KEVIN HASSETT | ‘Capital spending is heading back up.’
MR. HASSETT: In the near
term, we’ve got business tax
reform planned, and it looks
highly likely to pass. Everybody who is counting votes
seems optimistic. And it’s going to repair a badly broken
corporate tax system. The
OECD, probably about a decade ago, told us that we need
to have corporate reform in
the U.S. because we’re chasing
capital off shore. And if we fix
that, we’ll get a surge in capital spending in the U.S., which
would drive up GDP growth in
the short term.
I don’t know what the Fed’s
assumptions
are
about
whether the tax reform passes.
But I would guess that if you
reduce the user cost of capital
by about 15%, which is our estimate of what it does, then
that should increase capital
spending and GDP growth in
the short run, for sure.
MR. HILSENRATH: So are you
saying that 3% growth is possible for the short run, but not
so much for the longer run?
MR. HASSETT: It depends how
far you go out. There are a lot
of things that can be stimulative for growth more than just
a year out, like attempts to increase labor-force participation. The idea that being close
to full employment, becoming
an attractive place for capital
to locate again, should mean
that there are going to be a lot
of new factories going in the
U.S., driving up the demand
for workers and driving up
wages.
That should lead to more
labor-force
participation,
which has been heading in the
wrong direction lately. But if it
turns around, you could get
north of 1.8%.
MR. HILSENRATH: Unemployment is at 4.1%. This is a level
that economists sometimes describe as “at or even below full
employment,” the idea being
that if it goes much lower, the
economy risks potentially
overheating. Would you say
that is where we are now?
MR. HASSETT: If you look at
the history of business cycles,
it is precisely now, when labor
markets are pretty tight in
places, that you start to see
income inequality decline and
wage growth increase. And if
we were to take that sort of
magic moment, where things
are teed up to reconnect people to the labor force and give
them a wage hike, and then we
reform our tax code so that
factories want to locate in the
U.S., it could be really transformative for our economy.
MR. HILSENRATH: We’ve had
periods in the past where unemployment was at or near
Please turn to page R13
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THE WALL STREET JOURNAL.
Monday, November 20, 2017 | R13
JOURNAL REPORT | CEO COUNCIL
Preparing Youth
For Future Jobs
Education is consistently a
top concern of executives at
The Wall Street Journal’s annual CEO Council gatherings.
Preparing youth for the jobs of
today, as well as the everevolving workplace of tomorrow, is a challenge that many
business leaders think we
aren’t meeting.
Secretary of Education
Betsy DeVos spoke with Matt
Murray, the Journal’s executive
editor, about how American
education can better rise to
that challenge and the role of
the federal government in making it happen. Here are edited
excerpts of their conversation.
Stoking curiosity
MR. MURRAY: We’ve heard a
lot during this conference
about things like artificial intelligence, the digitization of
the workplace, changes that
are already happening and
that we all think are going to
accelerate. You’ve been in the
job almost a year. What’s your
overall assessment of the preparedness of U.S. workers today for this world and the
world that’s coming?
MRS. DEVOS: We have a lot of
opportunity for improvement.
There certainly are students
who leave high school and college well prepared for the
world that awaits them, but
much of the systems we’ve relied on in education for decades
tend to be backward-looking
versus forward-looking.
It’s my goal to bring a focus, in the K-12 area, to empowering parents and students
in a new way to find the education environment that is
right for them, that is going to
stoke the curiosity that is innate in every child and not to
kill it by the time they’re in
third or fourth grade.
When you look beyond 12th
grade, for several decades we
have given the message that
the only successful path to
adult life is through a fouryear college or university. And
that has been at the expense
of lots of great opportunities.
MR. MURRAY: When you think
about how many of our students are prepared for this
world in the way that you
think they need to be, are half
of them ready for this today?
Is it lower than that? How
badly are we failing here?
MRS. DEVOS: Children starting
kindergarten this year face a
prospect of having 65% of the
jobs they will ultimately fill
not yet having been created.
You have to think differently
about what the role of education and preparation is.
In talking with a lot of businesspeople and others who
have to ultimately employ individuals, the skills that we
have to be preparing kids with
are, simply put, in four areas:
critical-thinking skills; the
ability to collaborate and work
well with others, as we do in
all of the rest of life, but not
so much in school; the ability
to communicate well both
orally and in written communications; and then creativity.
And my observation of a lot of
students today is they’re not
having their needs met to be
prepared in those areas.
MR. MURRAY: What’s your phi-
losophy of what the Education
Department can do and what
it shouldn’t do?
MRS. DEVOS: I think there’s a
much larger role for states to
play. The Every Student Succeeds Act that Congress
passed in 2015, which is just
now starting to get enacted,
returns a lot of the flexibility
and control to the states for
K-12 education.
Now we’re receiving the
plans and reviewing them. It’s
my goal to approve every single plan that follows the law
that Congress passed. We
hope that states will take the
opportunity to be creative in
how they’re addressing the
needs of students.
MR. MURRAY: You like to high-
light programs that you think
are unique, programs that you
think are great. But what
should be the minimal acceptable education attainment?
Because there is a real inequality problem in our education system, isn’t there? How
do we raise that floor?
MRS. DEVOS: Probably most if
not all of us in this room have
had the ability to choose our
children’s educational settings.
The reality also is that many
parents don’t have that power.
That has stunted creativity in
the education world for decades. We still fundamentally
operate on a model that was
brought to us 150 years ago by
the Prussians. We have not deviated fundamentally from that
approach, yet everything has
changed in the world.
I fundamentally believe that
if and when we empower all
parents to make that right
choice for their child, we will
see the kind of creativity entering education that we need to
see that will ultimately prepare
students to be active participants in the workforce, and to
be job creators themselves.
School-choice programs are
still at relatively small scale.
We have not had a state where
VOICES FROM THE CONFERENCE
“We will deal with any businesses that are knowledgeable and can contribute in a way that we
think’s constructive on the agenda that we have.
The message I would give to people is we’re not
there to necessarily deal with every individual
company’s every individual issue. That’s not us.
We have multiple stakeholders that we need to
address.
“But businesses know that this is an administration that is receptive to feedback from business. This is an administration that will listen to
businesses of all natures, large and small, of any industry in thinking about
policy frameworks. I think from a business point of view, that’s the most
you can expect.”
Chris Liddell, Assistant to the President and Director of Strategic
Initiatives, the White House
Hassett
Continued from the prior page
4%, or even lower, and we had
financial bubbles. Is there a
risk of that if unemployment
keeps falling?
MR. HASSETT: There is definitely always that risk. But I
think about it this way: If unemployment is 7% and you’re
a firm that wants to increase
output, you can get a cheap
worker off the unemployment
line. But if the unemployment
rate is what it is now, and
you’re a company that’s got
listings but nobody is applying, then you have to invest in
increasing the productivity of
the people you have. And that
productivity increase likely
will transfer into wage increases.
If that happens, if we get
the productivity-enhancing
capital formation, we can expect this to be a sustainable
higher level of growth that
would affirm the expectations
of markets. I don’t think the
sort of productivity enhancement that we need to stay at
3% growth is something that
anyone who is reasonable
would project if we don’t pass
tax reform. Therefore, the
market might even already be
ahead of itself if the tax reform doesn’t pass.
MR. HILSENRATH: When you
say, “might even be ahead of
itself,” what do you mean?
MR. HASSETT: The market is
like an expectation mechanism
for the future, right? It looks
at all the things that might
happen and puts probabilities
on them. And if you think
about why prices are where
they are right now, it must be
because the market has factored in some probability that
this tax reform will pass. If all
of a sudden we learn that it
won’t, then that’s going to be
very bad news for markets.
MR. HILSENRATH: The current
expansion is more than eight
years old. We’ve never had an
expansion go longer than 10
years. What is in this administration’s tool kit and in the
Fed’s tool kit for when we go
into the next recession?
MR. HASSETT: First, I don’t
think that the evidence is too
convincing that recoveries die
of old age. Very often, there’s
a precipitating event. So while
recessions are going to come
into our future for sure, I
don’t think that the odds of
recession in the next year are
unusually high just because
we’re eight years in.
That said, if the recovery
continues and the Fed normalizes monetary policy even
more, it will have an ample
tool kit to draw on. I think the
macroeconomics literature has
suggested that the Fed is more
nimble in recessions and that
attempts to use Keynesianstyle stimulus have often been
too late.
But if a recession were to
happen, fiscal policy would
probably be part of the mix.
That is something that even
now we’re studying and starting to think about at CEA because you don’t wait for the
rainy day to buy an umbrella.
Insurance policy
MR. HILSENRATH: So what are
the fiscal options that this administration would look at if
we hit another downturn?
MR. HASSETT: Something
we’ve studied a lot since the
summer is that the “shovel
ready” project idea isn’t necessarily a good one. Infrastructure investment is a really great investment for our
economy and it’s something
the president has talked about
a lot since the campaign, but
you aren’t necessarily going to
get infrastructure spending
out in the next six months to
stimulate the economy. Other
things, such as tax variables,
seem to have a quicker response time.
MR. HILSENRATH: You’re pulling that lever now, with this
major tax overhaul?
MR. HASSETT: Right. Again, if
we become the most attractive
place on Earth to locate, which
I think we might be if you
weigh all of the factors, then
there is going to be a big increase in capital formation in
the U.S. That should be some
timely insurance this deep into
the recovery.
PAUL MORSE FOR THE WALL STREET JOURNAL (2)
Betsy DeVos says the education system has
tended to look backward rather than forward
BETSY DEVOS | ‘We have not had a state where every single parent has the power to make
that choice for their child.’
every single parent has the
power to make that choice for
their child. But in Florida,
where there are districts that
have a fairly high percentage
of students opting to go to a
school other than their assigned school, all the performance in that district has improved. So it says to me that
with even more of those options, we’re going to see even
better results ultimately.
After high school
MR. MURRAY: Now, on post-
K-12 education, it sounds like
you’d like a world that has
many more options for students than just the four-year
degree. How can we develop
vocational schools and other
kinds of options, other pathways to careers and success?
MRS. DEVOS: First of all, we
need to honor and respect
those various avenues and
pathways. To a large extent we
have stigmatized them for the
last couple of decades or
more, yet today we know that
only about 30% of students
will ultimately ever graduate
from a four-year college or
university.
We currently have 6.1 million jobs that require some
level of education beyond high
school that are unfilled. A lot
of students would benefit from
Held Back
Percentage of U.S. middle-market executives in each industry who
say a shortage of talent constrains their company's ability to grow
Health care
49%
Services
46%
Construction
46%
Manufacturing
44%
Financial services
33%
Retail trade
29%
Wholesale trade
20%
Total middle market
37%
Source: National Center for the Middle Market
survey of 1,000 C-suite executives at midsize
companies in the U.S., completed December 2016.
being exposed to learning
about those options and opportunities at a much earlier
stage. It would help kids to
learn early on whether they
like to work with their hands,
or whether they want to do
something that requires them
to sit and think all day.
MR. MURRAY: What can the
government do to seed and
fund those pathways? Is it all
up to private enterprise? Is it
all up to the states? Is it all up
to the institution?
MRS. DEVOS: It’s really important for businesses to engage
with their local community
THE WALL STREET JOURNAL.
colleges, for example, or other
local institutions. If you have
needs in your community that
are going unfilled or in your
business that are going unfilled, I’ve seen several great
examples of community colleges that have partnered with
industry in their region and
have planned out curriculum
and certifications to specifically meet those needs.
Some students enter those
programs and take nine
months to a year of a micro
degree for something, and then
they will go and work for a few
years, and then come back for
another level of education.
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THE WALL STREET JOURNAL.
R14 | Monday, November 20, 2017
JOURNAL REPORT | CEO COUNCIL
The Wrong Way to Think About Trade
Lawrence Summers on the
dangers of current policies
MR. IP: You played a part in
Nafta, the World Trade Organization, the Korea-U.S. trade
agreement and the Trans-Pacific Partnership. We now have
a president and an administration who believe that all
those things were terrible mistakes, that the U.S. has been a
loser as a result of free trade.
Are they wrong?
MR. SUMMERS: They’re wrong
because each of those were
good deals. If you looked at
how much trade barriers in
the U.S. were reduced, and at
how much trade barriers in
the other countries were reduced, in every case they were
reduced two, three, four, five
times as much in the other
countries as in the U.S.
The main thing these trade
agreements have done is to
open other markets to our
businesses and to our exports.
You don’t have to get into abstractions of free trade. If you
just look at it as mercantilism,
we’re tearing down their barriers lots more than we’re reducing any of our barriers,
mostly because we didn’t have
any barriers to start with.
What’s happened as a consequence of America’s handling of the TPP—and there’s
plenty of blame in my party
for that as well—is we’re going
to give Japanese producers
substantially privileged access
relative to American producers
in a whole variety of important
and rapidly growing markets.
Of course trade agreements
should be made in our national interest. That is the
right focus. They should not
be endeavors at altruism. Do I
think the trade agreements
we’ve had are perfect? No, of
course not. But there have
fundamentally been much
greater changes by the other
countries than ours, and if we
repeal them, other countries’
trade barriers are going to go
up much more than any kind
of protection we’re going to be
in a position to impose, and so
it’s going to hurt our economy.
MR. IP: Trump officials say
that after each of those agreements our trade deficits, with
Mexico, with China and Korea,
got bigger. They believe those
deficits are evidence that we’re
losing. In the Nafta negotiation there’s been talk about requiring the Mexicans and the
Canadians to adhere to targets
for the bilateral trade deficit.
What’s wrong with that logic?
MR. SUMMERS: Bilateral trade
deficits as a concept don’t
make any sense. I run a huge
bilateral trade surplus with
Harvard [where he is president emeritus and a professor]. I run a huge bilateral
trade deficit with my golf club.
It makes sense to think about
whether I’m selling more to
the rest of the economy than
I’m buying from the rest of the
economy. It makes no sense to
think about that entity by entity. And so I can see no logic
to the use of the bilateral
trade deficit as a concept for
judging what’s happening.
Look, we sign trade agreements with countries that
have rapidly emerging and
successful economies. That’s
why we sign trade agreements
with them. So it can’t be a
surprise that those are countries that are exporting substantially more and enjoying
rapid growth to the U.S.
That would be happening
PAUL MORSE FOR THE WALL STREET JOURNAL
Lawrence Summers was
secretary of the Treasury under Bill Clinton and director of
the National Economic Council
under Barack Obama. Thus,
many of the policies he helped
enact are now being reversed
or assailed by President Donald Trump. Mr. Summers
shared his views on current
economic policies with Greg Ip,
The Wall Street Journal’s chief
economics commentator. Edited excerpts follow.
pay for itself. Is he right?
MR. SUMMERS: Could it turn
LAWRENCE SUMMERS | ‘Bilateral trade deficits as a concept don’t make any sense.’
Feeling Strong
Americans' response to the question, "Today, which one of the
following do you think is the world's leading economic power?"
Countries of the EU
Japan
Don't know/Refused
2014
China
U.S.
41%
8%
2017
China
40%
35%
5%
7%
4%
5%
2%
Source: Pew Research Center surveys of 1,002
American adults in 2014 and 1,505 American adults in
2017 as part of the Spring Global Attitudes Survey
with or without the trade
agreement.
The clearest example is
China. In the agreement that
let China into the WTO, we did
not reduce a single tariff in
the U.S. We kept them at the
same level that they had been
for the previous 10 years. The
reason there was a trade surge
was changes that were taking
place in China, not changes in
our trade policies.
U.S.
51%
THE WALL STREET JOURNAL.
MR. IP: What happens to our
growth and our trade balances
if we exit these agreements?
MR. SUMMERS: Probably our
trade deficits go up a little bit
because of the reduced capacity to export to those countries. I think our growth,
which is determined by many,
many things—and exports to
Mexico are just not that large
relative to the total economy—
probably is a little softer than
it would otherwise be. But I
think our broad national interest is hugely affected.
There’s a risk that Mexico’s
going to elect a Hugo Chávezlike figure. And the best way
to make that maximally likely
would be for us to abrogate
Nafta in a way that proved
that all those in Mexico who
resent the U.S. are right. And
that would be catastrophic for
our broad security interest.
The biggest strategic gift
the U.S. has given to China in
the last 15 years was leading
the whole Asian region down
the path of TPP and then withdrawing, dumping them, and
leaving them disappointed.
If the U.S. were to just stop
moving forward on trade,
abandon treaties that it had
already agreed to, you won’t
see it in a huge impact on the
GDP right away, but I’ve got
very little doubt that it would
have a substantial impact on
both our security, and over the
longer term, on our economy.
MR. IP: Treasury Secretary Steven Mnuchin said the tax cut
being planned in the House
and the Senate will pay for itself. He said even if we only
get 30 or 40 basis points more
of economic growth, this will
out that growth accelerated?
Yes. If you were about [to roll]
a die and I predicted that it
was going to come up 12, I
could turn out to be right, but
it would be a crazy prediction.
I don’t think there is any
rational basis for the judgment that the tax cut will pay
for itself. There is nothing in
the experience of past tax
cuts, nor in the experience of a
large number of modeling exercises that suggest that this
tax cut would pay for itself.
I read carefully what the
secretary said here last night
and he said the Treasury had
published a study that demonstrated this. We have sought
to receive that publication,
and there is no publication.
And I would make this
judgment: I am still familiar
with the kind of models and
analysis that the career professionals at the Treasury do,
and their career professional
analysis, I am 99% certain, will
not support the judgment that
this tax cut will raise revenue.
Look, reasonable people can
differ [on how tax cuts will affect the deficit and inequality]
and there’s argument on both
sides, and that’s something
that will be worked out.
But there’s a profound responsibility for people in positions of responsibility who are
making factual claims about
the economy to have a basis
for those factual claims, when
they indicate that they’re
based on publications, to be
prepared to come forward with
those publications. And I’m
afraid I haven’t seen that from
the Treasury Department.
[In response to a query
from The Wall Street Journal
about Mr. Mnuchin’s assertion
that Treasury had published
an analysis showing that the
tax cut will pay for itself, a
Treasury official said the secretary was “referencing internal work” done in support of
Council of Economic Advisers
publications and did not mean
to suggest that Treasury had
published its own report.]
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