VOL. XXXII NO.2 MONDAY, FEBRUARY 3, 2014 The Rich and Stranded PERSONAL JOURNAL 23 DJIA 15698.85 g 0.94% Nasdaq 4103.88 g 0.47% Stoxx Eur 600 322.52 g 0.25% FTSE 100 6510.44 g 0.43% DAX 9306.48 g 0.71% CAC 40 4165.72 g 0.34% Euro 1.3501 g 0.36% Pound 1.6449 g 0.23% EUROPE EDITION WSJ.com $1.75 (C/V) - KES 250 - NAI 375 - £1.70 Investors Brace Themselves for Bumpy Ride A choppy start to 2014 un- derscores the need to play de- fense, say market veterans. Many portfolio managers are shifting away from the kinds of investments that did exceptionally well in 2013 but are vulnerable to large swings. For some, that means paring back on U.S. small- company stocks in favor of shares of large companies with growing dividends. Oth- ers are focusing on shorter- term bonds based on expecta- tions that rising economic output will lead to higher in- terest rates. The S&P 500 index gained 30% last year, amid an im- proving U.S. economy and ex- ceptionally loose Federal Re- serve policy. Even more remarkable to many observers was that declines in the stock market were generally short and shallow. Accordingly, many investors entered 2014 expecting a slower advance marked by rocky stretches—a forecast that has been borne out by a 5% decline in the Dow Jones Industrial Average since the beginning of the year. After last year’s big rally in stocks, the market this year might gain “8% to 10%, but it’s going to be a hard 8% to 10%,” says Robert Smith, chief investment officer at Sage Advisory Services, which manages $10 billion out of Austin, Texas. “Investors are going to have to be really careful.” Tumult in emerging mar- kets has been the catalyst for the recent bout of indigestion, along with the Fed’s steps to pare back stimulus known as quantitative easing. When the central bank was pumping $85 billion a month into financial markets last year through purchases of bonds, extremely low interest rates—and expectations they would stay low—gave inves- tors more confidence about taking on riskier investments. But the Fed has set plans to trim its monthly purchases to $65 billion and has sig- naled that it expects further cuts in 2014. Many investors say the pullback is reducing Please turn to page 20 By TomLauricella, Kaitlyn Kiernan and Katy Burne In ‘frontier markets,’ gains continue........................................ 18 Angry Thais who were unable to cast votes in Sunday’s national election waved ballot papers in protest outside a Bangkok polling station. Opposition activists disrupted polling in 11% of Thailand’s electoral districts, making it impossible to gain a final tally. Article on page 3 Fury as Thais Miss Voting Opportunity in Election Chaos Getty Images U.S. Widens Probe Into Libya Deals The Justice Department has joined a widening investi- gation of banks, private-eq- uity firms and hedge funds that may have violated anti- bribery laws in their dealings with Libya’s government-run investment fund, people fa- miliar with the matter said. In recent months, the Jus- tice Department has stepped up its involvement in a joint probe with the Securities and Exchange Commission that began in 2011 and initially homed in on Goldman Sachs Group Inc. Prosecutors could file criminal charges against some or all of the firms this year, people familiar with the matter said. The Justice De- partment’s involvement hasn’t been reported previously. Federal investigators are examining private-equity firm Blackstone Group LP and hedge-fund operator Och-Ziff Capital Management Group LLC, along with Goldman Sachs, Credit Suisse Group AG, J.P. Morgan Chase & Co. and Société Générale SA, these people said. Spokesmen for the Justice Department and the SEC declined to com- ment. Authorities are examining investment deals made during and after the financial crisis, these people said. In the years leading up to Libya’s 2011 rev- olution, Western firms—en- couraged by the U.S. govern- ment—raced to attract investment money from the North African nation, which was benefiting from oil sales and recently had opened to foreign investment. Investigators are trying to determine whether the firms violated the Foreign Corrupt Practices Act, the people said. The 1977 law prohibits U.S. companies and companies listed on U.S. stock exchanges from paying bribes to foreign officials. U.S. authorities con- sider employees of state- owned investment funds, such as the Libyan Investment Au- thority, to be foreign officials. In most FCPA cases, the U.S. leans heavily on compa- nies to investigate themselves and turn over documents and other evidence of corrupt payments, but seldom do prosecutors have access to the paper trail overseas. The toppling of the Libyan govern- ment in 2011 provided an op- portunity for the new regime to dig into the conduct of for- mer Libyan leader Moammar Please turn to page 18 By Joe Palazzolo, Michael Rothfeld and Justin Baer EUand U.S. Plan Kiev Aid Package MUNICH—The European Union and the U.S. are work- ing on a plan for significant short-term financial assis- tance for protest-torn Ukraine, EU foreign-policy chief Catherine Ashton said Sunday. U.S. officials said the pre- liminary discussions under way with the EU call for the two to provide economic support in tandem to a tran- sitional Ukrainian govern- ment as it works with the In- ternational Monetary Fund. While the U.S.-EU aid package would be linked to significant economic and po- litical reforms, it wouldn't be conditioned to Ukraine first signing a long term Interna- tional Monetary Fund deal, Baroness Ashton said. Previ- ous offers of one-off Euro- pean aid have had that con- dition attached. Baroness Ashton, who is due to travel to Kiev again in the next 48 hours, said the aim of the package would be to help Ukraine get through a transition period during which a broad-based interim government could drive through key political and economic reforms and pre- pare the ground for presi- dential elections, currently due next year. News of the proposed aid Please turn to page 5 BY LAURENCE NORMAN AND ADAM ENTOUS Inside Among Janet Yellen’s critical decisions after taking over the reins of the Fed is when to start lifting interest rates. U.S. News....................7 The U.K.’s deep current-account deficit is worrisome despite the recovery. It could warn of trickier days to come, writes Simon Nixon. Europe File.......................................................... 4 Heard on the Street: The EU’s bonus quandary..........…28 A tortured protest leader describes his ordeal ............... 5 28 | Monday, February 3, 2014 THE WALL STREET JOURNAL. HEARDON THE STREET Email:
[email protected] FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard No Blues On Banks’ Bonuses Set a rule for bankers and they will eventually find a way around it. Set a rule about their pay and they will redouble their efforts. That is what the European Union is discovering with its plans to cap bankers’ bonuses. The politicians want to keep bonuses down to less than twice a bank employee’s an- nual salary. That, they sug- gest, would help soften the aggressive risk-taking culture at banks that can ultimately contribute to dangerous fi- nancial instability. But Goldman Sachs Group—who else?—has come up with a plan to ensure its European workers don’t miss out. Goldman’s plan looks simi- lar to those suggested by other banks to get around the bonus cap. The idea is to pay staff allowances based on their role in the bank. Special- ists in pay said the allowances could be adjusted monthly, thus keeping the variable as- pect of bonuses. But they could be treated as fixed pay for regulatory purposes, eas- ing the effect of the cap. The image of bankers queuing for their monthly al- lowances like children getting their pocket money may cause some chortling. But the idea seems to have some sense, too. For example, if a bank has a bad year or quarter, it would prove easier for it to adjust costs by reducing monthly allowances than by reducing salaries. But the tussle over bo- nuses may be becoming less relevant anyway. The reality facing banks is that their in- dustry is going to be structur- ally less profitable, whether through requirements to hold more capital or the increased commoditization of their products. Investors, meanwhile, are looking for greater reward in terms of higher dividend pay- outs. All these pressures suggest compensation levels will have to moderate over time. This trend already may be in place. Early data from five banks in London—Goldman, Citigroup, Morgan Stanley, Credit Suisse Group and Bank of America—show over- all compensation for bankers rose 7% last year, according to benchmarking website Emoulment.com. But pay for top managing directors has fallen 7%, while the ratio of their bonuses to salary has dropped to 123% from 140%. It is hardly time to get the violins out. But bankers will have to face up to new reali- ties, whether the EU demands it or not. —Andrew Peaple Red Alert on Russia Premature A case of mistaken iden- tity? Russia hasn’t escaped the recent emerging-market tur- moil. The ruble has been a poor performer, falling some 7% against the dollar this year. And with investors won- dering whether the turmoil in countries such as Turkey could lead to wider systemic problems, Russia presents a potential cause for concern, both because of its size and turbulent history. But Russia in some ways doesn’t match the profile of countries in the market cross hairs. The focus on countries like Turkey has been due to their large economic imbal- ances: big current-account and budget deficits, coupled with unorthodox monetary policy. These have looked vul- nerable in light of the Federal Reserve’s decision to taper its bond purchases, causing in- vestors to pull back from mar- kets that have been buoyed by global liquidity. Russia has come a long way since 1998, however, when its default led to the im- plosion of U.S.-based hedge fund Long Term Capital Man- agement, which reverberated through Wall Street. Russia ran a current-account surplus of 1.5% of gross domestic product in 2013 and a budget deficit of just 0.5% of GDP. Reserves are solid at $497 billion. And the country hasn’t been a magnet for hot-money inflows. From mid-2009 to the end of 2012, when emerging markets were a favorite desti- nation for investors, portfolio inflows were just 1% of GDP, according to Morgan Stanley, versus 10% of GDP for Turkey. Not that Russia is without issues. Two loom large: its rel- atively lackluster economic prospects and unfortunately timed push to liberalize its foreign-exchange system. The current-account sur- plus has shrunk and may yet turn into a deficit. Growth has slowed since the global finan- cial crisis and was just 1.5% in 2013. Despite that, inflation is proving tricky to bring down to target. Some Russian officials warn the country faces stagfla- tion. Russia remains reliant on oil and gas revenues and it still hasn’t done enough to attract investment that might help di- versify its economy. Russia also is unlucky in that it has chosen now to in- crease exchange-rate flexibil- ity, with the aim of moving to a floating-rate system by 2015. In the long term, this is likely to be a positive development. But changes to the relatively complex system, which cou- ples a moving currency band with interventions at preset thresholds, may be adding to the pressure on the ruble and increasing volatility. The slide in the ruble is a double-edged sword. Depreci- ation will increase the local- currency value of oil revenue, helping the budget. Yet oil and other commodities dominate exports. Increased demand for other exports due to a weaker currency won’t be enough to make a big difference. Moreover, if the ruble con- tinues to fall steeply, it could cause tensions in a country that has seen repeated painful currency crises. In 1998, when Russia defaulted, the ruble lost 70% of its value against the dollar; in 2008-2009, it lost 55% against the dollar, ac- cording to RBS. The move this year in the Russian central bank’s ruble band against the euro and dol- lar is the fastest since 2009 and may evoke memories of those previous devaluations for the population, notes RBS. A big threat to the ruble could yet lie in a surge in demand by Russians for foreign currency. Russia’s central bank, like many emerging-market cen- tral banks, has a tricky task. Slow growth means it is un- likely to want to raise rates, but currency weakness could prove inflationary. One option is for the central bank to pause in its progress toward a free-floating ruble. If the pres- sure increases, that might be a handy safety valve. Investors mindful of Rus- sia’s importance to emerging markets are right to keep a sharp eye on its currency. They shouldn’t assume, though, that it is destined to repeat the problems of the past. —Richard Barley Amazon Isn’t Just for Christmas At Amazon.com, it is all about the top line. Making profits has long taken a back seat at the e-com- merce company to the goal of dominating as large a share as possible of overall consumer spending. And investors have been willing to give Amazon a pass, providing it keeps push- ing into new businesses and increasing revenue. So Wall Street was surprised when Amazon reported late Thurs- day that the rate of revenue growth for the all-important fourth quarter had slowed. In- vestors sent Amazon’s shares down more than 9% Friday. The alarm may be unwar- ranted. Amazon’s revenue rose 20% year over year to $25.6 billion in the quarter. That compares with 23% growth in the third quarter, 22% in the second and 21% in the first. Yet a look back at the fourth quarter of 2012 shows a simi- lar deceleration. Sales that quarter rose 22% compared with 27% in the third quarter of 2012. What is going on with Am- azon’s fourth-quarter sales? One explanation is that the company’s Prime subscribers and the sizable percentage of revenue they drive may be changing the seasonality of Amazon’s business. Carlos Kirjner, an analyst with Sanford C. Bernstein, esti- mates more than half of items shipped by Amazon go to sub- scribers who pay for the $79- a-year membership that comes with free two-day shipping. And because they tend to spend more in categories such as consumables—paper towels and batteries, for example— their spending patterns may be less seasonal than non- Prime users. Another, less sig- nificant, factor may be the less seasonal revenue stream from the Prime fee itself. This amounts to $2.5 billion to $3 billion a year, Mr. Kirjner esti- mates. Commerce Department fig- ures seem to back up the sea- sonality argument. Sales at nonstore retailers, a category driven by changes in online sales, were up 9.1% in the fourth quarter from a year ear- lier. That was actually a bit better than 2012’s fourth-quar- ter gain of 8.8%. But it also counted as the slimmest quarterly gain of last year. In the third quarter, non- store sales rose 11%. The problem: Investors may have seen that as a pre- lude to blowout online holiday sales, rather than recognizing it as a shift in online shopping patterns. Granted, more aggressive discounting and promotions from other retailers around the holiday season also may be affecting Amazon’s fourth- quarter results. But among competitors, the usual sus- pects don’t seem to have bene- fited much. Wal-Mart Stores warned Friday that U.S. comparable- store sales fell slightly during the quarter. Best Buy, Sears Holdings and Family Dollar Stores also have reported weak holiday sales. Any effects of the Prime program on sales patterns also could diminish if Amazon de- cides to raise its price by $20 to $40 a year, as it is consider- ing, and people decide to quit. But the effect of attrition on sales might be partially offset by higher revenue from fees. The fourth quarter will probably always be Amazon’s biggest. But Amazon watchers hoping to predict the com- pany’s performance may have to adjust their expectations. —Miriam Gottfried Tisn’t the Season Amazon’s fourth-quarter revenue as a percentage of annual revenue The Wall Street Journal Source: FactSet 40 32 34 36 38 % ’10 2009 ’11 ’12 ’13 Mercedes Gets Polish in China Mercedes-Benz may be one of the world’s most recogniz- able car brands, but it has had trouble getting noticed in China. Now, Mercedes is mov- ing to change that. Much will depend on how the German brand’s China partner makes use of new capi- tal. China’s state-owned BAIC Motor plans later this year to raise about $2 billion in a Hong Kong share sale, accord- ing to The Wall Street Journal. Daimler, which owns the Mer- cedes brand, manufactures and markets luxury cars through a joint venture with BAIC and owns 12% of the Chinese auto company. Daimler has much to repair in China. Until recently, it was selling cars through two distri- bution networks that competed against each other. Its after- sales service scored poorly in surveys by J.D. Power, while analysts say the cars were too richly priced and then had to be heavily discounted. On top of it all, Mercedes is often viewed as an old person’s car, unlike the more fashionable BMW or Audi, says Macqua- rie’s Janet Lewis. Mercedes sales were essen- tially flat in 2012 and increased only half as fast as rivals’ in 2013, otherwise a blockbuster year for Chinese autos. Its share of the luxury market slumped to 15.5% in 2013 from 20.3% in 2011, as Audi and BMW tightened their grip, ac- cording to LMC Automotive. To change its stuffy image, Mercedes is set to launch 13 new or refurbished models in the next two years, including a sedan and a compact SUV that should attract younger con- sumers. BAIC’s IPO also will help. The Chinese car maker will use the share-sale proceeds to shore up its balance sheet, says a person familiar with the mat- ter. This may help BAIC put more money into the Daimler joint venture. That means lo- calizing more production to bring down costs and boost Mercedes’s China margins, which are about half those of BMW. The good thing about com- ing from behind is that there is upside for Daimler investors. China’s contribution to Daim- ler’s overall revenue was just 9.4% in 2012. BMW generated double that. Even getting halfway to its competitors’ exposure to China will give Daimler investors a better ride. —Abheek Bhattacharya Source: ICAP The Wall Street Journal Ruble’s Retreat Performance against the U.S. dollar 0 –25 –20 –15 –10 –5 % 2013 ’14 Turkish lira Russian ruble Kremlin in Red Square, Moscow R e u t e r s With a current-account surplus and solid reserves, Russia doesn’t match the profile of countries in the market’s cross hairs. 2 | Monday, February 3, 2014 AM IM UK SW FR IT SP TK BR PL IS AE GR THE WALL STREET JOURNAL. PAGE TWO Friday’s jobs report could very well show the U.S. unemployment rate fell again in January—this time perhaps in part because federal jobless benefits have ended. A drop related to the expiration of the program would likely reflect two shifts. Some number of jobless may have stopped looking for work and therefore aren’t counted as unemployed. Others may have taken jobs they would have turned down if benefits had continued. Several recent research papers suggest the first shift—people dropping out of the labor force— could be the more significant of the two. Both factors could provide fodder for policy makers debating whether to extend the program. Of course, the unemployment rate could also fall because more people find jobs, independent of the effect of federal jobless benefits ending. Nearly 1.4 million people lost payments when the federal benefits expired on Dec. 28. Launched in the middle of the recession, the program paid on average $300 a week—for up to 47 weeks—to jobless Americans who had exhausted the roughly 26 weeks of aid most states provide. The Labor Department estimates there are an additional 3.6 million people who would have qualified for the program this year once exhausting their state benefits. Senate Democrats plan to bring up a bill as early as this week to extend the program for three months; its prospects for becoming law are uncertain. Even if the bill passes the Senate, many House Republicans are deeply skeptical of the program. Many economists say the end of the federal benefits program will drive down the unemployment rate in coming months. The rate was 6.7% in December, and the figure for January will be released Friday. The average prediction of economists surveyed by The Wall Street Journal last month was that the unemployment rate would fall to 6.4% by June if the benefits program wasn’t extended, compared with 6.6% if it was. Some job seekers will give up the search when they run out of benefits, research suggests. To get state jobless benefits—and federal benefits when they were in effect—recipients have to keep applying for jobs. Some who believe they face long odds finding a job may figure it is still worth the effort if they are receiving benefits, said University of California at Berkeley economist Jesse Rothstein, who has studied the issue. “But if there’s no benefits attached to it, then they just drop out,” he said. Others will find a job, perhaps because they are more willing to take one that pays less than they wanted. Kristen Kippel-Gonzalez of San Diego said she started off looking for positions that matched her skills and former $55,000 salary when she lost her job in May. The longer she went without work, the more she lowered her sights, and when she lost her jobless benefits at the end of December, “my whole mind-set shifted to ‘I guess I need to do anything to put food on my table,’ ” said the single mother of two. To be sure, others who have lost benefits will continue to look for work until they find something that matches their skill set or wage requirements, and they will continue to be counted in the unemployment rate. It isn’t good for the economy if throngs of engineers take jobs as janitors just because they need a paycheck, said Dean Baker, co- director of the Center for Economic and Policy Research, a left-leaning Washington think tank. “Part of the story of unemployment insurance benefits is that we want to give people a chance to find a job that actually uses their skills,” he said. On the other hand, Mr. Baker said, it’s likely some of the long- term unemployed can’t find work because there is no demand for their skills. When such people take a less desirable job, it may be unfortunate for them but it isn’t a negative for the economy, he said. The federal program’s expiration may take time to show up in jobs data, especially if job seekers hope are betting that Congress will restore the benefits, said BNP Paribas economist Bricklin Dwyer. He said it took three to four months to see movement in North Carolina after extended benefits were cut off in the state in July because its unemployment insurance program failed to meet federal guidelines. The Tar Heel state’s unemployment rate plummeted from 8.9% in July to 6.9% in December, the steepest drop of any state in that period and faster than the national rate. Some people found work: Employment in the state increased 1.28% since July, compared with just 0.21% nationally. But plenty of others stopped looking, sending the state’s labor force participation rate—the share of adults holding or seeking jobs—down 0.8 percentage point to 61.2% in December, from 62% in July. The national participation rate fell 0.6 percentage point in that period to 62.8%. Economists caution it is tough to extrapolate from one state’s experience to the entire U.S. labor market, but many see it as a test case of what might happen more broadly. Whether the impact of the national program’s end shows up in Friday’s figures or later, it could muddy the already opaque waters of the U.S. labor market. The Dark Cloud Behind A Falling Jobless Rate [ The Outlook ] BY VICTORIA MCGRANE Source: U.S. Labor Department The Wall Street Journal Muddled Picture The jobless rate has been trending down in the U.S., but this is partly because of the falling labor force participation rate. In North Carolina, federal jobless benefits ended in July 2013. Unemployment rate Labor force participation rate 68 60 62 64 66 % ’07 ’08 ’09 ’10 ’11 ’12 ’13 U.S. 12 0 3 6 9 % ’07 ’08 ’09 ’10 ’11 ’12 ’13 North Carolina North Carolina U.S. 62.8% 61.2% 6.7% 6.9% July i i i Business & Finance n Microsoft’s Satya Nadella is on the brink of being chosen to pilot the tech giant as it seeks to regain ground after years of waning influence. 15 n Samsung Electronics’ effort to roll out its own smartphone operating system is faltering as some major wireless carriers withdraw their support. 15 n Buoyed by strong credit ratings and rising deposits, Asian banks have become big- ger global players. 15 n Three of Spain’s largest banks have stronger balance sheets in an improving domes- tic economy but are still pay- ing dearly for the country’s real estate bust. 19 n Etihad is conducting the fi- nal phase of due diligence re- lated to the potential pur- chase of a stake in Alitalia, with the Abu Dhabi airline setting a deadline of 30 days to complete a deal. 16 n Buyout specialist KKR is set to open its first office in Spain, as it specialist seeks to build on its billion-euro stake in the country. 16 i i i World-Wide n The six powers negotiating a nuclear deal with Iran will take the time needed even if that means going beyond the six-month objective, the EU’s foreign-policy chief said. 9 n Hungary’s left-leaning op- position rallied against the government’s surprise decision to have Russia expand a Hun- garian nuclear power plant. 4 nA panel looking at changes to Myanmar’s constitution says most people who weighed in don’t want to alter the clause that prevents Aung San Suu Kyi from assuming the presidency. 8 n Afghanistan’s presidential campaign kicked off, as the leading contenders wooed crowds and insurgents assassi- nated two campaigners. 9 n Australia approved plans to dump vast amounts of mud and rock into oceans surround- ing the Great Barrier Reef, pav- ing the way for developers to expand a coal port. 8 n At least 15 people died after being caught in a flow of su- perheated ash and gases on In- donesia’s Mount Sinabung. 8 What’s News— SUBSCRIBE TODAY Advertising Sales worldwide through Dow Jones International. 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[email protected] WEB service.wsje.com CALL +44 (0) 20 3426 1313 VISIT wsjeuropesubs.com/wsje Some job seekers will give up when benefits run out, research suggests. RESORT • SPA • DRIVEN EXPERIENCES RESORT • SPA • DRIVEN EXPERIENCES 855-520-3378 gatewaycanyons.com “A magnifcent location for uniquely-inspiring luxury retreats.” Forbes Travel Guide THE WALL STREET JOURNAL. Monday, February 3, 2014 | 27 OFF THE WALL How to Stitch Together a Quilting Empire Short Cuts, YouTube Make Jenny Doan a Star; Speedy Methods Put a Bee in Some Purists’ Bonnets ‘How many of you were saying: NO, No…don’t do that!’” said Mo- nique Atkinson, a 53-year-old quilter from Quebec. “I thought it was just hilarious!” In 2009, Al Doan and his fam- ily decided Missouri Star could be a serious business. They noticed that his mother’s video fans would want to use the precise fabric she showed in a tutorial. So they began stocking up on those fabrics to sell. “One day, we got eight sales in one day,” Mr. Doan recalled. “We were so excited.” Almost five years later, Mis- souri Star sells an average of 1,000 orders a day. Mr. Doan won’t divulge the company’s reve- nue, but noted the business in- vested $750,000 last year to up- grade its buildings, and now employs 80 workers. Along the way, Hamilton has become a tourism destination for the quilting crowd. Most days, 50 to 100 visitors arrive to meet Mrs. Doan and members of her family in their 5,000-square-foot main shop. City Administrator Dale Wal- lace says the tourism is great, and that maybe the town just needs to patch up its array of amenities. “For example, we really need to find something for the men to do,” he said of the husbands who sometimes come in tow with their quilting spouses. “Maybe we’ll put in a gun shop.” For now, Hamilton Hardware, once the location of the 500th de- partment store in Mr. Penney’s re- tail chain, serves as a way station for bored spouses. “The quilters don’t come in, but their husbands do,” said owner Eddie Ernat. “We have some pretty neat conversa- tions.” BY JIM CARLTON Hamilton, Mo. Online >> Watch clips from Jenny’s quilting videos at WSJ.com/OffTheWall. Jenny Doan, Missouri Star Quilting Co. star of YouTube tutorials on quilting, draws as many as a million viewers. J i m C a r l t o n / T h e W a l l S t r e e t J o u r n a l town 105 kilometers northeast of Kansas City, Mo., with their seven children. “We literally picked a place in the middle of the U.S.,” she says. Her husband landed a job as a machinist for a local newspaper, but by 2008 his shop had been cut from 25 people to five. “It wasn’t a question of if I lost my job, but when,” says Mr. Doan, 60. Concerned for their parents’ future, two of their grown chil- dren, Al Doan and Sarah Gal- braith, that year took out a $36,000 loan to buy their mother a professional quilting machine. “We were thinking if we didn’t do something, Mom is living in our basement when she gets old,” says Mr. Doan, 31. To accommodate the 3.7-meter-long ma- chine, the younger Mr. Doan and his sister spent $24,000 buying a former antique store for their mother to work in. Not long after she got it up and running, Mrs. Doan says, her family noticed quilting searches were a hot topic on the Internet. “Al said, ‘Mom, we need to do tutorials,’ ” she recalled. “I said, ‘Sure. What’s a tutorial?’ ” Their first, shot in her clut- tered shop in February 2009, didn’t go well. Mrs. Doan tripped on an electrical cord and broke her leg. She still managed to gri- mace through the video. “She was so awkward,” her son says. Subsequent efforts were bet- ter. Mrs. Doan turned on the charm, sometimes hamming it up. She started an “Iron Quilter” competition, mimicking the Food Network’s “Iron Chef” cooking contest, with two of her daugh- ters squaring off in samurai-style bandannas. About 500 people sent in pictures of entries. In the precise craft of sewing, Mrs. Doan isn’t always the most polished instructor, but that just seems to add to her appeal. “One time, she was making a quilt block but she almost cut it wrong…and she laughed and said, T his tiny farm town used to be known as the home of James Cash Penney Jr., founder of the namesake depart- ment store chain. These days, it is better known in some circles as the home of Jenny Doan. Those would be quilting cir- cles. Over the past few years, Mrs. Doan, 57 years old, has become a veritable superstar of the craft. Her YouTube tutorials on how to make quilts have drawn as many as a million viewers, some from as far away as South Africa. Her family’s Missouri Star Quilt Co. gets as many as 30,000 orders a month for pre-cut patches and other quilting sup- plies. The 5-year-old company has become the second-largest em- ployer in this town of 1,800, its operations covering a patchwork of formerly vacant downtown buildings that include a “sleep and sew” retreat hotel. Fans stop Mrs. Doan for autographs. “I can barely go to Wal-Mart without someone recognizing me,” she says. The key to Mrs. Doan’s popu- larity: she appeals to “instant gratification” quilters. “I don’t teach people how to be the best quilter,” she says. “I teach them how to do it the easiest.” Instead of the weeks or months often required to com- plete a quilt, Mrs. Doan’s method teaches how to make one in as lit- tle as a day—by using a variety of pre-cut fabric patches a quilter otherwise would have to painstak- ingly snip out and stitch to- gether. She also supplies the materials to do so. “I’ll show you something that makes it look like you worked really hard,” she says. That simpler pro- cess was the appeal for Carmen Leticia Attie, a psychotherapist from Mexico City, who learned to quilt in 2010 by watching Mrs. Doan’s videos. She also found Mrs. Doan’s breezy style less intimidat- ing than that of other quilting tu- tors. “She makes you feel as if it is not only possible, but easy.” Some quilters reject the short- cuts, saying it takes away from the history of the craft. “Tradi- tional quilting is the historical way to do it,” said Linda Court- ney, a shopkeeper from Stewarts- ville, Mo., who learned quilting from her mother. Bonnie Browning, executive show director of the American Quilter’s Society, said interest in quilting has been on the rise, es- pecially people wanting to learn via the Internet. One reason Mrs. Doan is so successful, she said, is she was one of the first quilters to start making online tutorials. Today, there are several, teaching various approaches. “You know what, there’s a place for everyone in the quilter’s world,” said Mrs. Browning, whose group is based in Paducah, Ky. Among America’s estimated 21 million-plus quilters, Mrs. Doan is a relative newbie. She didn’t take up the hobby until 1997, shortly after she and her husband, Ron, left California to move to this WATCH NOW DAVOS 2014: TWO FREE WEBCASTS FROM THE WALL STREET JOURNAL AND FINANCIAL NEWS The Wall Street Journal and Financial News invite you to join two insightful discussions from The World Economic Forum 2014, The Reshaping of the World: Consequences for Society, Politics and Business. DAVOS OUTLOOK: JANUARY 22, 11AM GMT Join the top editors of WSJ and FN as they discuss the topics that will drive the 2014 global agenda in Davos and beyond. DAVOS DOWNLOAD: JANUARY 27, 11AM GMT Conclude Davos with our editors as they debate the key issues that dominated the forum. REGISTER ONCE FOR THESE TWO FREE WEBCASTS: WSJ.COM/DAVOSWEBCASTS THE WALL STREET JOURNAL. Monday, February 3, 2014 | 3 NEWS Thai Protests Disrupt National Election BANGKOK—Thailand’s national elections were marred by violence over the weekend as gunshots and explosions rang out and protesters blocked voting stations in the capi- tal, leading to an inconclusive poll that has done little to resolve a deep political stalemate. Voting was disrupted in 11% of electoral districts, making it impos- sible to tally final results, said Supa- chai Somcharoen, chairman of the country’s Election Commission. The question for Thailand now is whether Prime Minister Yingluck Shinawatra’s government will be able to hold by-elections in areas where people were unable to vote, or whether her opponents have bought themselves enough to time to force her from office through po- tential legal challenges. Clashes between political rivals marred the voting in parts of Bang- kok and in southern Thailand, where opposition to Ms. Yingluck runs deep and antigovernment protesters vowed to prevent the ballot from going ahead. The standoff turned violent on the eve of the vote when a gunbattle between rival factions erupted on the streets of the capital, injuring seven people. More police and army troops were deployed to help the election go smoothly. Scores of security per- sonnel were stationed in Ms. Ying- luck’s neighborhood in northern Bangkok, where she cast her vote. “I want to urge people to come out to vote to protect democracy,” she told reporters. Later, she said that she was relieved there was no further violence. Tensions ran high in some parts of Bangkok, though there was no re- peat of the previous day’s gunbattle that set the city on edge. Demonstrators blockaded a num- ber of polling centers and prevented the distribution of ballot sheets, in- cluding in the Din Daeng neighbor- hood, where clashes between pro- testers and police in December resulted in two deaths. In the morning, a group of resi- dents marched toward the protest- ers demanding their right to vote, but were repelled by activists, some of whom threw water bottles and other objects. “I want to vote. I want to exer- cise the rights that belong to all Thai people,” said 63-year-old Narong Meephon. “A half-baked de- mocracy is still better than nothing at all.” Sunday’s elections were among the most contentious this pivotal Southeast Asian country has seen. For weeks, demonstrators led by former deputy Prime Minister Suthep Thaugsuban had campaigned to stop the vote. They want Ms. Yingluck, 46, to step down and allow an unelected interim government to take over and push through reforms to check the influence of populist leaders, es- pecially the man many people be- lieve controls power in Thailand, Ms. Yingluck’s elder brother Thaksin Shinawatra, who was ousted in a military coup in 2006. The opposition Democrat Party boycotted the vote and joined the protesters in an effort to reduce voter turnout and undermine the le- gitimacy of the poll, which has also illustrated deep geographical divi- sions in the country. In central Bangkok thousands of people turned out to celebrate what they viewed as the failure of the elections and another success in their campaign to force Ms. Ying- luck from power. Many danced, clapped and blew whistles as pop groups blasted out hits such as the theme from the “Hawaii Five-O” television show. But while the election was dis- rupted, it isn’t over yet. Pongthep Thepkanchana, a minister in Ms. Yingluck’s office, said he had asked the country’s independent Election Commission to set a new date for polls in areas where residents were unable to vote Sunday. Somchai Pagapasvivat, an inde- pendent commentator and scholar, said the government would push hard to complete voting until a new parliament can be formed; Thai laws require 95% of seats to be filled while at the moment the election can fill 94% at most. “Elections are the only means to give Ms. Yingluck legitimacy,” Mr. Somchai said, adding that also means that antigovernment protest- ers would likely try to continue blocking tactics. “The deteriorating economy and the public will put pressure on the government to con- sider some kind of reform or com- promise.” Meanwhile, legal challenges to Ms. Yingluck’s political survival are piling up. Thailand’s anticorruption agency is fast-tracking an impeach- ment case against her for allegedly ignoring massive losses to the state relating to a multibillion-dollar rice subsidy. More than 300 members of her Pheu Thai Party also face im- peachment trials for allegedly vio- lating parliamentary rules when pushing for an abortive amnesty bill that would have enabled Mr. Thak- sin to return to Thailand after flee- ing the country in 2008 to escape a corruption conviction he says was politically motivated. —Wilawan Watcharasakwet, Warangkana Chomchuen and Nopparat Chaichalearmmongkol contributed to this article. BY JAMES HOOKWAY Thai Prime Minister Yingluck Shinawatra prepares to cast her ballot at a polling station in Bangkok on Sunday, A s s o c i a t e d P r e s s Dating in Korea Sometimes Transcends the Divide SEOUL—North Korean women often risk their lives to defect to the South, crossing the heavily guarded Chinese border on foot before be- ginning a lengthy resettlement pro- cess. Then comes the loneliness. When Na Soo-yeon arrived in Seoul in 2008 after fleeing North Korea, she found herself alone in an unfamiliar society where she knew no one. To ease her solitude, she sought a husband from South Korea who could provide companionship and help her adjust to life in the South. “I just wanted a good guy who was financially stable and could guide me through life in South Ko- rea. Everything is so different here,” said Ms. Na, 48 years old. Like many North Korean women who have defected to South Korea, she turned to a marriage agency. Pairing couples for marriage is a sizable business in South Korea, and several companies focus exclusively on matching North Korean women with South Korean men. Demand for these services is born of some unique demographics: a majority of the more than 26,000 North Korean refugees who have settled in South Korea are women, while large numbers of South Ko- rean men who live in rural areas and work blue-collar jobs fail to find South Korean wives. The flow of North Korean refu- gees has fallen sharply in the past two years following a border crack- down by dictator Kim Jong Un, data from South Korea’s Unification Min- istry show. New arrivals of North Koreans into South Korea totaled 1,516 last year, less than half as many as in 2011. Women from North Korea still account for around three of every four defectors arriving in the South. The skew reflects the fact that it is easier for women to go unnoticed for days in North Korea, where most men must report regularly at their workplace. The company that paired Ms. Na with her husband is run by Hong Se- ung-woo, who says one of his com- pany’s goals is to help North Korean women settle happily in the South. “For the North Koreans who come here, their main goal is to make South Korea their home. To do that, they need to build a network that can support them,” says Mr. Hong, who himself married a woman from North Korea. Mr. Hong has operated his company, Namnam Buknyeo, since 2006 and says the firm has orchestrated 450 marriages in that time. Women can register for Namnam Buknyeo’s services free, while men have to pay a fee of 3 million won (about $2,800) for introductory meetings with a maximum of five women over the course of one year. The company screens all of its male clients, and men who are unem- ployed, already married or disabled aren’t eligible. Some South Korean men seek North Korean wives instead of those from elsewhere in Asia because of shared language and customs. Ko- rean conventional wisdom also has it that the most handsome Korean men hail from the South and the prettiest women from the North. The name “Namnam Buknyeo” is an abbreviation of the Korean expres- sion for “Southern man, northern woman.” Mr. Hong met his wife, Ju Jeong- ok, when she signed up for his com- pany’s services shortly after settling in South Korea in 2012. He says that on their first date, he knew right away that he wanted to marry her. “I was considering several women at the time, but she was really pretty, and seemed so kind and genuine that I was sure I would ask her to marry me,” said Mr. Hong. Lim Soon-hee, a researcher at the Korea Institute for National Uni- fication, says that a lack of familiar- ity between South Korean men and North Korean women can lead to misunderstandings that cause prob- lems during marriage. “North Korean women see South Korean men on TV dramas and imagine that their husbands will be romantic and take care of them, while South Korean men think that North Korean women are obedient. Once these fantasies are broken, both parties can end up disap- pointed and hurt,” says Ms. Lim. Na Hyang-sook, 36, who arrived in South Korea in 2008 and found her husband through an agency in March, said seeking a partner through a company was helpful as it clarified both parties’ intentions at the outset. “I think going through the agency was better than just meeting someone randomly, because it meant we could begin with similar expectations,” said Na Hyang-sook. Critics say the companies exploit the North Korean women in the name of profit. Lee Young-seok, di- rector of external affairs for Citi- zens’ Alliance for North Korean Hu- man Rights, says marriage agencies emphasize the government-allotted benefits that North Koreans are privy to when pitching their compa- nies’ services to South Korean men. Mr. Hong of Namnam Buknyeo denies ever presenting the benefits received by North Korean women as incentives for his South Korean cli- ents. “Those companies market North Korean women like they were commercial goods. It is dehumaniz- ing. They tell men that the North Korean women are a good option because they already have a house and because their families are in North Korea so they won’t be bur- dened by having to take care of them,” said Mr. Lee. When North Korean refugees ar- rive in South Korea, after a lengthy interrogation and resettlement pro- cess, they are provided by the South Korean government with several thousand dollars to start their lives, along with money for housing and vocational training. BY STEVEN BOROWIEC Hong Seung-woo met his wife, Ju Jeong-ok, through his own agency. M a t t D o u m a f o r T h e W a l l S t r e e t J o u r n a l 26 | Monday, February 3, 2014 THE WALL STREET JOURNAL. HEARD ON THE FIELD SPORT Soccer’s Window of Discontent Liverpool and Juventus Fall Victim to Europe’s Winter Transfer Maelstrom On Friday evening, Ian Ayre found himself in his own personal episode of “24”—minus the terror- ists and torture but with the same drama, uncertainty and ticking clock. Ayre, the managing director of Liverpool, was at the Grand Hotel Ukraine in Dnipropetrovsk trying to sign Yevgen Konoplyanka, the local soccer club’s star attacking mid- fielder. He had agreed to personal terms with the player and his father, who also acts as his agent. Now it was a question of sealing the transfer con- tract with his club, FC Dnipro and, crucially, getting it done before the January transfer window—one of two periods of the year when Eu- rope’s clubs are free to buy and sell players—slammed shut at 1 a.m. lo- cal time (11 p.m. back in England). If no deal was completed by that witching hour, Konoplyanka would remain at Dnipro and Ayre would make the long trip back to Liverpool empty-handed. To help expedite matters, Ayre had flown Liverpool’s club doctor, Zafer Iqbal, to Dnipropetrovsk so that he could conduct a medical ex- amination of the player ahead of the deadline. What happened next depends on who you choose to believe. According to reports in Liver- pool, FC Dnipro’s billionaire owner Ihor Kolomoyskyi simply refused to sign the paperwork. An equally plausible explanation, offered in Ukraine, is that Konoplyanka’s price ballooned at the last minute, some- thing that would not surprise an Economics 101 class. Having already invested time, ef- fort and money to sign the player and with only hours to go, it wouldn’t be a surprise if he sud- denly became more expensive than Liverpool thought. Either way, the transfer wasn’t concluded. Ayre and Iqbal flew home without their man. Konoplyanka’s move—at a re- ported $25 million—would not have been the biggest of the transfer win- dow, but it epitomizes the risks and pitfalls of what can be a frenzied period at the end of the winter mar- ket. In Liverpool’s case, there was in- creased pressure to act as the club had missed out on another target, Egyptian winger Mohammed Salah, when rival Chelsea put in a higher offer. Throw in the ticking clock, a Liverpool delegation holed away in subfreezing Dnipropetrovsk and the usual don’t-blink-first tension of a negotiation and you begin to see how different January deals can be from those in the summer. What also makes January tricky is the glare of the cameras and pub- lic attention. This was best exempli- fied by the aborted swap deal that would have seen Inter Milan’s Co- lombian midfielder Fredy Guarín join Juventus in exchange for Mon- tenegrin forward Guarín plus a re- ported fee of about $2 million. In this case, both players had agreed to terms with their new clubs and Vučinić had even under- gone a medical with Inter. Then, on Jan. 21, Inter owner Erick Thohir, is- sued a statement on the club’s web- site explaining that he’d decided “not to continue negotiations” be- cause he felt that an agreement would not be possible it did not “of- fer a clear financial or technical benefit to the club.” Juventus managing director Beppe Marotta responded with withering criticism. He said he had never seen anything like it, accused Inter of “a lack of seriousness” and said Inter’s club statement con- tained “false information.” Again, we may never know, but odds are the Vučinić-Guarín talks were not helped by the fact that they were held in the center of Mi- lan, with TV cameras and a battal- ion of journalists following club offi- cials around from hotels to restaurants to Inter’s headquarters, all with round-the-clock coverage on Italy’s three rival sports networks. Inevitably, this attracted fans— lots of them. Several hundred Inter supporters, some carrying flags and banners, picketed outside wherever Inter and Juventus officials were meeting, expressing their anger at the deal. Meanwhile, representatives of Inter’s hard-core Ultras supporters issued a statement describing the potential deal as “the last straw” in a veiled threat to Thohir, who had only acquired the club a few months earlier. You can’t help but wonder whether this mass mobilization of media and supporters would have occurred if this deal had been planned in the summer, when both Milan and Turin are virtual ghost towns and the media often turns its gaze in other directions. Ideally, in terms of “best prac- tices,” a club would do its negotiat- ing before the window opens and simply formalize the transfers once the rules allow it. That way, every- body benefits. The buying club is under less pressure to conclude the deal and gets almost an extra full month with the new signing on board. The selling club has more time to find a suitable replacement. But there are practical reasons why this does not always happen, not least the simple logistics of a bunch of worldly men—and they are almost always men—trying to get the best possible price for them- selves, whether they’re buying, sell- ing or representing the players. So the alternative is to enter the rough waters of the final days of the winter transfer market. Where some buying clubs are so desperate for quick fixes, they will overpay, espe- cially since less talent is available. And where others find themselves in a goldfish bowl of public scru- tiny—they make rash decisions. It takes nerves of steel to con- clude transfers in that kind of envi- ronment. And, as may well be the case with Konoplyanka and the Guarín-Vučinić trade, sometimes the right thing to do is simply to pull the plug and walk away. BY GABRIELE MARCOTTI Liverpool came away empty-handed after almost landing Dnipropetrovsk’s Yevgen Konoplyanka, left, seen here playing for Ukraine against France on Nov. 15. A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s It takes nerves of steel to conclude transfers in that kind of environment. Vettel’s F1 Domination A Switch-Off for Fans Formula One’s global television audience fell by 50 million to 450 million viewers in 2013 due to a non-competitive end to the drivers’ championship and a switch from the national broadcasters in China and France, according to its annual global media report. Last year, Red Bull’s Sebastian Vettel won his fourth consecutive F1 title and wrapped up the cham- pionship three races before the end of the season. And even in his home country of Germany, the au- dience fell 8.7%. (The number of people there who watched at least 15 non-consecutive minutes of the sport dropped to 31.3 million.) Brazil, which is F1’s biggest sin- gle viewing market, also suffered as the audience dropped from 85.6 million to 77.2 million. In the report, F1 Chief Executive Bernie Ecclestone puts the drops down to “the less-than-competitive nature of the final few rounds” but it wasn’t the only hurdle. The report also shows that China lost 29.8 million viewers— more than any other country—due to a change from state broadcaster CCTV to a network of 13 regional partners. The report said this was done “to ensure that Formula 1 coverage of every race and qualify- ing session is shown live” and the change is expected to reverse the downward viewing trend in future. This is less likely to happen in France where coverage switched last year from national broadcaster TF1 to subscription service Canal+. It led to viewing figures falling by 16 million to 10.2 million and it is part of F1’s strategy to increasingly move away from free-to-air television. Pay-TV stations are often pre- pared to pay more for sports rights than their free-to-air rivals as they drive subscriber numbers. In 2012 F1 began a new deal which splits U.K. coverage between subscription service Sky Sports and the free-to- air BBC. Although the audience fell in the first year, it got a 1.7% boost in 2013 with 29.1 million viewers. A similar trend was seen in Italy where viewing figures rose by 2.9% following its switch to a mix of subscription and free-to-air broad- casting in 2013. Gains were also made in the U.S. following the return of its home Grand Prix in 2012 after a five-year hiatus. Coverage in the U.S. switched from Fox and the Speed Channel to NBC Sports in 2013 fueling a rise of 1.7 million viewers to 11.4 million. —Christian Sylt HEARD ON THE PITCH Getty Images Sebastian Vettel tests his new Red Bull car in Jerez on Jan. 28. 4 | Monday, February 3, 2014 THE WALL STREET JOURNAL. market lost interest: Persistent deficits even came to be seen as a badge of honor, proof that the Thatcher government’s supply- side reforms had made the U.K. a magnet for foreign funding. In the boom years before the global financial crisis, the current- account deficit remained wide, exceeding 3% of GDP in 2006. With hindsight, this should have rung alarm bells that the economy had become seriously unbalanced: Foreign money was being sucked into the U.K. to fund unsustainable public- and private- sector consumption rather than productive investment. After the crash, it was widely assumed the U.K. economy would be forced to rebalance: Any recovery would have to be led by exports and business investment. Indeed, the government’s 2010 budget forecast a current-account surplus of 0.9% in 2013, driven by a surge in exports. So what should one make of the latest deterioration in the U.K.’s balance of payments? The obvious conclusion is that the U.K. has failed to rebalance. Other data appear to confirm that this is the case. Although the U.K. grew by 0.7% in the fourth quarter of 2013, making it one of the fastest growing major economies, this growth has so far been largely driven by consumer spending, fueled by soaring house prices and funded by a sharp fall in the savings rate. Although surveys show that business confidence is high, investment spending actually fell 5% in the year to the end of September 2013 and the U.K.’s export performance has been woeful, despite a 20% sterling devaluation early in the crisis. In contrast, other European economies such as Germany, Spain and Portugal have seen strong export growth. Indeed, the economy may be even more unbalanced than feared, judging by the most recent data. Back in August, the Bank of England’s Monetary Policy Committee said it wouldn’t raise interest rates until unemployment fell below 7%, something it said it didn’t expect to happen until at least early 2016. It made this forecast on the assumption that growth would be driven by improving productivity. In fact, the unemployment rate fell to 7.1% in December and the 7% threshold may have been reached in January, more than two years earlier than the MPC thought. That suggests that U.K. productivity growth has actually weakened, which may also help explain why real wage growth has been so dire; official statistics last week showed the U.K. has endured the longest and largest fall in 60 years. Without productivity growth, the recovery risks running out of steam as either debt burdens get too high or the BOE is forced to raise interest rates to head off inflationary pressures as the economy starts to run out of spare capacity. Sure, this pessimistic scenario is neither the BOE’s nor the market’s base case. Most forecasters are still betting that business investment will pick up, leading to improved productivity growth so that wages can start rising and a more balanced recovery take hold. BOE Gov. Mark Carney argued last month that the combination of a bigger-than-expected drop in unemployment and the fall in inflation back to its 2% target suggests that the “nonaccelerating inflation rate of unemployment” must be lower than the BOE assumed last August, suggesting current growth is sustainable and justifying continued low interest rates. Similarly Ben Broadbent, a member of the MPC, noted in a recent speech that business investment always tends to lag consumer spending in U.K. recoveries. Some economists also question whether official data are accurately measuring GDP and the current account. Even so, the U.K.’s large current-account deficit can’t be easily ignored. “Economic research shows that large deficits tend to adjust eventually, through some combination of slower growth and currency depreciation,” notes Mr. Wells. “Adjustments tend to be more disruptive if the deficit was fuelled by consumption rather than investment and if they are accompanied by large fiscal deficits. “Unfortunately the U.K. ticks both those boxes.” That doesn’t mean the U.K. is heading for an immediate correction. For now, the market appears willing to give the U.K. the benefit of the doubt, reflecting its safe-haven status and the reassuring presence of a government committed to tackling at least one of the deficits. But amid the excitement of an unexpectedly strong recovery, the current-account deficit is a warning that the U.K.’s economic model may yet require further adjustment. What do Ukraine, Turkey, South Africa, Colombia and the U.K. have in common? The answer is they had the five largest current-account deficits in the world in 2013, according to HSBC forecasts. The first three of those countries, it will be noted, are in the eye of the current emerging- market storm. This has centered on economies with “double deficits”— current-account and fiscal. Their position is similar to that of precrisis Southern Europe, which was forced to make painful adjustments to what are now perceived to be unsustainable economic models under threat of a loss of foreign funding. South Africa and Turkey were both forced to raise rates last week. Yet there is one country that has escaped market punishment despite running double deficits. In the third quarter, the U.K. recorded a current-account deficit of 5.1% of gross domestic product, close to a peacetime record, notes Simon Wells, chief U.K. economist of HSBC. For 2013 as a whole, Mr. Wells forecasts a U.K. current- account deficit of 3.7% and a budget deficit of 4.7% of GDP. The U.K. is one of only eight countries to see its current- account deficit widen since 2008 and its deficit has widened the most. “Put bluntly,” says Mr. Wells, “the U.K.’s current-account deficit is now considerably wider than it was in the mid-2000s when global imbalances were the top concern of many economists.” Should investors be worried? Of course, the U.K. has lived with wide current-account deficits for decades. From the 1940s to 1970s, when the country was operating a fixed exchange-rate system, the U.K. was forced into frequent devaluations and slamming on the policy brakes to keep the balance of payments in check, notes Mr. Wells. From the 1980s onwards, with the exchange rate floating and capital controls abolished, the EUROPE FILE | By Simon Nixon EUROPE NEWS Hungarian Opposition Protests Russia Nuclear Plan BUDAPEST—Hungary’s left-lean- ing opposition rallied Sunday against the government’s surprise decision to have Russia expand a Hungarian nuclear power plant, the first shots fired in its campaign to keep Prime Minister Viktor Orban from winning another term in April. The nuclear deal signed in Janu- ary by Russia’s President Vladimir Putin and Mr. Orban is set to add two 1,000 megawatt reactors to the country’s existing 2,000 MW state- owned nuclear power plant MVM Paksi Atomeromu, with Russia pro- viding a loan for Hungary to cover the construction costs. French, Korean and Japanese companies had been interested in the project before Hungary awarded the deal to Russia’s Rosatom. Running counter the wider trend in Central Europe where most coun- tries seek greater energy indepen- dence from Russia, Hungary said af- ter signing the deal that it is enjoying an improving business re- lationship with its former commu- nist-era overlord. The deal, which parliamentary committees are set to discuss on Monday, has faced criticism from nongovernmental organizations, op- position groupings and environmen- talists, who said the cabinet had failed to consult them before ac- cepting the Russian offer. “I’m not against the Rus- sians…and I have no hard feelings against nuclear power,” Ferenc Gyurcsany, a former Socialist prime minister, said Sunday But he said he wants a conversa- tion about an agreement that he said would affect Hungary for the next half a century. When in power, Mr. Gyurcsany favored cooperation with Russia and signed up for the country to be part of the South Stream gas pipeline project through the Black Sea that bypasses Russia’s traditional transit countries, mostly Ukraine. Prime Minister Orban, despite repeatedly criticizing his socialist predecessors, has said the EU should consider mending fences with Russia. “We must rebuild our relation- ship with Russia on a pragmatic ba- sis to gain access to commodities and energy resources and to incor- porate them fully into the European economy,” Mr. Orban said on Friday. Slightly more than half of Hun- gary’s population considers it neces- sary to expand the nuclear plant, ac- cording to a poll by Nezopont Intezet published Saturday. Speakers at the opposition’s pro- test on Sunday said they weren’t against the expansion, but opposed the way the government prepared and signed the deal. Polls still favor Mr. Orban’s rul- ing Fidesz party, which last month was shown being supported by 29% of voters, against 21%, garnered by the left-leaning opposition parties. BY VERONIKA GULYAS A protester with a modified nuclear sign makes her views known on Saturday. G e t t y I m a g e s How many U.S. dollars one pound buys Current-account balance forecasts as a percentage of GDP U.K. current-account balance as a percentage of GDP The Wall Street Journal $2.2 1.2 1.4 1.6 1.8 2.0 ’13 ’12 ’11 ’10 ’09 ’08 ’07 Paying for the Deficit While the U.K. has run current-account deficits for decades… ...it likely had one of the largest in the world in 2013, a potentially troubling trend for sterling, as large deficits over time can in theory depress a currency. Sources: U.K. Office for National Statistics (U.K. current-account balance); International Monetary Fund (forecasts for current-account balance); WSJ Market Data Group (pound in dollars) 4 –6 –4 –2 0 2 % 1950 ’60 ’70 ’80 ’90 2000 ’10 0 –10 –8 –6 –4 –2 % ’13 ’14 ’15 Colombia South Africa Turkey Ukraine U.K. U.S. Recovery? U.K. Still Lacks Balance THE WALL STREET JOURNAL. Monday, February 3, 2014 | 25 BOOKS Bobbing Boffins At sea, four people are squashed into a 6-foot-square cabin with a 5- foot ceiling. They are surrounded by plants, shells, dead birds, animals, fish and insects waiting to be cata- loged, sketched or painted, and hopefully preserved. The smell is sometimes overpowering. A botanist and an artist share the cabin with two naval officers. None can move about or stand up straight. On deck, there are more plants in pots, and sometimes animals in cages, all get- ting in the way of the crew who are sailing the ship, usually in uncharted waters, thousands of miles from home on the other side of the globe. The voyage lasts several years, and for most of it the two groups— seamen versus naturalists—are ir- reconcilable; plants disappear over- board, animals die mysteriously, glass containers are “accidentally” smashed, and even mutiny is in the air. Character faults on either side are magnified, egos are bruised, and it’s sheer luck if the ship and its pas- sengers get home safely. This is the composite picture that emerges from historian Glyn Williams’s latest dive into the Pacific Ocean. With “Naturalists at Sea,” this chronicler of European voyages of exploration has turned his tele- scope to the scientific travelers, or “experimental gentlemen,” as they were known in Georgian England, who accompanied the great 18th- and 19th-century voyages that mapped the Pacific. The men of sci- ence came from across Europe: Eng- land, Wales, Scotland, Sweden, Den- mark, Prussia, the German statelets, France, Italy, Spain and Russia. The story begins in 1651 with the birth of Englishman William Damp- ier. He was an adventurer, a bucca- neer, maritime gypsy, explorer and successful author. He served, mostly on pirate ships, around the world, from the Caribbean to the waters around Timor and Australia’s barren west coast. Dampier was an acute observer. His “New Voyage Round the World” (1697) was an account of the peoples Dampier met, the landscapes he saw, the vegetation, animals, fish and birds at each landfall. For modern readers his most striking observa- tion may be his discovery of mari- juana in 1688 on the Indonesian is- land of Sumatra. His declaration that he could describe the effect of the narcotic but had never tried it set a precedent for those who have smoked but never inhaled. “It is re- ported of this plant,” he wrote, “that if it is infused in any liquor it will stupefy the brains of any person that drinks thereof; but it operates diversely, according to the constitu- tion of the person. Some it keeps sleepy, some merry, putting them into a laughing fit, and others it makes mad.” “New Voyage” was an important eye into the unknown for explorers and surveyors like James Cook and Matthew Flinders, and botanists such as Joseph Banks, Daniel Solan- der and Johann Forster, who fol- lowed him in the 18th century and, in Flinders’s case, the early 19th cen- tury, when he circumnavigated Aus- tralia. In 1770, Dampier’s description of Australia’s aborigines helped Cook and Banks establish that they had reached the unexplored east coast of Australia after having found and mapped New Zealand. A second volume of “New Voy- age” that listed tides, currents, winds, storms and seasons was a pi- oneering work that Mr. Williams de- scribes as “a classic of the pre-scien- tific era.” Well into the 20th century, he says, it was being used by Brit- ain’s Royal Navy in its standard Ad- miralty Sailing Directions. The first voyage involving pro- fessional scientists was made by the Russians, sponsored by their mod- ernizing czar Peter the Great, who was impressed with the activities of Britain’s and France’s scientific soci- eties. Shortly before Peter died in 1725 he appointed the Danish-born Vitus Bering to lead an expedition to determine the extent of the Asian continent. Sailing north from the Kamchatka Peninsula in Russia’s Far East, Bering reached the strait divid- ing Asia and America that now bears his name. But he did not sight the Alaskan coast. A second voyage in 1740 set sail to observe whatever lands and peoples they came across and to investigate the prospects for trade. It reached America but ended in disaster, shipwreck and the death of Bering. The British, French and Spanish expeditions that came afterward fol- lowed the same pattern. They were voyages of scientific observation and documentation as well as geo- graphic discovery. And until the round-the-world voyage of Darwin’s Beagle in the 1830s, the dominant theme of each journey seems to have been the conflict of interest be- tween the scientists on board and the ship’s captain and crew. This was clearly the case in the French voyages at the time of the Revolu- tion and into the Napoleonic era. Of- ficers were generally from the aris- tocracy. The scientists and naturalists were largely republicans, and the crews came from Brest, a radical Jacobin stronghold. It was a mixture primed for chaos and dis- trust, and accounts of these battles are a humorous entertainment in an otherwise scholarly book. When Charles Darwin joined the Beagle and its supportive captain, Robert Fitzroy, in 1831, the “descrip- tive sciences”—based on collecting, drawing and measuring species dur- ing short bursts ashore—were being challenged by a new generation of naturalists led by Alexander von Humboldt, the Prussian geographer. He complained that the 18th-century expeditions never went beyond the coast and had done little to “reveal the history of the earth.” Unlike his predecessors who ar- gued and failed to win more time ashore, Darwin, an admirer of Hum- boldt, made long journeys into the South American interior. He was on land for three-fifths of his five-year voyage around the world. For Darwin, the Beagle voyage was the most important in his life. For readers of this book it is the fi- nal chapter in an extraordinary and entertaining catalog of maritime and scientific endeavor. —Mr. Fathers is co-author, with Andrew Higgins, of “Tiananmen: The Rape of Peking.” Mind Your Manners How to Be a Brit By George Mikes (1984) George Mikes, a Hungarian jour- nalist, was sent to London in 1938 to report for the Budapest newspaper Reggel. Expecting to stay for a few weeks, he never left. Though he be- came a British citizen, Mikes took great pleasure in reporting the pecu- liarities of his adopted home, and “How to Be a Brit” brings together three of his books on this subject. Mikes is a master of the laconic yet slippery put-down: “The trouble with tea is that originally it was quite a good drink”; “An Englishman, even if he is alone, forms an orderly queue of one.” Occasionally he is more acer- bic: “The English have no soul; they have the understatement instead.” His most cherished pronouncement is probably: “Continental people have sex life; the English have hot-water bottles.” Reflecting on this observa- tion in the 1970s, he noted that the English had lately made some prog- ress and now possessed electric blan- kets. I prefer his parodic take on the sadly bygone British aversion to the breathless superlatives of advertis- ing: “Try your luck on Bumpex fruit juice. Most people detest it. You may be an exception.” The Pursuit of Love By Nancy Mitford (1945) Is it acceptable for a picture of your home to adorn your writing pa- per? This is just the sort of question that Emily Post-ish arbiters of eti- quette like to contemplate. Nancy Mitford provides no explicit answer in this mercilessly funny novel, but Uncle Matthew, an eccentric peer based on her own father, has to be shielded from discovering that the playful, cultivated Lord Merlin prac- tices this vice. In the world of Mit- ford’s novels (of which “The Pursuit of Love” is the best), no individual’s foibles escape ridicule, frivolity trumps seriousness, sinners get the better of saints, and the solution to life’s imbroglios is always something puerile. Her own manner is that of a gifted child, likely at any moment to puncture cozy domesticity with some spiky insight. Her prose often has a creamy fluency, but lurking within the froth there is a sharp fin of cruelty. Cecilia By Fanny Burney (1782) Fanny Burney is celebrated mainly for her first novel, “Evelina”— and even that deserves to be better known. She followed it in 1782 with the far more ambitious “Cecilia,” an attempt to depict the entire social fabric of contemporary Britain. Bur- ney skillfully evokes a greedy world full of risk-takers and poseurs, rang- ing from the frugal Mr. Briggs, whose snuff-colored suit makes it hard to see how dirty he is, to the cynical Mr. Monckton, dismayed by the longevity of his rich wife. At the heart of the story is Cecilia Beverley, an heiress who can keep her fortune only if her husband agrees to take her surname. Such details of nomenclature are par- amount in a society obsessed with the tangled relationship between class, rank, money and identity. To- ward the end of the novel a character who is in effect Cecilia’s therapist ob- serves: “If to pride and prejudice you owe your miseries, so wonderfully is good and evil balanced, that to pride and prejudice you will also owe their termination.” No prizes for guessing which later author found inspiration in Burney’s long yet utterly absorb- ing novel. Cold Cream By Ferdinand Mount (2008) The first time I devoured “Cold Cream” I could scarcely stop smiling, and the same proved true on a sec- ond reading. This apparently relaxed yet finely crafted memoir narrates the bumbling, genial progress of a minor English aristocrat—from vaguely bohemian beginnings, through Eton and Oxford, to a career in newspapers and a role as speech- writer for Margaret Thatcher. Mount mingles with the sort of people who can say that “anyone who takes a bus after the age of thirty is a failure” (a remark often erroneously attributed to Mrs. Thatcher) or that “everyone lives in Oakley Street once in their lives” (a reference to a tiny pocket of London’s Chelsea where houses to- day cost £5 million). Yet he is an out- siderish sort of insider, expert in the nuances of polite society and at the same time amused by them. There are passages in “Cold Cream” that call to mind P.G. Wodehouse or Eve- lyn Waugh, but Mount has his own engaging and worldly-wise style. Don’t By Oliver Bell Bunce (1883) This curious volume, subtitled “A Manual of Mistakes and Impropri- eties More or Less Prevalent in Con- duct and Speech,” is the one book on my list that is directly concerned with manners. I came across it while researching a history of arguments about English usage (“The Language Wars”) and delighted in Bunce’s mix- ture of tetchy pedantry and self- awareness. Of the man himself I know little: He was an American, a pub- lisher and a journalist who also dab- bled in writing plays—one of them performed specifically for the benefit of the Shirt Sewers’ Union. Only “Don’t,” which appeared in 1883, made much of an impression on the world. Bunce’s character is discernible on every page. Some of the guidance is sensible, if perhaps unnecessary—in a crowd, one shouldn’t carry a cane horizontally. Some is vague: “Don’t be over-civil.” Some is hard to comply with: “Don’t eat onions or garlic, unless you are dining alone and intend to remain alone some hours thereafter.” And some is just plain weird: “Don’t play the concertina to excess.” Bunce’s mission to stamp out mistakes and improprieties is, of course, a failure. Telling people what not to do is a surefire way of getting them to do it. But “Don’t” is one of those rare books that charm the reader by accident. —Mr. Hitchings is an author, most recently of “Sorry! The English and Their Manners” (Farrar, Straus and Giroux, 2013). BY MICHAEL FATHERS BY HENRY HITCHINGS Naturalists at Sea By Glyn Williams Yale, 336 pages, £25 MR. HITCHINGS’S latest book is ‘Sorry! The English and Their Manners.’ G e t t y I m a g e s ‘Experimental gentlemen’ joined some of the great 18th- and 19th-century voyages of exploration to collect exotic flora and fauna. [ Five Best ] THE WALL STREET JOURNAL. Monday, February 3, 2014 | 5 Tale of Torture in Activist Disappearance KIEV, Ukraine—Ukrainian protest leader Dmytro Bulatov said he didn’t see much of the faces of the men who kidnapped and beat him and cut off part of his ear last month, be- cause they kept a bag over his head for most of his week in captivity. But the questions they asked, he said, were clear: How much did the U.S. pay him to lead protests against the Ukrainian government? What in- structions did he receive? The tale of brutalities told by Mr. Bulatov from a hospital bed in Kiev are part of a wider narrative threatening to turn Ukraine’s inter- nal struggles into a geopolitical struggle between Washington and Moscow. Opponents of President Viktor Yanukovych’s move toward closer relations with Moscow allege a broad pattern of violence and in- timidation by thugs and uniformed police. Often their captors want to know who is paying them to pro- test—the obvious suspects being the U.S. and Europe, which the Kremlin and authorities here ac- cuse of bankrolling the unrest. The U.S. embassy in Kiev says it has met with politicians and activ- ists of all ideological kinds to moni- tor the continuing crisis. In that re- gard, the ambassador and other officials did meet Mr. Bulatov at the embassy in January, and posted pic- tures of the meeting on the embassy website, it said. But the embassy denies providing any funding to protest groups such as Mr. Bulatov’s that have sprung up during the crisis. The Ukrainian government says its opponents are concocting stories of brutality to galvanize support at home and draw sympathy from the West. Mr. Bulatov, an activist leader who disappeared for a week and then reappeared with an agonizing tale of his absence, is the latest, they say. On the sidelines of a security conference in Munich, Germany, over the weekend, Ukraine’s foreign minister said the story of Mr. Bula- tov, who has been investigated for faking his kidnapping, was “not ab- solutely true.” “Physically this man is in a good condition, the only thing he has is a scratch on one of his cheeks,” Ukrai- nian Foreign Minister Leonid Ko- zhara told Al Jazeera. “So, let’s wait for the investigation that will reveal specific facts.” In an interview from his Kiev hospital bed with The Wall Street Journal, Mr. Bulatov said he was hit over the head by several men who abducted him on Jan. 22 and then took him to an undisclosed location. He said he was then beaten and wa- terboarded by men who, at one point, nailed his hands to a door, slashed him in the face and cut off part of his right ear. His facial wound required 12 stitches. Throughout the ordeal, he said, his interrogators wanted to know more about the inner workings of his AutoMaidan activist group, which has operated as a sort of rapid-reaction force for the Ukraine protest move- ment, rushing activists to points of confrontation and clogging traffic in city thoroughfares. According to Mr. Bulatov, it operated with the help of volunteers and funds he raised through appeals on the Internet. But after his abduction, he said he was interrogated by captors who were convinced his group was a U.S. project. “They asked why I talked with the American ambassador, they considered me an American spy,” said Mr. Bulatov, who before his kid- napping had met, along with other opposition figures, with the U.S. am- bassador in Kiev. “They asked me where the money was that the American ambassador gave me, who gives me orders. They asked if I was a foreign agent.” Mr. Bulatov’s tale bears similari- ties of ordeals told by other opposi- tion activists in Ukraine who say they were abducted and beaten by men in plain clothes who interrogated them about their financial support. The day that Mr. Bulatov was ab- ducted, the battered body of an- other Ukrainian opposition activist was found in a field after he had been abducted from a hospital by a group of men in plain clothes. A man who was taken with him from the same hospital said the two of them were tortured and interro- gated in adjacent rooms by men who asked about who was financing their opposition activities. They were both dropped in the countryside in separate locations, and one was able to limp to a nearby house to contact his wife. The other, beaten more severely, froze to death. On Sunday, the U.S. embassy said a fellow opposition leader had ar- ranged for Mr. Bulatov to be flown to Riga, Latvia, for medical treatment. The abduction of activists from hos- pitals has made life precarious for Mr. Bulatov in Kiev. Authorities have made threats to arrest him for inciting disorder. A group of activists had kept a round- the-clock vigil at his hospital room in Kiev, not allowing a group of po- lice, also at the hospital, to come near him. Police issued a statement saying they were being prevented from properly investigating Mr. Bu- latov’s disappearance. The U.S. embassy in Kiev, alarmed at Mr. Bulatov’s disappearance, posted pictures and a statement of its concern last week. The following day he was released. Mr. Bulatov’s captors put a bag over his head again and drove him for an hour in a car to the Ukraine countryside near a vil- lage where they untied his hands and left him by the road. Mr. Bulatov said he had difficulty seeing because his eyes were so swollen from being beaten. At sev- eral houses in the village, residents shut their curtains to him. “They were scared of me because I looked so bad,” he said. BY ALAN CULLISON Ukrainian protest leader Dmytro Bulatov, here in a Kiev hospital room Saturday, says kidnappers interrogated him over U.S. involvement in financing protests. A l a n C u l l i s o n / T h e W a l l S t r e e t J o u r n a l EUROPE NEWS EU, U.S. Plan Kiev Aid Package came after U.S. Secretary of State John Kerry met with Ukrainian op- position leaders Saturday, as Rus- sia and the West traded barbs over the continuing crisis in Kiev. The meeting took place on the sidelines of an annual Munich Se- curity Conference, dominated Sat- urday by the Ukraine crisis. It was among the highest-profile sit- downs for the opposition leaders since large-scale antigovernment protests started in November after Ukrainian President Viktor Yanuk- ovych walked away from a sweep- ing EU economic and political deal. Mr. Kerry also met with acting Ukraine Foreign Minister Leonid Kozhara, expressing “grave con- cerns” about human-rights viola- tions by authorities. Buoyed by weeks of protests and Mr. Yanukovych’s decision to sack his government last week, the opposition is pressing for early presidential elections. In an interview with The Wall Street Journal, Baroness Ashton distanced herself from that call, al- though she said it was up to Ukraine’s politicians to choose election timings. “It seems to me that what ev- erybody wants is a period of stabil- ity…moving toward elections that will be done freely and fairly. In that period of stability, the econ- omy needs to be OK, and that means everybody needs to think about…what kind of economic sup- port we can give,” she said on the sidelines of the Munich Security Conference. She said there would be “differ- ent stages” of possible support, the first of which would deal with short-term needs. Continued from first page The EU and U.S. are “developing a plan—a Ukrainian Plan, I have suggested they call it—that looks at what do we need to do in differ- ent parts of the economy right now to make things better.” Baroness Ashton said the amount of what should be a “homegrown” assistance package hasn’t yet been decided. But, she added, “the figures won’t be small because there are deficits in the budgets” and other issues that need to be addressed. She said that it was for Ukraine’s new government to iden- tify in detail exactly what it needed help with but that the eventual package might not only be money. “It may be guarantees. It may be the prospect of investment. It may just simply be stability for the currency and so on,” she said. U.S. diplomats have told the op- position also that the U.S. and EU are preparing a package of eco- nomic support to help rescue Ukraine from its economic woes, but it hinges on a peaceful resolu- tion of the crisis through the cre- ation of a technical government. “The message to the opposi- tion…is that through dialogue, you’re starting to get the pieces put in place for a peaceful political solution that gives you the chance to take Ukraine back to the IMF and Europe,” a senior U.S. official said. “Stick with it, and we will keep pressuring the government.” Baroness Ashton, the EU’s top diplomat, has taken on a growing role in Ukraine crisis since Novem- ber, when Mr. Yanukovych walked away from a sweeping EU trade and political deal that was years in the making. The next month the Ukrainian president sealed a $15 billion-loan deal with the Kremlin. Baroness Ashton made a two- day visit to Kiev for long discus- sions with Mr. Yanukovych in De- cember and was in Ukraine again earlier last week, pushing for dia- logue and urging authorities to re- frain from the use of force. She met key opposition leaders again in Munich this weekend. The foreign-policy chief said constitutional reform will be a crit- ical element of the new govern- ment’s tasks—not least to ensure free-and-fair elections. She said she saw no signs that protesters, whom the government has accused of being violent “ex- tremists,” were about to stop pres- suring the government. “I see no reason to think right now that peo- ple are going to say tomorrow, ‘OK, well, we have done that.’ I think they are going to stay,” she said. “I think the reality of any form of vi- olence and intimidation is that it makes people more determined to peacefully protest.” In the lead-up to a key Decem- ber summit in Lithuania where Ukraine was supposed to sign a sweeping EU trade and political deal, Kiev had pressed the EU to give it billions of euros to help it through its economic difficulties. The rescue hinges on a peaceful resolution of the crisis through the creation of a technical government. 24 | Monday, February 3, 2014 THE WALL STREET JOURNAL. BOOKS Elf-Help Tome The fantasy-themed vistas of on- line games such as World of Warcraft are commonly thought of as provid- ing nothing more than a kind of ther- apeutic escapism: a species of elf- help. But if you ask players about what they actually do in role-playing games, and why they do it, the pic- ture is more complicated. People pre- tend to be wizards on the Internet for a sense of community. Indeed, many welcome the fact that such games are structured like boring jobs—with much grinding, repetitive labor required to progress—because at least these virtual jobs are per- fectly fair: Unlike at the office, effort and achievement guarantee advance- ment. Reports one satisfied cus- tomer: “I hate the level of frustrated progress in the real world so I play the game and level up instead.” These are some of the fascinating findings reported by Nick Yee’s “The Proteus Paradox: How Online Games and Virtual Worlds Change Us—And HowThey Don’t.” Mr. Yee, who works as a research scientist for the video- game company Ubisoft, has con- ducted large-scale surveys of players’ opinions and also analyzed, “big data”-style, their recorded virtual ac- tivity. (Game worlds, he notes wryly, provide the perfect digital panopticon of which government surveillance programs can only dream.) The author has even conducted laboratory simulations with virtual reality, whose surprising results supply the book’s title, in honor of the shape-changing sea-god of Greek myth. If you create a virtual world and give certain people attractive avatars, he discovered, they will act more confidently. They will also like another avatar more if their own face has been imperceptibly blended with the other’s. Similar kinds of “face-morphing and doppel- gänger techniques,” Mr. Yee warns, could in the future be used by adver- tisers to turn a virtual environment into what he calls, with chilling po- etry, a “persuasion chamber.” Some cybertheorists have cele- brated online role-playing games as a realm in which prejudice and dem- ocratic dysfunction can be overcome by happy experimentation with gen- der fluidity or social structures. Mr. Yee shows, however, that racism and sexism are as much a problem in on- line games as elsewhere. Indeed, players find themselves just as emo- tionally burdened and stressed by the demands of managing the inter- personal spats and rivalries of an online guild as they would be by managing a group at work—but without the financial compensation. The happier consequence of the fact that people bring themselves, warts and all, into the virtual world is that love can blossom there and lead to successful offline relation- ships. “Our characters met in North Freeport in Everquest. His dark elf cleric was on top of the roofs,” one young woman remembers fondly. If a game is like a boring job, Mr. Yee observes, then the people who meet in one have worked together through adversity, often over months or years, before getting together in per- son. In this way their relationship is more like an office romance than a dubiously scientific online “match.” Refreshingly, while many writers in the field are determined to be re- lentlessly positive, Mr. Yee is critical of the way games fail to improve on reality. With their tens of millions of players, they are “the grandest social experiments that have ever existed,” but their promises, he concludes, are being “subverted” by, among other things, risk-averse design companies content to replicate what has been commercially successful. Such loving disappointment makes him a truer supporter of the medium than its Panglossian cheerleaders. The book ends on a melancholy note, arguing that since the “boom days of World of Warcraft and Sec- ond Life, there has been a strange, stagnant lull in terms of virtual worlds.” Oddly, not mentioned is the mightily popular Minecraft, which can be experienced as a more or less traditional role-playing adventure game or—a fact that has already at- tracted the participation of educa- tors and even U.N. agencies—used as a space for extraordinary efforts in collaborative architecture. People might be getting bored of being a Tolkienesque dwarf or space cap- tain, but that doesn’t mean there are no new roles for them to play. —Mr. Poole is the author of “Who Touched Base in My Thought Shower?” Learning to Cook as the Romans Do Jeannie Marshall’s memoir about cooking food and raising a son in It- aly seems like the sort of work sure to recount another set piece of al fresco tables and graceful aperitifs, while the bambini eat olives and grapes and someone’s grandmother teaches the author how to make pasta—but it doesn’t, or at least that’s not the whole story. “The Lost Art of Feeding Kids” may have a title designed to squeeze the last drop of juice from the “Fast Food Nation” orange, but Ms. Marshall has pro- duced a surprise of a book. Predictably, we meet Ms. Mar- shall and her son, Nico, at an out- door food market, where, predict- ably, he’s eating sections of blood orange given to him by a vendor while she imagines “kale for lunch, prepared the way Carlo, the farmer who grows many of the vegetables we eat, told me to do it one of the first times I bought some—cooked in water until tender, then sautéed for a few minutes in a pan with some ol- ive oil, sliced garlic, and a little salt, and finished off with a squeeze of lemon.” (Carlo isn’t winning any points for originality.) But the au- thor pulls the rug out from under us when she reveals that, even in Italy, “real food” is no longer most chil- dren’s everyday fare. In a mothers’ group in Italy, Ms. Marshall sees the contrast between the English-speaking mothers and the Italians. “When Rocco’s mother took the lid off the container of his lunch, the room filled with a heady smell of savory vegetable and herb soup.” He was excited to see it and ate it with gusto. The American and English ba- bies, all of whom were being intro- duced to single foods because of our anxiety about food allergies, frowned and fussed while their moms tried to push bits of pear into their mouths. “One mother told me she thought our method was strange, that it was as though we were teaching our babies not to like food.” Italian babies eat a meal called a pappa, which consists of brodo (a vegetable broth) with bits of whatever is for dinner whirred into it. It’s drizzled with olive oil and finished with parmesan cheese. It sounds phenomenal, especially when compared with jars of mauve and puce purée. When Nico starts school, the idyll ends. Ms. Marshall realized that “he and his Italian peers were being waved off the traditional path of healthy food and directed toward a new food culture, one far too similar to the one [she] thought [she’d] left behind in North America.” Ms. Marshall finds a dishearten- ing innocence at work in Europe, which calls to her mind the wanton soda-slurping of her own youth in the 1970s. “I saw a woman at the beach pouring Coca-Cola into her baby’s bottle—the baby wasn’t even walking yet.” The birthday parties they attend in Italy are soft-drink- and-potato-chip affairs. In a delight- ful moment of turnaround irony: “The only time we don’t see these things is at birthday parties for American children. In fact, at one late-spring birthday party, the American parents who were hosting it had laid out a bowl of fresh fava beans in their pods with some Pecorino Romano, fresh fruit, their own homemade bread, cheese, ol- ives, water, and juice.” Anyone sitting down to write a book about food and health must consider how to limit the topic. Will the book deal with obesity and star- vation? How to roast pork? Indus- trial farming? Diabetes? Ms. Mar- shall tries to do it all, moving from personal narrative out into the broader world. Her theme is that by removing children everywhere from access to their traditional food- ways—the pappa of the world—we are making a mistake. We are not teaching them how to eat. When Inuit children in Canada were assimilated into residential schools, she notes, “they were given ‘civilized’ and ‘European’ food to eat, mostly refined food and some meat, very little of it fresh.” Distanced from their traditions, the children forgot them. “Before 1940, the Inuit in Canada’s far northern territories didn’t suffer from diabetes. Now it’s a disease borne by 70 percent of the community.” As the author grapples with this big message, her book sometimes loses momentum. She stops to talk about Alice Waters: If there’s anyone left in the English-speaking world who doesn’t know that Alice Waters wants children to eat whole foods, it’s a cinch they aren’t reading this. But Ms. Marshall has done enough legwork that she discovers fresher pastures. In 2009, Ms. Marshall at- tended the World Summit on Food Security in Rome, where talk con- cerned how the world will feed ev- eryone as the population climbs to- ward nine billion. “One delegate pointed out that the estimates of how much food needed to be produced as- sumed that everyone would be eating processed and fast foods.” They’re eating like Americans, in other words—but cliché Americans, not the actual ones Ms. Marshall knows serv- ing homemade bread and fava beans. Perhaps baking bread doesn’t co- incide with the harried reality of cooking for a family. Although com- mercials will tell you that the conve- nience of ripping open a box of mac and cheese for the young one is be- yond compare, the process takes about the same number of steps as boiling some kale, squeezing a lemon and pan-frying a chop. But will your children eat it? No, not if they’ve never been introduced to it. They would if they’d been raised eating pappa, if the flavors were fa- miliar to them. How to make that happen is a much more difficult question than what to buy at the farmer’s market. —Mr. Watman’s next book is “Harvest: Field Notes From a Far- Flung Pursuit of Real Food.” BY STEVEN POOLE BY MAX WATMAN The Proteus Paradox By Nick Yee Yale, 264 pages, £20 The Lost Art of Feeding Kids By Jeannie Marshall Beacon Press, 228 pages, $25.95 C o r b i s I m a g e s W.O.W. An attendee at 2011’s Blizzcon game convention, dressed as a night elf druid. C o r b i s I m a g e s For good or ill, the personas players craft in games can influence how they think of themselves offline as well. Even Italian kids no longer eat the old way. Only the fussy expats serve healthy food at birthday parties. 6 | Monday, February 3, 2014 THE WALL STREET JOURNAL. U.S. NEWS Delayed Oil Pipeline Clears Major Hurdle WASHINGTON—An Obama ad- ministration analysis of the Key- stone XL pipeline said it probably wouldn’t alter the amount of oil ul- timately removed from Canadian oil sands, boosting the pipeline’s back- ers by suggesting it would have lit- tle impact on climate change. The release of the long-awaited report is one of the last steps before the up-or-down decision by President Barack Obama, who must juggle con- flicting demands from supporters heading into midterm elections. The Keystone XL pipeline, which would carry oil from Canadian oil sands into the U.S. Midwest on the way to Gulf coast refineries, has be- come a potent symbol both for envi- ronmentalists who say it would ac- celerate global warming and for unions and business leaders who see it as a way to stoke North America’s development as an energy-produc- ing superpower. The environmental analysis re- leased Friday by the State Depart- ment, which is responsible for as- sessing the project, weighed in at 11 volumes. It said that “approval or denial of any one crude-oil trans- port project, including the proposed project, is unlikely to significantly impact the rate of extraction in the oil sands.” The finding that the oil would be extracted and delivered anyway— possibly by rail if not pipeline—left environmentalists disappointed. “I will not be satisfied with any analysis that does not accurately document what is really happening on the ground when it comes to the extraction, transport, refining and waste disposal of dirty, filthy, tar- sands oil,” said Sen. Barbara Boxer (D., Calif.), chairman of the Senate environment and public works com- mittee and a White House ally. The report isn’t the last word on the matter. Now begins a final State Department study to determine whether the pipeline project is in the nation’s broader interests. Eight separate agencies have up to three months to weigh in. The report makes no recommen- dations on TransCanada Corp.’s per- mit request, leaving Secretary of State John Kerry and Mr. Obama the space to draw their own conclusions about whether the pipeline should get built. They are free to reject the pipe- line based on this more sweeping analysis, in which the environmental report is but one data point. In the next review, they will take into ac- count a consideration that may af- fect the president’s legacy: He has sought to take a leading global role in the effort to combat climate change. Under the executive order gov- erning the permit review, Mr. Kerry is empowered to make the final call. But presidential aides have said Mr. Obama has told them he will make the final decision on Keystone. Addressing Keystone at his regu- lar press briefing, White House spokesman Jay Carney said the re- port didn’t represent a decision “but rather another step in the process.” Mr. Obama could wait until after the November elections, but he is under pressure from the Canadian government and a handful of pro- Keystone Democratic senators not to delay further. A few Democratic senators who are up for re-election this year have warned that they will push legislation forcing a decision if the review stretches much longer. In a statement Friday, pro-Key- stone Sen. Mary Landrieu (D., La.), said, “This new study underscores what has been said all along about the Keystone XL pipeline: It’s time to build. This single project will in- ject billions of dollars into Louisiana and national economies, and reduce our dependence on oil from hostile countries.” Republicans have also grown im- patient with the lengthy Keystone review process. Citing Mr. Obama’s pledge to use his executive author- ity—his “pen”—to boost the econ- omy, GOP lawmakers have urged him to approve the pipeline now. “Mr. President, no more stalling, no more excuses. Please pick up that pen you’ve been talking so much about and make this happen. Ameri- cans need these jobs,” Senate Re- publican leader Mitch McConnell of Kentucky said Friday. Mr. Carney at the White House said that “there is a process that is in place, and that must be honored.” Keystone has had a tangled his- tory. TransCanada, which operates oil and natural-gas pipelines, first ap- plied for a permit in 2008. In Janu- ary 2012, the Obama administration rejected the application. At the time, Mr. Obama said a deadline that had been imposed by Congress didn’t al- low enough time to determine the project’s environmental impact. TransCanada reapplied in May 2012, after proposing to reroute the line to avoid an environmentally sensitive part of Nebraska, setting in motion the environmental report that was just released. Mr. Obama isn’t the only leader with his legacy at stake. Canadian Prime Minister Stephen Harper, who is struggling in opinion polls, has aligned himself closely with Key- stone. Mr. Harper’s natural-re- sources minister, Joe Oliver, said the report made him “more confident” the project will be approved. “We’re very pleased with the re- lease and being able to move to this next stage of the process. It’s been long in getting here,” said Russ Girling, TransCanada’s chief execu- tive. The pipeline has exposed divi- sions within the Democratic Party that could reverberate in the U.S. midterm elections in November. Labor unions see the project as an engine for job creation. Environ- mentalists view it as a symbol of U.S. dependence on fossil fuels and worry that extraction of the oil from Canadian oil sands will release large amounts of carbon dioxide, exacer- bating global warming. Both groups are pillars of the Democratic politi- cal coalition, which is aiming for a large turnout in November. Dan Weiss of the liberal think tank Center for American Progress said the report released Friday “ig- nores evidence” that Keystone would spark greater production at Canadian oil sands. “It’s like giving up on the inter- diction of cocaine traffic into our country, because drugs are going to get in anyway,” Mr. Weiss said. —Chester Dawson and Alistair MacDonald contributed to this article. By Peter Nicholas, Carol E. Lee and Alicia Mundy CEO Russ Girling of TransCanada, which plans a pipeline to carry Canadian oil into the U.S. Midwest on the way to Gulf B l o o m b e r g N e w s Oil Has Been Flowing Even Without the Key Link Improved prospects for the Key- stone XL pipeline cheered many parts of the North American energy industry, but the project is no longer as crucial to U.S. or Canadian compa- nies as it seemed just two years ago. TransCanada Corp.’s 830,000- barrel-a-day project has been in po- litical limbo for years, but the de- lays haven’t stopped the flow of oil. Many in the energy industry quit banking on the 1,200-mile line ever being built and made arrangements to ship North America’s rising oil output by alternate means, includ- ing shipments by rail. Even without Keystone XL, Cana- dian crude exports to the U.S. rose more than 5% in 2013, to an average 2.6 million barrels a day, according to the latest federal data. If built, Keystone XL would be a potential boon to companies pumping oil in Canada. But Alberta’s oil-sands crude production will more than dou- ble by 2025 to 4.5 million barrels a day, according to the Canadian Asso- ciation of Petroleum Producers, mak- ing Keystone only a partial solution. A pair of proposed new and ex- panded pipelines to Canada’s Pacific coast are being eyed as a way to tap growing Asian demand for oil. Railcars are increasingly carry- ing crude out of remote inland oil fields. Companies shipped 280 mil- lion barrels of oil by rail during the first nine months of 2013, nearly double the volume in 2012 and al- most six times the traffic in 2011, according to the Association of American Railroads. Exxon Mobil Corp., a major pro- ducer in Canada’s oil sands, said Thursday it is building a railway- loading facility in Edmonton, Al- berta, to “enable efficient, cost-ef- fective transportation of heavy crude.” The terminal is expected to be complete by early next year. ExxonMobil Canadian subsidiary Imperial Oil Ltd. has secured nearly 400,000 barrels a day of additional pipeline capacity out of Alberta on proposed lines as well, including Keystone XL. TransCanada has com- mitments from some of the largest operators in the oil sands, including Canadian Natural Resources Ltd., Cenovus Energy Inc., Suncor En- ergy Inc. and ConocoPhillips. “We’ve seen folks asking for addi- tional capacity,” TransCanada Chief Executive Russ Girling said. Keystone XL still matters to re- finers along the Gulf Coast, includ- ing Valero Energy Corp. and Mara- thon Petroleum Corp., which have invested billions of dollars in recent years to turn heavy crude like the kind coming from Canada, which yields a lot of diesel, into fuels for export. While railways have accommo- dated much of the booming new supply, this method of shipping has its risks. Regulators are taking a closer look at railcars after a string of recent accidents, including a fiery crash in Quebec last summer that killed 47 people. Efforts to make tanker cars safer could mean fewer of them will be available in the near term, according to Cowen & Co. ana- lyst Sam Margolin. “Keystone is more important now because rail is starting to meet more regulatory attention,” he said. If built, Keystone XL’s effects are likely to be felt in Latin America. A surge of heavy Canadian crude into the U.S. could crowd out similar types of oil that U.S. refiners import from Venezuela and Mexico. —Ben Lefebvre and Alison Sider contributed to this article. BY CHESTER DAWSON AND DANIEL GILBERT Edmonton Houston Cushing Steele City ALBERTA MONT. N. D. S. D. NEB. KAN. OKLA. ILL. MO. TEXAS SASK. MANITOBA Port Arthur Hardisty Patoka C ANADA ME X I CO UNI T E D STAT E S 250 miles 250 km Decision Time A U.S. study found the Keystone XL project likely wouldn’t affect the amount of oil extracted from Canadian tar sands. Source: TransCanada The Wall Street Journal Extent of the Keystone oil pipeline Constructed Planned Keystone XL pipeline THE WALL STREET JOURNAL. Monday, February 3, 2014 | 23 PERSONAL JOURNAL The Lifestyles of the Rich and Stranded Private Jets as Weather Workarounds; Just Don’t Rent Them During Holidays or Big Sports Events Like thousands of other travel- ers, Debbie Grazioso found herself stranded by bad weather, stuck in a line of 70 people on Jan. 6 in Florida and told by JetBlue Air- ways that she’d have to wait four days for a seat to New York. That meant missing a birth- day party for her 25- year-old twin daughters. Sometimes emer- gency situations require emergency measures. Ms. Grazi- oso and her husband, Glen Vittor, paid $9,000 to hitch a ride with another family on a seven-passen- ger Cessna Citation Excel, landing only hours after their scheduled trip. “It was well worth it. You can never get a birthday back,” she said. Time after time, storm after storm, travelers have been left in the lurch this winter. Long after the weather clears, the impact on airlines and their passengers per- sists. So far this January, U.S. air- lines have canceled more than 36,000 flights—more than after superstorm Sandy in 2012 and three times as many as the last two Januarys. That’s roughly three million inconvenienced passen- gers. With most flights booked full, it can take three, four or even five days to get rebooked. Alternatives are limited—driv- ing or taking a train may take days; other airlines are all booked up. For those few willing to pay the very high price, private jets can provide a smart escape. Terry Cooper, president of Charter Matrix, an online direc- tory and marketplace that lists flights with empty seats and ar- ranges charters, said that during the holiday storms, his requests doubled. “There’s a lot of freedom to corporate jets, but you pay for that freedom,” he said. How much? A small jet with four to six seats can cost $3,000 per hour, brokers say, putting a 2½-hour flight from Florida to New York at around $7,500. Air- port fees and charges to reposi- tion aircraft can raise that consid- erably. Larger jets run $8,000 or more per hour. Magellan Jets, a Quincy, Mass., firm that handles regular custom- ers who buy hours in bulk and one-time on-demand charters, says a midsize Hawker 400XP with seating for up to eight costs about $12,000 for a trip from West Palm Beach, Fla., to Teter- boro, N.J., for its members, and $17,000 for a nonmember on a one-time, one-way charter. Private jets have lots of advan- tages over airlines for getting in the air before and after storms. There are thousands of small air- ports available to them. While big airports often have more equip- ment to keep runways open, schedules can often get discom- bobulated by a lack of gates, a lack of security screeners, baggage handlers or gate agents, or simply the need to thin out airline sched- ules engineered for perfect flying conditions. That rarely impacts secondary airports, allowing pri- vate jets to fly when many com- mercial flights are grounded. And there’s the bonus of not having to stand in line for Trans- portation Security Administration clearance, either. For three couples eager to get home, sharing a plane and paying $4,000 or $5,000 each may be more attractive than being stuck in a hotel away from family or work for most of a week. Ms. Grazioso was grounded when JetBlue had a shortage of pi- lots after longer rest periods were required starting Jan. 1. She tried to find a way to fly to Dallas and then connect to New Jersey, or drive to Jacksonville, Fla., and get a flight home from there. No luck. They looked into Amtrak— maybe flying to Washington, D.C., and catching a train from there. But there were no airline seats to Washington available. She had the American Express platinum mem- bers’ desk working on it, and her own travel agent, who she says usually works miracles. “There was nothing. We checked every airline,” she said. So she began looking into pri- vate jets. One charter company quoted her a price of $22,000— too much, she decided. Her hus- band called Magellan and an agent said a client—three people and three dogs—were flying from West Palm Beach to White Plains, N.Y., with some empty seats. The client told Magellan they didn’t mind sharing and a match was made. “We had mutual friends, it turned out,” Ms. Grazioso said. A rented car was waiting plane-side in White Plains and the drive home to New Jersey took about 90 minutes. Magellan said it flew about 30 to 40 extra flights on Jan. 5 and 6 with people stranded by the ice storm, and had more people wait- ing. “It got to the point we were linking clients up with each other,” said Anthony Tivnan, Ma- gellan’s president. In situations like that, the company charters to one client for one price and lets the passengers decide how to split the cost. The high season for private jets runs from Thanksgiving through the end of March. No week is as busy as Super Bowl week. This year thousands of small-jet flights will descend on airports around the New York region, booking spe- cial takeoff and landing slots with the Federal Aviation Administra- tion because traffic is so heavy. When the game ends, engines start turning with a race to escape quickly and avoid delays. For the Super Bowl, Magellan said a Denver-to-Teterboro flight on a private aircraft starts at about $25,000 round-trip and Se- attle-to-Teterboro starts at around $35,000 round-trip. After slow years through the recession, private-jet firms say business is booming. “The econ- omy is better and airline service is worse,” said Bradley Stewart, chief executive officer of XOJet, a Brisbane, Calif.-based private avia- tion firm. Charter firms have gotten more aggressive about posting “empty legs” available to travelers at deep discounts. Private jet charter firm JetSuite, based in Irvine, Calif., lists its empty leg flights on Face- book, for example, sometimes with prices as low as $500 or $1,000 for the whole airplane. A four-seat Embraer Phenom 100 regularly costs $3,400 an hour for members and $3,900 for nonmem- bers, JetSuite said. While empty-leg pricing can be eye-catching, finding a trip where and when you want to go can be rare. You can set an alert on Char- ter Matrix and get an email when any flights that come close to a particular route open up. With any charter, two safety measures are prudent: Make sure your operator has strong safety ratings from both Wyvern and Ar- gus International Inc., two private aviation safety agencies. Argus in- cludes background checks on pi- lots as well as rating operating companies; Wyvern runs checks on aircraft as well as crew train- ing and experience. With the New Year’s storm, JetSuite flew customers out of the Caribbean into Texas and Florida, then on to New York once condi- tions improved, Chief Executive Alex Wilcox said. XOJet positioned planes just outside the areas expected to be hard-hit by polar vortex storms over the holidays, parking them in places like Greensboro, N.C. They were easily able to pick up pas- sengers in Florida and get them to New York as soon as weather con- ditions improved. XOJet will provide a standby jet for good customers, Mr. Stew- art said. The customers have air- line tickets, but if flights get can- celed and they have to be in Davos or at a board meeting, a plane and crew are waiting. “If they make their airline connection, great. If not, we swing into action,” he said. BY SCOTT MCCARTNEY P h o t o i l l u s t r a t i o n b y M i c k C o u l a s ; p h o t o s : G e t t y I m a g e s a n d A l a m y ( i n s e t ) THE MIDDLE SEAT Hailing an Air Taxi Chartering a private jet is more complicated than buying an airline ticket. n Check for safety ratings. You want an operator with top-level certification from both Wyvern and Argus International. n Ask a friend. Someone you know with a jet card can speed the process up. n Understand the pricing. Is it fixed or dependent on the trip duration? If one-way, is there a charge for flying the plane empty to its next stop? Airport fees? Catering fee? n Ask about sharing. Some brokers will ask clients with available empty seats if they’d be willing to take on extra people to share costs. n Buddy up. See a group of well-to-do people stuck in the same airport line? Chartering as a group spreads the high cost out. Stormafter storm, travelers have been left in the lurch this winter. Long after the weather clears, the impact on airlines and their passengers persists. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 7 Western States Escape The East’s Deep Freeze At times in January, Chicago was colder than the South Pole, while flowers bloomed out of season in balmy Juneau, Alaska. Driven by contorted bends of the jet stream, cold snaps and snow kept Northern and Southern states in a deep freeze, while unusually warm weather and record drought gripped the far West. The U.S. has been a country di- vided by temperature extremes, in a winter of record Western highs and bone-chilling Eastern lows, federal climate experts and private meteo- rologists said. A formal federal tally of January’s temperature trends won’t be com- pleted for weeks, but preliminary re- gional data compiled by commercial meteorologists suggest that the East- ern half of the country is experienc- ing one of its 10 coldest winters on record—with thousands of local re- cords for cold already tied or broken. By contrast, California, Alaska and the Western U.S. are having one of the 10 warmest winters, with several cities setting records in January for high temperatures. “We are talking about significant departures from normal,” said mete- orologist Joe D’Aleo, chief forecaster at Weatherbell Analytics LLC, a com- mercial forecasting company based in New York. Weather experts blame it all on a vast pool of warmwater in the North Pacific—up to seven degrees hotter than in most years. Generating a plume of rising hot air, it has pushed the polar jet stream, which steers air across the continent from west to east, further north and then south in a series of kinks like accordion pleats. The same odd continental pattern of air circulation contributed to the cold- est U.S. winters on record in 1977 and 1979, experts said. “The jet stream has configured itself in a way that it is positioned to bring warm air to the West and shots of really cold air to the East,” said Deke Arndt, chief of climate monitoring at the National Climatic Data Center in Asheville, N.C. As a consequence, the Western half of the country has been almost as much above average as the East- ern half has been below average. “If you average the extremes, you miss out on how truly extraordinary the weather this January is,” said Jeff Masters, chief meteorologist at Weather Underground, a commer- cial forecasting service. The month unofficially edged out 1948 as only the 25th coldest U.S. January, based on more than a cen- tury of record-keeping. “The bitter cold we experienced in January was certainly unusual and the coldest we have seen in the 21st century, said Dr. Arndt. “But they were the kinds of temperatures we would routinely see in two out of three winters in the cold decades of the 1970s and 1990s.” Even so, it has been cold enough to drive the penguins indoors at the National Aviary in Pittsburgh, icy enough to freeze over much of the Great Lakes, and snowy enough that airlines in January canceled more than 36,000 flights. By a preliminary count, the month set more than a thousand local records for snowfall. At the same time, it was warm and dry enough in the West that Cal- ifornia’s snowpack is now at its low- est level in 50 years, threatening the state’s water supply. Temperatures in January topped 88 degrees in Long Beach, while Anchorage, Alaska, notched its warmest January day on record this past Monday, with tem- peratures southwest of the city reaching 62 degrees. “It is a study in extremes,” Dr. Masters said. BY ROBERT LEE HOTZ ActorPhilipSeymourHoffmanDeadat46 Award-winning actor Philip Sey- mour Hoffman was found dead of an apparent drug overdose late Sunday morning in his New York City apartment, authorities said. Law-enforcement officials said a hypodermic needle and two glass- ine envelopes containing what is believed to be heroin were found in the apartment in the West Village neighborhood of Manhattan. The 46-year-old actor was found unconscious in the bathroom of his fourth floor apartment in the Pickwick House around 11:15 a.m. by screenwriter David Katz, who called 911, a law-enforcement offi- cial said. He was pronounced dead at the scene. Mr. Hoffman was last seen around 8 p.m. Saturday, the official said. He was supposed to pick up his children Sunday morning and, when he didn’t, Mr. Katz and a friend went to check on him, the official said. The New York Police Depart- ment is investigating, and the Of- fice of the Chief Medical Examiner is working to determine the exact cause of death. The accomplished actor and director won the Acad- emy Award for best actor for his role as famed author Truman Ca- pote in the 2005 film “Capote.” He also had a strong following in New York’s theater scene, starring in plays like 2012’s “Death of a Sales- man” and directing others, like 1999’s “In Arabia, We’d All Be Kings.” He was nominated for a Tony Award three times. Mr. Hoffman’s breakout role, however, was in 1997’s “Boogie Nights.” He also received accolades for his roles in high-profile films such as 1998’s “The Big Lebowski” and 1999’s “Magnolia.” Mr. Hoffman was most recently seen in “The Hunger Games: Catch- ing Fire,” the second installment in the blockbuster “Hunger Games” series from Lions Gate Entertain- ment Corp. He was set to star in two more installments in the fran- chise that are scheduled for re- lease. Outside of the six-story building in the West Village, fan Adam Ze- nko, 40, placed white roses outside the front door. The paralegal, who lives nearby, said his favorite film of Mr. Hoffman’s was “Synecdoche, New York.” “It’s horrible, just horrible,” he said. “I think he’s the greatest ac- tor of his generation.” —Mara Gay, Alison Fox and Erich Schwartzel contributed to this article. BY PERVAIZ SHALLWANI U.S. NEWS When toRaiseRates TopsYellen’sAgenda In three years as second-in-com- mand at the Federal Reserve, Janet Yellen worried continuously about high U.S. unemployment and pushed for policies to bring it down. After she is sworn in as Fed chairwoman Monday a new question will almost immediately crowd her agenda: Why is unemployment falling so fast and what, if anything, should the central bank do about it? The jobless rate was 6.7% in De- cember and the Labor Department will release the January figure on Friday. Fed officials have said since December 2012 they wouldn’t con- sider raising short-term interest rates from near zero until joblessnes fell to at least 6.5%. More recently, they have said they will keep rates low “well past” that point as they weigh other indi- cators the labor market remains weak. This suggests rate increases won’t be coming soon even if job- lessness were to touch 6.5% in Fri- day’s report. Among Ms. Yellen’s most critical decisions is when to start lifting in- terest rates. If she and her col- leagues wait too long, they could fuel high inflation or financial bub- bles; if they move too soon, they could damp a recovery that is just gaining steam. Key to that decision is making sense of the falling unemployment rate. She and other Fed officials worry it masks large pockets of stress still plaguing the labor mar- ket, including millions of people who want work but aren’t looking anymore and therefore are no lon- ger counted as unemployed. “The U.S. labor market is incredi- bly complicated and trying to sum- marize it with one number is hard,” says David Stockton, the former head of the Fed’s research division. “They got themselves into a situa- tion where they are using the unem- ployment rate but they see a consid- erable number of reasons why they believe it is not a sufficient statis- tic.” The fast descent in the jobless rate has caught Fed officials off guard. A year ago they didn’t see it getting to 6.5% until 2015. As re- cently as June, they didn’t see it reaching this point until sometime later this year. A rule of thumb in economics known as Okun’s Law suggests the jobless rate should fall a half per- centage point for every percentage point the economy grows above its long-run trend rate. By that rule of thumb, the unemployment rate shouldn’t have fallen much in an un- usually anemic economic recovery. Instead it is down more than three percentage points from the recent peak. One reason for the drop is an ex- odus of millions of workers from the labor force. In June 2009, when the recovery started, 81 million Ameri- cans said they weren’t in the labor force, which means they weren’t employed or actively looking for work. In December that number hit 92 million. People are leaving the labor force for different reasons— they’re retiring, going back to school, join- ing disability rolls, giving up looking for jobs or doing other things—re- ducing the number of people counted as unemployed. The trend raises hard-to-answer questions for the Fed. Will some of these people come back to work when the economy improves or have they left permanently? Do these shifts mean there is less slack in la- bor markets—workers available to take jobs—than they realized, or is the slack still out there, hidden in these numbers? Ms. Yellen and other Fed officials equate slack with low wages and low inflation. If it is receding more quickly than they thought, rate in- creases might be needed sooner than planned. But they see many signs that the job market is still weak. Nearly eight million people have part-time jobs but want full-time work. Another 2.4 million say they want jobs but aren’t looking. When taking into account these people and other “marginally at- tached” workers, the jobless rate is 13.1%. Behind the numbers are people like Mialien Mack, 40, of Atlanta, Georgia. She was laid off in May from her marketing job in the cor- porate office of a convenience store chain in Atlanta after nearly 11 years with the company. She recently faced the expiration of her $330 per week of unemployment benefits, which has shifted her thinking about her job search. “It’s making me think, should I consider less money?” In her previ- ous jobs she had been making the equivalent of about $25 an hour. Now she is contemplating positions that would pay half that. “Twelve-fifty is still not a livable wage for an adult with a child,” she said. “However, is it a foot in the door?” BY JON HILSENRATH AND VICTORIA MCGRANE Sources: NOAA’s National Climatic Data Center (temperature); Weatherbell Analytics LLC (2014 estimate); staff and news reports (weather facts) Weather Divide Average temperature for January of each year in the contiguous 48 states 40°F 20 25 30 35 ’60 1950 ’70 ’80 ’90 ’00 ’10 2014 estimate: 2.5°F below average 1979: 8.54°F below average 2006: 8.62°F above average Average 1895-2013: 30.63°F January was so cold in some places that: ◆In Chicago, it got colder than the South Pole. ◆ In Minnesota, where temperatures dipped to -42°F, it was colder than Gale Crater on Mars, where the NASA robotic rover Curiosity is stationed. ◆ In Chicago, Anana, the lone polar bear at the Lincoln Park Zoo, had to stay indoors to keep warm. ◆ In Pittsburgh at the National Aviary, the penguins huddled indoors. ◆ All told, more than 36,000 airline flights were canceled, three times as many as the past two Januarys. While others had a warm spell: ◆ In Juneau, Alaska, the flowers were blooming. ◆ And it was so hot in Fresno, Calif., that the China Peak Mountain resort closed ski runs for lack of snow. The Wall Street Journal Philip Seymour Hoffman in January. E u r o p e a n P r e s s p h o t o A g e n c y 22 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Major players & benchmarks Credit derivatives Spreads oncredit derivatives are one way the market rates creditworthiness. Regions that are treading inroughwaters cansee spreads swing toward the maximum—and vice versa. Indexes beloware for five-year swaps. Markit iTraxxIndexes SPREADRANGE, in pct. pts. Mid-spread, since most recent roll Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average Europe: 20/1 0.81 100.90% 0.01% 1.04 0.69 0.82 Eur. HighVolatility: 20/1 1.19 99.14 0.01 1.61 1.01 1.24 Europe Crossover: 20/1 3.08 108.27 0.05 4.08 2.75 3.30 Asia ex-JapanIG: 20/1 1.49 97.76 0.01 1.57 1.24 1.37 Japan: 20/1 0.84 100.77 0.01 0.97 0.68 0.82 Note: Data as of January 30 Spreads Spreads on five-year swaps for corporate debt; based on Markit iTraxx indexes. In percentage points 3.00 2.00 1.00 0 –1 t Australia t Japan 2013 Aug. Sept. Oct. Nov. 2014 Dec. Jan. Index roll Source: Markit Group Tracking credit markets & dealmakers Dow Jones Industrial Average P/E: 15 LAST: 15698.85 t149.76, or 0.94% YEAR TO DATE: t877.81, or 5.3% OVER 52 WEEKS s1,689.06, or 12.1% Note: Price-to-earnings ratios are for trailing 12 months 16750 16400 16050 15700 15350 15000 1 8 15 22 29 Nov. 6 13 20 27 Dec. 3 10 17 24 31 Jan. High Close Low 50–day moving average t StoxxEurope 50: Friday's best andworst... Previous close, in STOCKPERFORMANCE Company Country Industry Volume local currency Previous session YTD 52-week Moet Hennessy Louis Vuitt France Clothing &Accessories 3,602,950 132.15 7.88% -0.3% -4.8% BGGrp United Kingdom Integrated Oil &Gas 15,850,938 1,022 1.34 -21.2 -8.8 Financiere Richemont Switzerland Clothing &Accessories 2,174,787 84.15 1.08 -5.2 12.4 British American Tobacco United Kingdom Tobacco 4,703,287 2,916 0.92 -9.9 -11.2 National Grid United Kingdom Multiutilities 7,861,133 789.00 0.90 0.1 14.1 Deutsche Bank Germany Banks 11,660,099 35.89 -2.79% 3.5 -6.8 Royal Dutch Shell A United Kingdom Integrated Oil &Gas 5,227,583 2,104 -2.05 -2.8 -6.1 INGGroep Netherlands Life Insurance 29,738,721 9.84 -1.70 -2.6 32.1 Standard Chartered United Kingdom Banks 8,850,345 1,240 -1.63 -8.8 -26.1 Deutsche Telekom Germany Mobile Telecommunications 18,444,098 12.00 -1.60 -3.5 34.3 ...Andthe rest of Europe's blue chips Latest, in local STOCKPERFORMANCE Company/Country (Industry) Volume currency Latest YTD 52-week Reckitt Benckiser Grp 1,223,371 4,563 0.57% -4.8% 8.6% United Kingdom(Nondurable Household Products) Vodafone Group 100,553,628 226.55 0.40 -4.4 31.6 United Kingdom(Mobile Telecommunications) Banco Bilbao Vizcaya Argn 50,413,299 8.86 0.21 -1.0 23.4 Spain (Banks) Anheuser-Busch InBev 2,259,832 71.05 0.11 -8.0 11.2 Belgium(Brewers) Rio Tinto 3,744,234 3,244 0.09 -4.9 -8.9 United Kingdom(General Mining) BP PLC 22,350,013 478.00 0.02 -2.1 2.4 United Kingdom(Integrated Oil &Gas) Roche Holding Part. Cert. 1,699,201 249.30 ... 0.0 23.8 Switzerland (Pharmaceuticals) UBS 11,557,413 17.99 -0.11 6.3 14.0 Switzerland (Banks) Telefon L.M. Ericsson B 16,177,505 80.00 -0.12 1.9 8.1 Sweden (Telecommunications Equipment) Siemens 4,101,701 93.96 -0.19 -5.4 17.6 Germany (Diversified Industrials) Nestle 5,864,260 65.80 -0.23 0.8 3.0 Switzerland (Food Products) BASF 3,952,135 79.53 -0.25 2.6 4.9 Germany (Commodity Chemicals) ABB 6,611,910 22.62 -0.26 -3.7 15.9 Switzerland (Industrial Machinery) ENI 14,611,538 16.85 -0.30 -3.7 -8.9 Italy (Integrated Oil &Gas) Lloyds Banking Group PLC 102,665,213 83.30 -0.30 5.6 61.2 United Kingdom(Banks) Banco Santander S.A. 59,373,682 6.41 -0.31 -0.5 8.0 Spain (Banks) Glencore Xstrata PLC 27,394,017 322.50 -0.36 3.1 -18.0 United Kingdom(General Mining) AstraZeneca 2,037,593 3,859 -0.37 7.9 26.4 United Kingdom(Pharmaceuticals) L'Air Liquide 1,003,382 93.20 -0.40 -9.3 -1.0 France (Commodity Chemicals) Schneider Electric 2,066,985 59.89 -0.45 -5.5 6.8 France (Electrical Components &Equipment) Latest, in local STOCKPERFORMANCE Company/Country (Industry) Volume currency Latest YTD 52-week SAP 3,165,760 56.66 -0.47% -9.1% -7.0% Germany (Software) HSBC Hldgs 24,961,836 627.00 -0.51 -5.3 -12.5 United Kingdom(Banks) Bayer 2,597,527 97.89 -0.56 -4.0 34.1 Germany (Specialty Chemicals) Daimler 5,457,152 62.13 -0.59 -1.2 43.0 Germany (Automobiles) Novartis AG 6,584,897 71.80 -0.62 0.8 15.8 Switzerland (Pharmaceuticals) Credit Suisse Group AG 5,501,745 27.40 -0.65 0.5 2.9 Switzerland (Banks) Unilever CVA 7,281,339 27.71 -0.68 -5.4 -7.0 Netherlands (Food Products) Telefonica S.A. 20,444,217 11.44 -0.69 -3.3 7.1 Spain (Fixed Line Telecommunications) AXA 9,640,827 19.50 -0.76 -3.5 43.0 France (Full Line Insurance) Sanofi SA 3,941,726 72.80 -0.79 -5.6 1.3 France (Pharmaceuticals) GlaxoSmithKline 7,184,583 1,564 -0.79 -2.9 8.2 United Kingdom(Pharmaceuticals) Unilever 4,309,183 2,339 -0.81 -5.8 -8.9 United Kingdom(Food Products) BHP Billiton 9,407,447 1,796 -0.86 -3.9 -16.8 United Kingdom(General Mining) Tesco 16,322,182 320.35 -0.91 -4.2 -10.1 United Kingdom(Food Retailers &Wholesalers) Allianz SE 1,998,411 123.80 -0.92 -5.0 17.3 Germany (Full Line Insurance) Barclays 49,273,966 272.50 -0.93 0.2 -9.5 United Kingdom(Banks) Zurich Insurance Group 731,923 261.50 -0.95 1.2 -0.1 Switzerland (Full Line Insurance) Diageo 9,346,759 1,801 -1.07 -10.0 -4.1 United Kingdom(Distillers &Vintners) Total 6,182,909 42.34 -1.27 -4.9 6.0 France (Integrated Oil &Gas) BNP Paribas 5,097,672 57.45 -1.42 1.4 24.3 France (Banks) Sources: SIX Financial Information DJIAcomponent stocks Volume, CHANGE Stock Symbol in millions Latest Points Percentage AT&T T 33.9 $33.32 –0.03 –0.09% AmExpress AXP 4.7 85.02 –1.60 –1.85 Boeing BA 9.7 125.26 –1.27 –1.00 Caterpillar CAT 9.1 93.91 0.71 0.76 Chevron CVX 15.3 111.63 –4.82 –4.14 CiscoSys CSCO 41.5 21.91 –0.07 –0.30 CocaCola KO 16.0 37.82 –0.35 –0.92 Disney DIS 7.7 72.61 –0.61 –0.83 DuPont DD 5.6 61.01 –0.53 –0.86 ExxonMobil XOM 16.8 92.16 –1.83 –1.95 GenElec GE 39.8 25.13 –0.37 –1.45 GoldmanSachs GS 3.4 164.12 –1.72 –1.04 HomeDpt HD 10.5 76.85 –0.08 –0.10 Intel INTC 26.9 24.54 –0.20 –0.81 IBM IBM 5.1 176.68 –0.68 –0.38 JPMorgChas JPM 17.9 55.36 –0.64 –1.14 JohnsJohns JNJ 12.0 88.47 –1.03 –1.15 McDonalds MCD 5.9 94.17 0.37 0.39 Merck MRK 14.8 52.97 –0.54 –1.01 Microsoft MSFT 85.6 37.84 0.98 2.66 Nike B NKE 4.2 72.85 –1.09 –1.47 Pfizer PFE 40.6 30.40 –0.42 –1.36 ProctGamb PG 12.8 76.62 –0.25 –0.33 3M MMM 3.6 128.19 0.14 0.11 TravelersCos TRV 4.8 81.28 –1.08 –1.31 UnitedTech UTX 3.4 114.02 –0.66 –0.58 UtdHlthGp UNH 4.0 72.28 –0.52 –0.71 Verizon VZ 17.8 48.02 0.39 0.82 VISAClA V 6.1 215.43 –5.45 –2.47 WalMart WMT 10.4 74.68 –0.07 –0.09 Source: WSJ Market Data Group Credit-default swaps: European companies At itsmost basic, thepricingof credit-default swapsmeasureshowmuchabuyer hastopaytopurchase-and howmuch a seller demands to sell-protection fromdefault on an issuer's debt. The snapshot belowgives a sense whichway the market was moving yesterday. Showing the biggest improvement... CHANGE, in basis points Yesterday Yesterday Five-day 28-day Nielsen 101 –5 –5 –24 Allianz 49 –1 1 5 RabobankNederland 76 –2 5 10 StdCharteredBk 123 –3 5 19 Alliance Leicester 94 –2 4 4 Deutsche Bk 95 –2 5 13 ONOFinII 153 –3 –48 –50 RaiffeisenZentralbank Oesterreich 84 –2 –6 –27 CARLTONComms 138 –3 –3 2 Compass Gp 43 –1 2 1 Andthe most deterioration CHANGE, in basis points Yesterday Yesterday Five-day 28-day CIRSpACIEIndustriali Riunite 258 14 44 –118 Portugal TelecomSGPS 349 18 47 89 Diageo 53 2 5 12 Pearson 64 3 5 13 REPSOL 123 5 22 28 Telefonica 165 6 31 45 Hellenic Telecom 331 13 57 75 Stena Aktiebolag 396 15 45 –4 Portugal TelecomIntl Fin 349 12 44 85 Gecina 102 3 5 5 Source: Markit Group BLUE CHIPS & BONDS WSJ.com >> Follow the markets throughout the day, with updated stock quotes, news and commentary at WSJ.com. Also, receive emails that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/Email. Below, a look at the Dow Jones Stoxx 50, the biggest and best known companies in Europe, including the U.K. Europe, Middle East & Africa: Bank revenues from equity capital markets Behind every IPO, follow-on or convertible equity offering is one or more investment banks. At right, investment banks historical and year-to-date revenues from global equity-capital-market (ECM) deals Source: Dealogic 60% 6 40 4 20 2 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 nEquity capital markets nDebt capital markets (both in billions, left axis) ECM as a percentage of total (right axis) t 8 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Big Indonesian Volcano Claims Its First Victims JAKARTA, Indonesia—More than a dozen tourists and villagers were killed after venturing too close to In- donesia’s most active volcano over the weekend, prompting authorities to tighten a restricted-entry zone around the mountain on Sumatra is- land. At least 15 people, mostly high- school students, were killed near an evacuated village when Mount Sinabung erupted Saturday, officials said. Sinabung has been erupting daily for the past three months, but these were the first deaths directly related to the volcanic activity. The national disaster-mitigation agency said the students and several villagers were struck by a pyroclas- tic flow, a superheated cloud of ash and gases that can barrel down a mountain side at high speeds during an ash eruption. The flow gushed down the moun- tain side at about 100 kilometers an hour with a temperature of around 700 degrees Celsius, the agency said. The students, who had ventured near a village about three kilometers southeast of the volcano, had been trying to get a better view of the eruption, said agency spokesman Su- topo Purwo Nugroho, adding that the students weren’t on an orga- nized school trip. Sinabung’s southeastern flank has been site of the majority of the pyroclastic flows emanating from the crater since the round of erup- tions began in November. Eruptions have forced the evacu- ation of some 30,000 people—many of them small farmers—on northern Sumatra island, blanketing the high- lands countryside in gray ash that has destroyed millions of dollars of cash crops. More than 10,000 people who had evacuated from villages just be- yond the mandatory evacuation zone—which runs five kilometers from the peak in most places—chose to return home last week. Up to now, entry into the evacua- tion zone has been permitted but discouraged by local authorities. But Jhonson Tarigan, spokesman for the local relief effort, said Sun- day police and military increased their patrol personnel to 200 from 75 after the deaths and would now declare the evacuation zone com- pletely off limits. “Starting today, we installed road blocks at access roads to the danger zone,” he said. “Now nobody will be allowed to enter the danger zone.” He also said some of the new personnel would come from areas beyond Kabanjahe, the headquarters for a district of several hundred thousand people around the volcano. “Previously the patrolling officers knew the villagers, so they were less stern in stopping the them” from en- tering, he said. Tourist trips to the volcano have been a common sight in recent months, often led by guides who used to take people hiking to the top of the nearly 2,500-meter peak. Erwin Sinaga, a local guide, said he takes groups into the evacuation zone two to three times a week. On Sunday, he was planning to take travelers from the U.S. and Taiwan as close as four kilometers on the roads at the base of the mountain, until the route was closed by au- thorities. He found another vantage point at seven kilometers, he said. The fatalities occurred a day af- ter authorities allowed some 13,800 people to go back to their villages outside the five-kilometer danger zone. Many had fled in December and January amid ash fall and an uptick in pyroclastic flows further up the mountain. Thousands of villagers have been living for months in mosques, churches and event halls. On Sunday, Hendrasto, the head of the government volcano agency who, like many Indonesians, goes by one name, said Sinabung’s activity remains unchanged. “The eruptions are not expected to stop in the near future,” he said. For locals living at a safe distance from the volcano, Sinabung has of- fered a nightly diversion for months. On a recent evening in Kabanjahe, about 200 locals braved the high- lands chill to stand in a field about 13 kilometers from the summit, looking up at the mountain for occasional burst of lava. Vendors sold cheap noodle soup to ward off the chill. A quiet murmur went up in the crowd when a fireball flew silently down the side of the volcano, at that distance little more than a drop of red on a black hillside. “Wait awhile,” one of onlookers said. “It’ll happen again, bigger.” BY I MADE SENTANA AND BEN OTTO A rescue team passes ash-covered motorcycles Sunday in North Sumatra during operations around the village of Karo. R e u t e r s MyanmarReport IndicatesPolitical HurdlesforSuuKyi YANGON, Myanmar—A commit- tee evaluating changes to Myan- mar’s constitution found resistance to opening the door for opposition leader Aung San Suu Kyi to assume the presidency, underscoring the hurdles to her political ambitions. The question mark surrounding whether Ms. Suu Kyi will be able to run for president is considered the defining political issue leading up to Myanmar’s general elections, scheduled for 2015. This initial report was produced by a 109-member parliamentary committee tasked with collecting suggestions from various stakehold- ers—including from political parties and the military—on what should be amended within the constitution. The committee said it received more than 28,000 letters following its call for comment on the pro- posed changes, drafted in 2008 by the junta that ran Myanmar at the time. The document, drafted by military generals who kept Ms. Suu Kyi under house arrest for over a decade, includes a clause that pre- vents anyone with foreign family members from assuming the presi- dency or vice-presidency. The Nobel laureate, who was married to a British national and has two foreign sons, is widely revered and consid- ered the strongest presidential can- didate, should she be cleared to run for the post. But of these letters, the ones that opposed making changes to al- low Ms. Suu Kyi to run or dismantle the provision that guarantees a place in politics for Myanmar’s mili- tary received more than 100,000 signatures. Conversely, only 592 signatures were in favor of scrap- ping the section on presidential qualifications that disqualify Ms. Suu Kyi. The committee will send Parlia- ment its recommendations on changes. It remains unclear how or when the Parliament might act on any constitutional changes. The initial report, released to Parliament on Friday, isn’t binding, nor is it a formal recommendation. But the task of collecting sugges- tions on potential changes for the constitution was the first of its kind since a nominally civilian govern- ment took the helm in 2011 after six decades of military rule, and is the first temperature-taking exercise of sentiments around these crucial changes. “It is clear that there is resis- tance to amending the clause [on presidential qualifications], some- thing Aung San Suu Kyi has been pushing hard for,” said Richard Horsey, a Yangon-based political an- alyst.Ms. Suu Kyi, who recently traveled across Myanmar to Chin, Shan and Karen states, has made constitutional change the priority of her party. Her calls have also re- ceived significant backing outside Myanmar’s borders, with govern- ments including the U.S. and U.K. Mr. Horsey, like many other ana- lysts, had been predicting that the military, which holds 25% of seats in parliament, might use its veto powers to block a change in the constitution that would allow Ms. Suu Kyi to run. But, he added, the report indicates that the issue may not “even get to the stage of being voted on in the legislature.” Any constitutional amendment requires 75% of parliamentary votes in agreement. The committee will deliver a for- mal report at an unspecified time to a separate parliamentary panel, providing more specific recommen- dations and analysis on changes to the constitution. Representatives from Ms. Suu Kyi’s National League for Democ- racy party on Sunday dismissed the letters, saying they reflected an or- ganized government movement. “There were no reasons given as to why they want to keep article 59f, only signatures,” said Zaw My- int Oo, a NLD member of parlia- ment who sits on the committee looking at constitutional reform. “The process has no transparency— if our party chairman, Aung San Suu Kyi, went on similar campaigns, we can get more signatures to change this section.” BY SHIBANI MAHTANI AND MYO MYO Opposition leader Aung San Suu Kyi supporters allege a government movement. G e t t y I m a g e s Barrier Reef Dumping Plan Draws Ire CANBERRA—Australia approved plans to dump vast amounts of mud and rock into oceans surrounding the Great Barrier Reef, paving the way for developers to expand a coal port on the country’s eastern coast. The government agency that manages the reef, a designated World Heritage site, said it would allow as much as 3 million cubic meters of dredged-up material from the sea floor to be dumped. The dredging is part of a project to expand Abbot Point, a coal port in Queensland state which sits adja- cent to the park. The marine author- ity’s decision is expected to facili- tate eventually a 70% ramp-up in coal exports from Queensland. Coal, along with iron ore, is one of Aus- tralia’s biggest exports in big de- mand from Asian countries, includ- ing China, the nation’s biggest trading partner. The government approved the port expansion last year, but charged the marine authority with deciding where the dredged-up mud and rock would be shifted to. Sup- porters of the plan say it will unlock up to 28 billion Australian dollars (US$24.5 billion) in coal-develop- ment projects, helping provide much-needed jobs as a China-led mining-investment boom cools. Environmental campaigners, however, criticized the Great Barrier Reef Marine Park Authority’s deci- sion, saying the dumping of sludge to help make way for more ships to access the port threatened coral and fish around the reef, the world’s largest living organism. BY ROB TAYLOR WORLD NEWS THE WALL STREET JOURNAL. Monday, February 3, 2014 | 21 Major stockmarket indexes Stock indexes fromaround the world, grouped by region. Showninlocal-currency terms. PREVIOUS SESSION PERFORMANCE Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. EUROPE Stoxx Europe 600 322.52 -0.80 -0.25% -1.7% 11.9% Stoxx Europe 50 2853.33 -7.14 -0.25 -2.3 8.1 Euro Zone Euro Stoxx 307.33 -1.56 -0.51 -2.2 13.7 Euro Stoxx 50 3013.96 -13.34 -0.44 -3.1 11.2 Austria ATX 2559.74 -22.27 -0.86 0.5 4.9 Belgium Bel-20 2891.25 -6.72 -0.23 -1.1 12.9 Czech Republic PX 990.61 -3.82 -0.38 0.2 -2.6 Denmark OMXCopenhagen 593.18 7.05 1.20% 4.8 19.0 Finland OMXHelsinki 7030.60 -104.03 -1.46 -4.2 14.4 France CAC-40 4165.72 -14.30 -0.34 -3.0 10.4 Germany DAX 9306.48 -67.00 -0.71 -2.6 18.8 Hungary BUX 18958.24 341.56 1.83 2.1 -2.1 Ireland ISEQ 4652.30 -32.34 -0.69 2.5 30.2 Italy FTSE MIB 19418.34 6.79 0.03 2.4 12.1 Netherlands AEX 386.85 -2.76 -0.71 -3.7 8.8 Norway All-Shares 590.88 -4.74 -0.80 -2.0 13.7 Poland WIG 50831.61 414.44 0.82 -0.9 8.3 Portugal PSI 20 6696.67 -68.27 -1.01 2.1 7.1 PREVIOUS SESSION PERFORMANCE Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. Russia RTSI 1301.02 -19.88 -1.51% -9.8 -20.1 Spain IBEX35 9920.20 -44.30 -0.44 ... 20.5 Sweden OMXStockholm 416.72 0.27 0.06% -1.6 14.0 Switzerland SMI 8191.33 -13.63 -0.17 -0.1 10.4 Turkey BIST 100 61858.21 -843.18 -1.34 -8.8 -22.9 U.K. FTSE 100 6510.44 -28.01 -0.43 -3.5 2.6 ASIA-PACIFIC DJ Asia-Pacific 140.83 0.19 0.14 -4.2 2.8 Australia SPX/ASX200 5190.00 1.90 0.04 -3.0 5.5 China Shanghai Composite 2033.08 Closed -3.9 -14.8 Hong Kong Hang Seng 22035.42 Closed -5.5 -7.1 India S&P BSE Sensex 20513.85 15.60 0.08 -3.1 3.7 Japan Nikkei Stock Average 14914.53 -92.53 -0.62 -8.5 33.3 Singapore Straits Times 3027.22 Closed -4.4 -7.8 South Korea Kospi 1941.15 Closed -3.5 -1.2 AMERICAS DJ Americas 448.93 -2.47 -0.55 -3.6 14.2 Brazil Bovespa 47638.99 394.73 0.84 -7.5 -21.1 Mexico IPC 40879.75 -128.55 -0.31 -4.3 -10.7 Note: Americas index data are as of 5:00p.m. ET. Sources: SIXFinancial Information; WSJ Market Data Group Cross rates U.S.-dollar and euro foreign-exchange rates inglobal trading USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD Australia 1.1440 1.8818 1.2640 0.1748 0.0325 0.1822 0.0112 0.3252 1.5446 0.2070 1.0287 ... Canada 1.1121 1.8293 1.2287 0.1699 0.0316 0.1771 0.0109 0.3161 1.5015 0.2012 ... 0.9721 Denmark 5.5267 9.0908 6.1060 0.8445 0.1572 0.8802 0.0540 1.5711 7.4616 ... 4.9696 4.8308 Euro 0.7407 1.2183 0.8183 0.1132 0.0211 0.1180 0.0072 0.2106 ... 0.1340 0.6660 0.6474 Israel 3.5177 5.7862 3.8864 0.5375 0.1001 0.5602 0.0344 ... 4.7492 0.6365 3.1631 3.0748 Japan 102.2755 168.2306 112.9952 15.6279 2.9090 16.2878 ... 29.0746 138.0810 18.5057 91.9650 89.3979 Norway 6.2793 10.3286 6.9374 0.9595 0.1786 ... 0.0614 1.7851 8.4776 1.1362 5.6463 5.4886 Russia 35.1579 57.8304 38.8429 5.3722 ... 5.5990 0.3438 9.9946 47.4663 6.3614 31.6136 30.7312 Sweden 6.5444 10.7647 7.2303 ... 0.1861 1.0422 0.0640 1.8604 8.8355 1.1841 5.8846 5.7204 Switzerland 0.9051 1.4888 ... 0.1383 0.0257 0.1441 0.0088 0.2573 1.2220 0.1638 0.8139 0.7912 U.K. 0.6079 ... 0.6717 0.0929 0.0173 0.0968 0.0059 0.1728 0.8208 0.1100 0.5467 0.5314 U.S. ... 1.6449 1.1048 0.1528 0.0284 0.1593 0.0098 0.2843 1.3501 0.1809 0.8992 0.8741 Source: ICAPPlc. MSCI indexes Developed and emerging-market regional and country indexes fromMSCI as of January 31, 2014 Price-to- LOCAL-CURRENCY Dividend earnings PERFORMANCE yield ratio MSCI Index Last Daily YTD 52-wk. 2.40% 17 MSCI ACWI* 393.89 -0.21% -3.6% 15.9% 2.40 17 World(DevelopedMarkets) 1,607.46 -0.24 -3.2 20.1 2.30 17 Worldex-EMU 196.02 -0.31 -3.2 19.9 2.30 18 Worldex-UK 1,619.74 -0.31 -3.2 21.0 3.00 17 EAFE 1,847.18 0.95 -3.6 15.2 2.60 12 EmergingMarkets (EM) 936.37 0.03 -6.6 -11.3 3.20 17 EUROPE 110.36 0.27 -1.6 14.6 3.20 18 EMU 191.11 0.30 -3.3 21.6 3.10 18 Europe ex-UK 118.69 0.34 -1.3 17.6 4.10 13 Europe Value 112.61 0.54 -0.8 16.1 2.30 22 Europe Growth 104.09 -0.01 -2.4 12.9 2.30 23 Europe Small Cap 262.87 0.31 0.8 31.5 3.50 6 EMEurope 256.07 1.40 -6.8 -17.5 3.50 14 UK 1,928.51 -0.15 -3.2 10.4 3.20 17 Nordic Countries 198.74 -0.01 -1.5 15.0 3.50 5 Russia 758.99 0.35 -4.2 -1.0 2.90 18 SouthAfrica 1,084.57 -0.90 -4.7 7.3 2.90 13 ACASIAPACIFICEX-JAPAN 444.34 0.44 -5.1 -4.7 1.70 17 Japan 753.62 -2.57 -6.4 42.1 3.10 10 China 58.96 -0.46 -6.6 -6.2 1.40 17 India 791.69 -0.82 -3.1 3.6 1.00 10 Korea 562.12 0.00 -4.6 -3.1 2.80 17 Taiwan 297.55 0.00 -1.7 7.6 1.80 19 USBROADMARKET 2,051.01 -1.18 -2.6 27.6 1.40 31 USSmall Cap 3,181.01 -1.49 -1.5 35.1 3.00 16 EMLATINAMERICA 2,887.42 -0.47 -9.8 -24.0 *Twenty-four developed and 21 emerging markets Source: MSCI S&PDowJones Indices Price-to- Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars) yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk. 2.35%19.41 Global TSM 3113.70 -0.42% 10.7% 2.91 17.87 Global DOW 1667.27 -0.20% 14.0% 2391.51 -0.62 12.4 2.90 14.37 Global Titans 50 220.97 -0.05 10.8 222.91 -0.47 9.3 3.04 20.00 DevEurope TSM 3270.95 -0.68 11.6 2.30 20.34 DevelopedMarkets TSM 3140.32 -0.46 13.7 2.80 13.68 S&PBMI EmgMarkets 238.30 -0.01 -13.1 3.19 19.31 S&PEurope 350 1314.20 -0.27 11.6 1594.32 -0.63 10.1 3.09 22.34 S&PEuro 1303.85 -0.50 14.0 1602.99 -0.86 12.4 3.68 17.85 Europe Dow 1367.55 -0.16 10.8 1958.59 -0.74 9.1 3.33 9.09 BRIC50 360.65 0.40 -15.9 464.39 -0.02 -17.0 1.87 21.07 U.S. TSM 18810.34 -0.50 19.1 Kuwait Titans 30 -c 202.30 -0.08 1.9 Price-to- Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars) yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk. TurkeyTitans 20 -c 628.79 -1.25% -22.8% 6.16%15.50 Global Select Div 241.63 -0.47 4.7 6.50 14.88 Asia/Pacific Select Div 276.60 0.87% -5.5% 319.22 0.29 -7.0 U.S. Select Dividend -d 1207.61 -0.25 19.1 3.13 29.06 S&PGlbNat Resources 1928.28 -0.28 -9.9 2587.71 -0.69 -11.1 2.07 19.88 Islamic Market 2642.48 -0.38 9.7 2.39 17.93 Islamic Market 100 2883.89 -0.35 11.3 Islamic Turkey -c 3843.31 -0.83 -12.1 3.15 22.28 Sustainability Europe 106.06 -0.10 10.5 157.22 -0.67 8.8 4.24 23.10 S&PGlbInfrastructure 1473.95 0.50 7.0 2248.85 0.09 5.5 1.80 14.54 Luxury 1933.15 0.99 5.4 DJ-UBSCommodity-p 111.42 -0.34 -12.1 125.91 -0.34 -11.9 *Fundamentals are based on data in U.S. dollar. Footnotes: a-in USdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices GLOBAL MARKETS LINEUP WSJ.com >> Follow the markets throughout the day with updated stock quotes, news and commentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/email. Commodities Prices of futures contracts withthe most openinterest EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; NYMEX: NewYork Mercantile Exchange;ICE-EU: ICE Futures Europe *Data as of January 30, 2014 ONE-DAY CHANGE Year Year Commodity Exchange Last price Net Percentage high low Corn (cents/bu.) CBOT 433.50 6.00 1.40% 435.50 406.25 Soybeans (cents/bu.) CBOT 1282.75 7.75 0.61 1,330.50 1,260.50 Wheat (cents/bu.) CBOT 557.25 3.75 0.68 612.75 550.00 Live cattle (cents/lb.) CME 140.575 0.050 0.04 143.200 135.375 Cocoa ($/ton) ICE-US 2,893 -19 -0.65% 2,933 2,629 Coffee (cents/lb.) ICE-US 125.55 5.55 4.63 125.95 110.20 Sugar (cents/lb.) ICE-US 15.60 0.61 4.07 16.42 14.70 Cotton (cents/lb.) ICE-US 85.87 -0.16 -0.19 88.43 82.39 Rapeseed (euro/ton) LIFFE 364.25 2.25 0.62 365 349 Cocoa (pounds/ton) LIFFE 1,844 -5 -0.27 1,865 1,676 Robusta coffee ($/ton) LIFFE 1,777 32 1.83 1,795 1,575 Copper ($/lb.) COMEX 3.1930 -0.0335 -1.04 3.4245 3.1905 Gold ($/troy oz.) COMEX 1242.60 0.10 0.01 1,280.10 1,203.70 Silver ($/troy oz.) COMEX 19.160 0.034 0.18 20.660 18.970 Aluminum($/ton)* LME 1,729.50 -24.00 -1.37 1,813.00 1,729.50 Tin ($/ton)* LME 22,125.00 -25.00 -0.11 22,475.00 21,410.00 Copper ($/ton)* LME 7,116.00 -44.00 -0.61 7,422.00 7,116.00 Lead ($/ton)* LME 2,126.00 -29.00 -1.35 2,242.00 2,119.00 Zinc ($/ton)* LME 1,977.00 -32.50 -1.62 2,090.00 1,977.00 Nickel ($/ton)* LME 13,885 -280 -1.98 14,730 13,425 Crude oil ($/bbl.) NYMEX 97.44 -0.79 -0.80 99.08 91.47 Heating oil ($/gal.) NYMEX 2.9975 -0.0300 -0.99 3.0598 2.8905 RBOBgasoline ($/gal.) NYMEX 2.6409 -0.0334 -1.25 2.8043 2.6033 Natural gas ($/mmBtu) NYMEX 4.924 -0.087 -1.74 5.4860 3.9360 Brent crude ($/bbl.) ICE-EU 105.90 -1.40 -1.30 110.79 104.75 Gas oil ($/ton) ICE-EU 905.25 -13.25 -1.44 943.75 893.75 Sources: SIX Financial Information; WSJ Market Data Group Currencies Londonclose onJan. 31 Per In AMERICAS Per euro In euros U.S. dollar U.S. dollars Argentina peso-a 10.8270 0.0924 8.0195 0.1247 Brazil real 3.2596 0.3068 2.4144 0.4142 Canada dollar 1.5015 0.6660 1.1121 0.8992 Chile peso 751.26 0.001331 556.46 0.001797 Colombia peso 2725.84 0.0003669 2019.01 0.0004953 Ecuador US dollar-f 1.3501 0.7407 1 1 Mexico peso-a 18.0384 0.0554 13.3609 0.0748 Peru sol 3.8079 0.2626 2.8205 0.3546 Uruguay peso-e 29.168 0.0343 21.605 0.0463 U.S. dollar 1.3501 0.7407 1 1 Venezuela bolivar 8.57 0.116644 6.35 0.157480 ASIA-PACIFIC Australia dollar 1.5446 0.6474 1.1440 0.8741 1-mo. forward 1.5475 0.6462 1.1462 0.8724 3-mos. forward 1.5539 0.6435 1.1510 0.8688 6-mos. forward 1.5634 0.6396 1.1580 0.8636 China yuan 8.1809 0.1222 6.0595 0.1650 Hong Kong dollar 10.4827 0.0954 7.7645 0.1288 India rupee 84.6370 0.0118 62.6900 0.0160 Indonesia rupiah 16416 0.0000609 12159 0.0000822 Japan yen 138.08 0.007242 102.28 0.009778 1-mo. forward 138.06 0.007243 102.26 0.009779 3-mos. forward 138.01 0.007246 102.22 0.009782 6-mos. forward 137.93 0.007250 102.16 0.009788 Malaysia ringgit-c 4.5210 0.2212 3.3487 0.2986 NewZealand dollar 1.6692 0.5991 1.2364 0.8088 Pakistan rupee 142.455 0.0070 105.515 0.0095 Philippines peso 61.227 0.0163 45.351 0.0221 Singapore dollar 1.7245 0.5799 1.2773 0.7829 South Korea won 1459.31 0.0006853 1080.90 0.0009252 Taiwan dollar 40.962 0.02441 30.341 0.03296 Thailand baht 44.606 0.02242 33.040 0.03027 Per In EUROPE Per euro In euros U.S. dollar U.S. dollars Euro zone euro 1 1 0.7407 1.3501 1-mo. forward 1.0000 1.0000 0.7407 1.3501 3-mos. forward 1.0000 1.0000 0.7407 1.3502 6-mos. forward 0.9998 1.0002 0.7405 1.3504 Czech Rep. koruna-b 27.548 0.0363 20.404 0.0490 Denmark krone 7.4616 0.1340 5.5267 0.1809 Hungary forint 311.86 0.003207 230.99 0.004329 Norway krone 8.4776 0.1180 6.2793 0.1593 Poland zloty 4.2478 0.2354 3.1463 0.3178 Russia ruble-d 47.466 0.02107 35.158 0.02844 Sweden krona 8.8355 0.1132 6.5444 0.1528 Switzerland franc 1.2220 0.8183 0.9051 1.1048 1-mo. forward 1.2217 0.8185 0.9049 1.1051 3-mos. forward 1.2210 0.8190 0.9044 1.1057 6-mos. forward 1.2197 0.8199 0.9034 1.1069 Turkey lira 3.0544 0.3274 2.2623 0.4420 U.K. pound 0.8208 1.2183 0.6079 1.6449 1-mo. forward 0.8210 1.2181 0.6081 1.6445 3-mos. forward 0.8213 1.2175 0.6084 1.6437 6-mos. forward 0.8219 1.2167 0.6088 1.6426 MIDDLE EAST/AFRICA Bahrain dinar 0.5089 1.9649 0.3770 2.6527 Egypt pound-a 9.3964 0.1064 6.9599 0.1437 Israel shekel 4.7492 0.2106 3.5177 0.2843 Jordan dinar 0.9543 1.0479 0.7069 1.4147 Kuwait dinar 0.3814 2.6219 0.2825 3.5398 Lebanon pound 2029.12 0.0004928 1502.95 0.0006654 Saudi Arabia riyal 5.0637 0.1975 3.7507 0.2666 South Africa rand 15.0569 0.0664 11.1525 0.0897 United Arab dirham 4.9588 0.2017 3.6730 0.2723 a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate. Source: ICAPPlc. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 9 WORLD NEWS Killings Mar Afghan Campaign’s Start KABUL—Afghanistan’s presiden- tial campaign kicked off Sunday un- der stiff security, as the leading con- tenders wooed crowds at their first rallies and insurgents seeking to dis- rupt the vote killed two campaigners. Eleven candidates are vying to succeed Hamid Karzai, who came to power following the U.S.-led invasion that ousted the Taliban regime in 2001, and who is constitutionally barred from seeking another term. If the April 5 elections are suc- cessful, they would mark the first democratic transfer of power in Af- ghanistan’s history. If disrupted by the Taliban, or ended with a con- tested result, however, the vote could plunge the country into a new round of bloodshed just as the U.S. ends its 12-year combat mission and foreign aid money dries up. Yusuf Nuristani, the chairman of the Afghan election commission, warned against campaigning that could stoke Afghanistan’s ethnic and sectarian tensions, and urged the presidential hopefuls not to attack each other. “The candidates should not add to the misery of the Afghan people further,” Mr. Nuristani said. Though Mr. Karzai hasn’t backed any successor, three of the contend- ers are most likely to win his en- dorsement: former finance minister Ashraf Ghani, former foreign minis- ter Zalmai Rassoul, and the presi- dent’s brother Qayum Karzai. The leading opposition candidate in the race is former foreign minister Ab- dullah Abdullah, who came in second in the previous presidential election, in 2009. On Saturday, unidentified gun- men in the western city of Herat as- sassinated two campaigners for Mr. Abdullah. There was no immediate claim of responsibility. But the Tali- ban have vowed to disrupt the cam- paign and the election, dismissing the vote as illegitimate because they say the country remains under for- eign occupation. “It was an unforgivable crime,” Mr. Abdullah said, adding he has dis- cussed the assassination with Mr. Karzai. “People are awakening and are interested in the election. Unfor- tunately, in some corners of the country, they are not able to partici- pate due to insecurity.” Gen. Abdul Rahim Wardak, the U.S.-educated former defense minis- ter who is also running for president, said, “One thing we know for sure, is this election has been targeted.” A senior U.S. military official said he expected the Taliban to continue assassinating government officials and campaign workers, and to mount more high-profile attacks in the capi- tal, Kabul. Helping the insurgents is an unusually mild winter that has cleared of snow the mountain passes between Kabul and the Taliban’s ha- vens in Pakistan, facilitating mili- tants’ movements. “We joke about the snow: Give me snow! Give me snow!” the U.S. mili- tary official said. Underscoring the threat, the cam- paigning began Sunday under tight security, with armed troops manning roadblocks at key intersections, ma- chine guns mounted on pickup trucks. The rallies were mostly held indoors, at venues such as the gaudy neon-lit wedding halls that have mushroomed in Kabul in recent years. At a campaign event for Mr. Ghani on Sunday, guards confiscated pens, cigarettes and packets of snuff from supporters as they passed through metal detectors. Like almost all candidates, Mr. Ghani, a technocrat who holds a Ph.D. from Columbia University and once worked at the World Bank, has chosen a multiethnic ticket to appeal to a broad swath of the electorate. While Mr. Ghani is a Pashtun, his first vice-presidential candidate is Uzbek leader Abdul Rashid Dostum, a former warlord who backed Mr. Karzai in 2009. “Our debates should be about na- tional topics and national goals,” Mr. Ghani said at Sunday’s rally. Haji Mohammad Hussein, a medi- cal doctor from Kabul attending the event, was yet to be convinced about the wisdom of choosing Mr. Dostum as Mr. Ghani’s running mate. “We know him as a warlord,” Mr. Hussein said. “He only understands weap- ons.” At Mr. Abdullah’s campaign rally, tensions between various camps sup- porting his candidacy were also on display. Shortly before his second vice-presidential candidate, ethnic Hazara leader Mohammed Mohaqeq, took to the podium, a mixed-gender band, accompanied by a longhaired male keyboard player on a Yamaha performed a patriotic song, “From Bamiyan to Kandahar, We’re All Brothers.” —Margherita Stancati, Sharifullah Sahak and Ehsanullah Amiri contributed to this article. BY NATHAN HODGE AND YAROSLAV TROFIMOV Afghan security officials protect one of 11 presidential candidates, Ashraf Ghani, on Sunday in Kabul, as the campaign got under way ahead of the April 5 vote. E u r o p e a n P r e s s p h o t o A g e n c y EU Willing to Extend ‘Difficult’ Iran Nuclear Talks MUNICH—The six powers negoti- ating a nuclear accord with Iran will take the time they need to seal what will be an “extremely difficult” ac- cord even if that means extending their six-month timeline, European Union foreign-policy chief Catherine Ashton said. In an interview with The Wall Street Journal on the sidelines of the Munich Security Conference on Sunday, Baroness Ashton, who is the EU’s chief negotiator, said a final deal must make the international community certain that Iran’s nu- clear program is peaceful. Iran and the six powers in No- vember sealed an interim six-month accord in which Iran pledged to scale back some of its most ad- vanced nuclear activities in ex- change for an easing of Western sanctions. The deal, which took af- fect on Jan. 20, can be rolled over after six months by mutual consent, but Iranian and Western officials have said they hope to seal a com- prehensive accord within 180 days. “But everyone will say to you, and rightly so, this is extremely dif- ficult,” she said. “We have no guar- antees in this and we will take the time that is necessary to get this to be the right agreement." Privately, Western officials say they are doubtful an accord can be sealed by July, given the complexity of the issues. They include an agree- ment on whether Iran must either stop most of its nuclear enrichment activities, whether to physically dis- mantle large parts of its nuclear in- frastructure and what to do about its planned plutonium heavy-water reactor in Arak. Any deal also would need to specify what enrichment rights Tehran will have under a final accord and how to phase out inter- national sanctions against Iran. Some diplomats think it could take many months just to draw up a draft text for serious negotiations. Baroness Ashton is due to step down as EU foreign-policy chief in October. Iran says its nuclear program is for purely civilian, energy purposes and denies accusations it is seeking to develop nuclear weapons. Iran is negotiating with the so-called P5+1 group—the five permanent members of the United Nations Security Coun- cil plus Germany. The first round of talks for a final deal will take place in Vienna on Feb. 18. An extension of the talks could escalate pressure in the U.S. Con- gress for fresh Iran sanctions and would mean the continuation of ne- gotiations during the American mid- term vote in November. An exten- sion could also strengthen the hand of hard-liners in Iran since it would delay the broad sanctions relief the Iranian government was relying on to boost the economy. Sen. Chris Murphy (D., Conn.) said Sunday in Munich he was confi- dent the U.S. Senate won’t vote to approve new Iran sanctions any time soon. But he warned that if there were signs Tehran was using the talks to stall for time “that window will not last long.” Baroness Ashton said the main focus of the next round of talks will be the format and timeline for the talks. Both she and U.S. Secretary of State John Kerry met this weekend in Munich with Iranian Foreign Min- ister Javad Zarif. Mr. Zarif described his meeting with Mr. Kerry on Sun- day morning as “good” but gave no details. But a senior U.S. official said that during the meeting Mr. Kerry stressed the importance of both sides standing by their commit- ments and made clear the U.S. would continue enforcing existing sanc- tions. Iran reacted angrily in Decem- ber when the U.S. expanded its list of nuclear-related sanctions targets, saying it ran against the spirit of the November agreement. According to the official, Mr. Kerry also raised his concerns about the delay in transporting chemical weapons out of Syria, but Mr. Zarif said he didn’t have the authority to discuss Syria. On Saturday, Mr. Kerry urged Russia and others to press Syria to fulfill commitments to give up its chemical arsenal, saying Damascus needed to stop making “excuses.” Just 4% of Syria’s 530 metric tons of most-dangerous chemicals have been removed so far, despite a Dec. 31, 2013, deadline for removing all of them, according to U.S. offi- cials. Speaking Sunday afternoon at the Munich conference, Mr. Zarif said Tehran was committed to seek- ing a final nuclear deal, saying fail- ure would be a “disaster.” “What I can promise is that we will go to those negotiations with the political will and good faith to reach an agreement,” he said. Iranian officials have said repeat- edly they aren’t prepared to see the country’s nuclear infrastructure dis- mantled as part of a final deal, whereas Israel and some members of Congress are calling for many of the nearly 20,000 centrifuges Iran has to be scrapped. BY LAURENCE NORMAN Baroness Catherine Ashton A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s 20 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Sector EquityBiotechnology Fundsthat invest primarilyintheequitiesof companiesthat focusonbiotechnology. At least 75% of total assets are invested in equities. Ranked on % total return (dividends reinvested) inEuros for one year ending January 31, 2014 Leading 10Performers FUND FUND LEGAL %Return in $US ** RATING* NAME FUNDMGM'T CO. CURR. BASE YTD 1-YR 2-YR 5-YR 3 Adamant Zurcher CHFCHE 13.94 75.97 44.07 NS Global Biotech A Kantonalbank 4 BBBiotech Bellevue Asset CHFCHE 12.47 74.29 51.53 26.94 AGOrd Management, LLC 4 AXA AXAInvestment GBPGBR 13.00 72.44 44.29 23.66 Framlington Biotech RAcc Managers UK Ltd. 4 Franklin Franklin Templeton USDLUX 15.06 72.17 43.47 25.76 Biotechnology Disc AAcc $ Investment Funds 3 DekaLux-BioTech Deka International EURLUX 12.03 70.32 42.41 22.70 CF S.A. 3 BBBiotech B Bellevue Asset USDLUX 13.20 70.32 43.27 NS USD Management AG 3 CS SICAV Credit Suisse USDLUX 13.00 68.63 44.91 23.27 (Lux) Eq Biotechnology B (Luxembourg) S.A. 5 SEBConcept SEBAsset EURLUX 8.55 67.40 39.29 23.94 BioTech D Management S.A. 3 UBS (Lux) EF UBS Fund USDLUX 17.81 67.36 44.84 25.44 Biotech (USD) P-acc Management (Luxembourg) S.A. 3 CCRActions CCRAsset EURFRA 15.77 67.03 41.93 19.38 Biotech A Management NOTE: Changes in currency rates will affect performance and rankings. Source: Morningstar, Ltd KEY: ** 2YRand 5YRperformance is annualized 1 Oliver’s Yard, 55-71 City Road NA-not available due to incomplete data; London EC1Y 1HQUnited Kingdom NS-fund not in existence for entire period www.morningstar.co.uk; Email:
[email protected] Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001 MARKETS Fund Scorecard U.S Investors Brace For a Bumpy Ride demand for some assets and boost- ing volatility, or price swings. In January, the S&P 500 aver- aged daily stock swings of plus or minus 0.6%. That is an 11% increase over the average daily move in 2013. “I expect a lot of up and down in the first half of the year,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith, Thomas, which manages about $2.5 billion out of Norfolk, Va. In particular, Mr. Wilbanks likes big technology companies that pay dividends, such as Cisco Systems Inc. and Apple Inc., and industrial dividend payers such as Caterpillar Inc. and Deere & Co., he said. All four lagged behind the market last year, leaving them less vulnerable to declines, Mr. Wilbanks said. Cisco Systems rose 14% last year, about half as much as the S&P 500. Deere rose 5.7%, Apple 5.4% and Caterpillar 0.5%. The dividends, to- gether with the small increases last year in the companies’ share prices, reduce the risk of steep declines in the investments, Mr. Wilbanks said. Deere stock “hasn’t gone anywhere, but it certainly isn’t going to hurt you to hold,” said Mr. Wilbanks. Barry James, president at James Investment Research Inc., which manages about $5 billion in assets, said he wouldn’t be surprised to see stocks fall as much as 20% during the year and recover to finish slightly higher. Mr. James said he looks for stocks with strong earnings, and that return cash to shareholders through share buybacks and divi- dends. He likes Deere and the U.S. energy sector, which he thinks will benefit from continued development of the U.S. industry for shale oil and gas. “I feel like a football coach,” he said. “Back to the fundamentals, kids.” Investors across markets are tak- ing a more risk-averse stance. Investors yanked more than $900 million from bond funds dedi- Continued from first page cated to the risky corporate debt known as “junk” bonds in the week ended Wednesday, according to fund tracker Lipper. That was the biggest outflow since late August. January had 110 high-grade cor- porate debt issues, down from 206 a year earlier, according to data pro- vider Dealogic, amid signs that in- vestors are starting to demand more compensation. “As you dismantle quantitative easing, you dismantle a lot of the free ride,” says Sage’s Mr. Smith. For Mr. Smith, whose firm has a heavy emphasis on fixed-income portfolios, that means a tilt away from bond investments that are vul- nerable to rising interest rates. The firm is focusing on short-term bond- holdings and high-yield bonds that haven’t had as big a run as the over- all junk-bond market, such as bonds issued by utilities. But in a sign of how the market has wrong-footed many investors this year, the yield on the 10-year U.S. Treasury note actually has fallen to a recent 2.7% from 3% at the end of 2013. Many Wall Street forecasters expect the yield to rise to 3.5% or so this year. Prices fall when yields rise. Lawrence Creatura, portfolio manager of the $500 million Feder- ated Clover Small Value Fund, said last year’s market calm allowed for a big expansion of stock multiples, meaning an increase in the ratio of stock prices to earnings. Stock multiples last year ex- panded the most since 2009, when the market was recovering from the depths of the financial crisis. The price/earnings ratio on the S&P 500 over the next 12 months rose to 15.4 from 12.6, according to FactSet. Mr. Creatura said he is looking at the technology sector, which he said should see strong growth as compa- nies upgrade internal infrastructure. “In the middle innings of an eco- nomic cycle, earnings growth should come from more-cyclical sectors like technology,” he said. —Dan Strumpf contributed to this article. Asian Banks Branch Out build up their business in foreign loans, company representatives said. A spokesman for MUFG said the bank can lend at higher rates in markets outside Japan, bolstering returns. For example, in 2013 the Japanese bank was among the lend- ers on a $14.2 billion loan to Russia’s largest oil producer, state-controlled OAO Rosneft. By contrast, French lender So- ciété Générale has slipped to 18th place in 2013 from ninth place in 2007. Embattled U.K. lender Royal Bank of Scotland Group PLC has fallen to eighth place from third and Dutch bank ING Groep NV has fallen to 20th from 13th. RBS declined to comment. A spokeswoman for ING said the league table moves reflect market conditions. A spokeswoman for So- ciété Générale couldn’t immediately comment. “European banks, in particular, are still trying to deleverage,” said Derek Ovington, CLSA’s head of re- gional banks in Asia. He also said that U.K.-listed but Asia-focused lenders such as HSBC Holdings PLC and Standard Chartered PLC con- tinue to grow. Analysis by the Bank for Interna- tional Settlements, the central bank- ers’ bank, shows that at the end of September, Asian banks were ex- panding their cross-border lending— such as trade finance and loans— across the region, while U.S. banks scaled back exposure to emerging markets and Europeans held steady. According to the BIS, the share of emerging-market loans for non-U.S. and European banks—led by banks in Asia, excluding Japan—rose to 12.8% at the end of September from 11.6% at the end of 2012. But for the banks, this expansion isn’t without risk. A move by the U.S. Federal Reserve to slow the pace of its huge bond-buying pro- gram, which had the side effect of supplying Asia with cheap credit, could slow economic growth across Continued from page 15 the region. Investors have dumped currencies across emerging markets from Russia to South Africa to India and Indonesia. That volatility could strain those companies exposed to market swings and hinder their ability to re- pay debt. “We have become a bit more cau- tious about bank risk in emerging Asia with the impact of Fed taper- ing,” said Mark Young, head of Asia- Pacific financial institutions at Fitch Ratings. “Over the longer term you could see lower ratings,” he said. A credit-rating downgrade could push up the bank’s own cost of borrowing and trigger a pullback in lending. China’s slowing growth is also unnerving investors. A gauge of manufacturing activity released in January showed its weakest level in six months, helping to cool demand for commodities. Iron-ore prices have fallen to six-month lows. Japanese banks still are the big- gest lenders from the region. Since the fourth quarter of 2008, foreign lending by Japanese banks—buoyed by the country’s ultra-loose mone- tary policy—has increased 34% to $3 trillion, according to an analysis by the International Institute of Fi- nance. In that period Japanese lending across emerging Asia and the Pacific grew 95%, while lending to Latin American and Caribbean borrowers jumped 140%. Loans to developed countries rose 25%. Chinese banks are lending in part to fuel trade and growth by domes- tic companies. Foreign lending by China’s four largest banks has grown to $378 billion since 2008, $120 bil- lion of which was lent in 2013 alone. “We are seeing the international loan books of the mainland Chinese banks grow very, very quickly, but off a small base,” said CLSA’s Mr. Ovington. The Chinese banks didn’t re- spond to requests for comment on Thursday, the eve of China’s Lunar New Year holiday. Southeast Asian banks are also building their book, in particular on the regional stage. Singapore-based OCBC Bank increased its foreign lending by 22% in the year to Sept. 30—well ahead of the 11% growth in lending in Singapore. Overseas loans now make up 50% of the bank’s total gross loans, compared with 44% three years ago. The bank’s focus is on Malaysia, Indonesia and Greater China where margins are more at- tractive. Rival DBS increased its loan book by 19% on year to Sept. 30—around 55% of which came from outside Sin- gapore. A $7 billion loan last year for Swiss oil-and-gas company Vitol Group SA featured DBS, according to Dealogic data. “The key to our growth is our ability to leverage our Asian under- standing and connect clients across the region,” said Chng Sok Hui, chief financial officer for DBS. Some of the biggest financings in 2013 involved commodity and en- ergy producers. A $17 billion credit facility arranged for trading and mining titan Glencore Xstrata PLC last year included the biggest Japa- nese lenders along with Australia & New Zealand Banking Group Ltd. While some Asian lenders have long been present in global markets, the push overseas is expected to continue. “When the Asian banks start growing in a new market, they go for the whole hog,” said Crédit Agri- cole’s Mr. Sodhi. —Mike Cherney and Atsuko Fukase contributed to this article. J.P. Morgan Chase Citigroup Royal Bank of Scotland Bank of America BNP Paribas Calyon Corporate & Investment Bank Barclays Bank Deutsche Bank Société Générale ABN AMRO Bank N.V. HSBC Credit Suisse ING Groep Dresdner Bank Goldman Sachs Group UniCredit Mitsubishi UFJ Financial Group Natixis Banco Bilbao Vizcaya Argentaria Morgan Stanley $1,088 1,035 696 640 614 540 521 481 464 417 382 369 355 325 313 290 281 237 232 230 J.P. Morgan Chase Bank of America Citigroup Barclays Bank Wells Fargo Deutsche Bank Mitsubishi UFJ Financial Group Royal Bank of Scotland BNP Paribas HSBC Morgan Stanley Credit Suisse RBC Capital Markets Goldman Sachs Group Crédit Agricole Corporate and Investment Bank Mizuho Financial Sumitomo Mitsui Financial Group Société Générale UBS ING Groep $1,459 1,396 1,028 831 673 645 582 550 548 477 471 449 446 405 348 342 294 288 248 204 Source: Thomson Reuters The Wall Street Journal Top 20 Global Lenders Asian banks are climbing the ranks for global lending. In 2007, only one bank from the region made the top 20 list. In 2013, three made the list, all from Japan. 2007 2013 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Ranked higher in 2013 Ranked lower Ranked the same New entrant to 2013 top 20 Asian lenders in bold Bank Bank Total amount lent, in billions of dollars Total amount lent, in billions of dollars Rank Since the fourth quarter of 2008, foreign lending by Japanese banks has increased 34% to $3 trillion. 10 | Monday, February 3, 2014 THE WALL STREET JOURNAL. In Mexico, Bloody Struggle Erupts Over Avocado Trade T he entrance to this remote and seem- ingly peaceful mountain town is marked by a statue of an avocado. But behind the serenity is a violent criminal gang that has made millions of dollars ex- torting avocado farmers and packinghouse operators while strong-arming groves from landowners, said residents and local offi- cials who recently began fighting back. Four of every five avocados sold in the U.S. originate in Tancítaro’s home state of Michoacán, the only Mexican state certified by the U.S. Department of Agriculture to ex- port avocados, mostly the creamy, dip- friendly Hass variety that locals here call “oro verde” or green gold. Michoacán, which last year exported more than 500,000 tons of avocado to the U.S., expects a $1 billion haul in 2014. Tancítaro alone produced 157,000 tons last year, said Jose Ayala, a local agricultural of- ficial, “more than any other municipality in the world.” Some say the fruit was tainted. “They are ‘blood avocados,’ ” said Raul Benitez, a security expert at UNAM, the National Autonomous University of Mexico in Mexico City. “They are the Mexican equiva- lent of the conflict diamonds that are sold from war-torn parts of Africa.” In November, a band of Tancítaro resi- dents wielding wooden clubs and old hunt- ing rifles joined forces with well-armed vigi- lantes from nearby towns to run off most members of the Knights Templar, a criminal gang allegedly involved in extortion, kidnap- ping, rape and homicide throughout the state. “The people were sick and tired of the situation,” said Mayor Salvador Torres, who is now guarded round-the-clock by federal police because of threats. “A day didn’t go by that one didn’t hear about extortion, a kidnapping, or a violent death taking place in the municipality.” The Knights Templar grew out of a drug cartel known as La Familia and in the past few years moved from trafficking to extor- tion, stealing from every facet of this rich agricultural state, local and federal officials said. The gang took a cut of fertilizer and pesticide sales and charged a fee for every box of limes and avocados packed and trucked away. Many towns were forced to turn over 10% of municipal budgets. “They ran off a lot of people to other states,” a local official said, and in many cases forced owners to turn over title to their avocado groves. One local official estimated that the Knights Templar, named for a medieval group of crusading warrior monks, made $150 million a year extorting growers and packers, as well as selling avocados from the 2,025 hectares they took from farmers. Tancítaro has about 22,660 hectares of avo- cado groves, officials said. The criminal enterprise may have raised prices. Despite soaring production, the wholesale price of avocados in Mexico has jumped 22% from a year ago, according to government data. Mexico’s Economy Minis- ter Ildefonso Guajardo said prices rose be- cause of fluctuations in supply and demand and not from violence afflicting the state. Cuauhtémoc Montero, a major avocado grower and former federal congressman, said he believed that extortion added 10% to the price of avocados consumed in the U.S. Until the vigilantes sent the gang packing, local grove owners were taxed at a yearly rate of about $60 an acre, he said. Avocado packers in Tancítaro include dozens of mom-and-pop outfits that handle fruit not considered export quality. The town also has large-scale packers that send tons of the best avocados to the U.S., Eu- rope and Asia. The manager of one hole-in-the-wall packinghouse said he paid the Templar gang a tax of one cent a kilo, or about some $2,200 a month. The largest packers alleg- edly paid $15,000 a month, Mr. Montero said. Tancítaro’s avocado growers and towns- people rose up in arms shortly after the early November kidnapping of Maria Irene Villanueva, the daughter of a local preacher and avocado grower, residents said. The young woman was raped and killed as her father prepared to transfer title of his grove to a gang capo after failing to raise a $600,000 ransom, according to the mayor, family relatives and two friends of the woman’s father. “We believe in the Lord’s justice and BY JOSÉ DE CÓRDOBA Tancítaro, Mexico Tancítaro Mayor Salvador Torres, above left, and vigilante leader Jose Manuel Mireles, right. Four of every five avocados sold in the U.S. originate in Tancítaro’s home state of Michoacán. IN DEPTH MEXI CO U. S. Paci fic Ocean Gul f of Mexi co 500 miles 500 km Mexico City Tancítaro MICHOACÁN MICHOACÁN J a n e t J a r m a n f o r T h e W a l l S t r e e t J o u r n a l THE WALL STREET JOURNAL. Monday, February 3, 2014 | 19 For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email:
[email protected] Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown aren’t registered with the U.S. Securities and Exchange Commission and aren’t available for sale to United States citizens and/or residents except as noted. Prices are in local currencies. All performance figures are calculated using the most recent prices available. 12-month and 2-year returns may be calculated over 11- and 23-month periods pending receipt and publication of the last month end price. NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR Advertisement INTERNATIONAL INVESTMENT FUNDS INDICES NAV ——————%RETURN—————— FUNDNAME GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR nARIXABSOLUTERETURNINVESTABLEINDEX Feri Institutional Advisors, www.feri.de ARIXComposite Gross USD OT OT GBR 12/31.00 USD1602.40 8.0 8.0 6.7 nCGPortfolioFundLtd NAV OT OT CYM 06/07.00 GBP25839.68 5.3 10.9 9.8 Bad Loans Keep Rising At Big Spanish Banks MADRID—Three of Spain’s big- gest banks are still paying for the country’s real-estate bust. In earnings released Friday, the lenders—Banco Bilbao Vizcaya Ar- gentaria SA, Caixabank SA and Banco Popular SA—showed signifi- cant improvement in their capital strength since the euro-zone finan- cial crisis but reported rising bad loans and falling net interest income in the final quarter of 2013. Net in- terest income is the difference be- tween what banks earn from lending and the amount they pay for depos- its. BBVA, Spain’s second-biggest bank by market value, reported a fourth-quarter net loss of €849 mil- lion ($1.15 billion), compared with a profit of €20 million a year earlier, The latest results included a charge related to a sale of shares in a Chi- nese bank. Analysts had forecast a fourth-quarter net loss of €765 mil- lion. BBVA said net interest income fell in the fourth quarter to €3.8 bil- lion from €3.9 billion a year earlier. The lender said 6.8% of its loans were more than 90 days overdue at the end of 2013, up from 5.1% a year earlier. The bank set aside less than half the amount it did a year earlier to cover souring loans, making €1.2 bil- lion in loan-loss provisions in the fourth quarter compared with €2.7 billion a year earlier. For the full year, the bank re- ported net profit of €2.2 billion, up 33% from 2012. In October, BBVA cut its stake in China Citic Bank Corp. to just be- low 10%, a move meant to bolster its capital ahead of balance-sheet tests by European authorities. The bank said at the time the sale would trig- ger a €2.3 billion hit to its re- sults.The sale generated an account- ing loss but freed up capital, giving the bank a 9.8% capital ratio by the end of the year under new Basel III rules. The results come after Spain’s largest bank, Banco Santander SA, said Thursday that fourth-quarter net profit more than doubled as it set aside a smaller proportion of its earnings to cover loan losses, offset- ting lower net interest income. Caixabank, Spain’s third-largest bank, said its rate of bad loans as a portion of total lending in the fourth quarter jumped to 11.66% from 8.63% a year earlier and were up slightly from the previous pe- riod. Overall, bad loans held by Span- ish banks have continued to climb since February 2013, representing an all-time high of 13.1% of total lending in November. Caixabank said fourth-quarter net profit fell 21% from a year ear- lier, to €45 million. Over the full year, net profit more than doubled to €503 million. Its fourth-quarter net interest margin slipped to €1.02 billion from €1.03 billion the previous year. Banco Popular said it swung to a net profit of €98 million in the fourth quarter, from a loss of €2.7 billion in the year-earlier period, af- ter cleaning up its real-estate assets. Still, Banco Popular also posted a big increase in souring loans, to 14.27% in the fourth quarter from 8.98% a year earlier. Its fourth-quar- ter net interest margin fell 3.9%, to €590.9 million, from €615 million the previous year In Madrid, BBVA’s shares rose 0.2%, Caixabank gained 1.4% and Banco Popular fell 2.1%. BBVA’s net profit in Spain nearly halved in 2013, while in Mexico, where the lender has its biggest di- vision, it rose 6.8% year over year. In its domestic market, bad loans jumped to 6.4% in 2013 from 4.1% the year before. The rate climbs to 10.3% if soured loans from BBVA’s Spanish real-estate unit are included, the lender said Friday. The real-estate division includes bad loans to real- estate developers. BBVA Chief Operating Officer An- gel Cano said Friday that the bad- loan ratio was beginning to stabi- lize. “The worst has passed,” Mr. Cano said of the outlook for Spain. He said BBVA was open to selling its real-estate servicing unit. Other Spanish banks, such as Santander, have sold property-man- agement units amid an uptick in in- terest from foreign investors in Spain’s distressed real-estate mar- ket. BY JEANNETTE NEUMANN Data provided by: MARKETS nALEXANDRAINVESTMENTMANAGEMENT Alexandra Convertible Bond Fund I, Ltd. (Class A) OT OT VGB 08/31 USD 2155.22 NS NS NS nBANCINTERNACIONAL D'ANDORRA. BANCAMORA. Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad Andfs. Anglaterra UK EQ AND 11/16 GBP 8.47 2.8 3.6 14.9 Andfs. Borsa Global GL EQ AND 01/30 EUR 6.64 -0.2 9.9 6.6 Andfs. Emergents GL EQ AND 11/02 USD 14.77 -20.4 -19.2 -4.7 Andfs. Espanya EU EQ AND 01/30 EUR 15.02 6.3 37.3 21.3 Andfs. Estats Units US EQ AND 01/30 USD 20.68 -1.1 21.9 16.0 Andfs. Europa EU EQ AND 01/30 EUR 7.79 3.4 20.7 13.4 Andfs. Franca EU EQ AND 01/30 EUR 10.77 -1.6 14.9 15.2 Andfs. Japo JP EQ AND 01/30 JPY 688.74 -1.3 34.8 29.2 Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2 Andfs. RF Dolars US BD AND 01/30 USD 12.18 0.2 -0.6 1.5 Andfs. RF Euros EU BD AND 01/30 EUR 11.66 0.0 1.2 1.8 Andorfons EU BD AND 01/30 EUR 15.73 0.4 2.8 3.0 Andorfons Alternative Premium GL EQ AND 11/30 EUR 115.41 23.3 23.0 10.9 Andorfons Mix 30 EU BA AND 01/30 EUR 10.31 0.0 4.8 3.9 Andorfons Mix 60 EU BA AND 12/19 EUR 8.96 4.4 7.1 -2.5 nCGPortfolioFundLtd NAV OT OT CYM 06/07 GBP 25839.68 5.3 10.9 9.8 nCHARTEREDASSETMANAGEMENTPTELTD- TEL NO: 65-6835-8866 Fax No: 65-68358865, Website: www.cam.com.sg, Email:
[email protected] CAM-GTF Limited OT OT MUS 01/24 USD 331396.07 -0.2 -20.1 -0.4 nCitadele Republikas square 2a, Riga, LV-1522, Latvia Citadele Eastern Europ Bal EU BD LVA 01/30 EUR 16.51 -0.4 1.0 7.0 Citadele Eastern Europ Bd EU BD LVA 01/30 USD 20.30 -0.4 1.6 7.0 Citadele Russian Eq EE EQ LVA 01/30 USD 19.75 -12.1 -16.9 -4.0 nDJEINVESTMENTS.A. internet: www.dje.lu email:
[email protected]:+0035226925220fax:+0035226925252 DJE Real Estate P OT OT LUX 01/31 EUR 4.33 -0.2 -8.2 -6.8 DJE-Absolut P OT OT LUX 01/31 EUR 245.42 -2.6 3.3 8.5 DJE-Alpha Glbl P OT OT LUX 01/31 EUR 185.84 -4.4 6.2 6.4 DJE-Div&Substanz P OT OT LUX 01/31 EUR 274.44 -3.0 6.2 9.8 DJE-Gold&Resourc P OT EQ LUX 01/31 EUR 123.60 1.9 -24.2 -21.2 DJE-Renten Glbl P EU BD LUX 01/31 EUR 149.66 0.6 2.6 4.9 LuxPro-Dragon I AS EQ LUX 07/20 EUR 144.57 -8.5 5.0 7.6 LuxPro-Dragon P AS EQ LUX 07/20 EUR 140.29 -8.8 4.4 7.0 LuxTopic-Aktien Europa EU EQ LUX 01/31 EUR 19.90 -2.4 1.2 6.8 LuxTopic-Pacific OT OT LUX 01/31 EUR 19.20 -3.7 -9.6 3.5 nOTHERFUNDS For information about these funds, please contact us on Tel: +44(0) 207 842 9694/9633 Medinvest Plc Dublin OT EQ IRL 09/30 USD NS.00 NS 1.3 -4.4 nWINTONCAPITAL MANAGEMENTLTD Tel: +44(0)2076105350Fax: +44(0)2076105301 Winton Evolution EURCls H GL OT CYM 12/31 EUR NS.00 14.0 14.0 2.2 Winton Evolution GBP Cls G GL OT CYM 12/31 GBP NS.00 14.7 14.7 2.6 Winton Evolution USDCls F GL OT CYM 12/31 USD NS.00 14.6 14.6 2.4 Winton Futures EURCls C GL OT VGB 12/31 EUR 251.72 9.0 9.0 2.5 Winton Futures GBP Cls D GL OT VGB 12/31 GBP 273.97 9.3 9.3 2.8 Winton Futures JPY Cls E GL OT VGB 12/31 JPY 17608.34 9.7 9.7 2.5 Winton Futures USDCls B GL OT VGB 12/31 USD 897.89 9.4 9.4 2.7 Pictet-Brazil Index-P USD OT OT LUX 01/30 USD 60.76 -11.4 -27.5 -20.1 Pictet-CHF Bonds-P CH BD LUX 01/30 CHF 465.09 0.9 1.5 2.7 Pictet-China Index-P USD AS EQ LUX 01/30 USD 98.20 -6.7 -7.9 3.8 Pictet-Clean Energy-P USD OT OT LUX 01/30 USD 83.24 -2.5 25.7 13.3 Pictet-Digital Comm-P USD OT EQ LUX 01/30 USD 203.55 -1.3 32.0 22.4 Pictet-Eastern Europe-P EUR EU EQ LUX 01/30 EUR 314.78 -8.8 -14.9 -2.7 Pictet-EmCorp Bds-P USD OT OT LUX 01/30 USD 99.70 0.0 -2.8 NS Pictet-EmLoc Curr Dbt-P USD OT OT LUX 01/30 USD 172.24 -3.7 -15.2 -4.0 Pictet-EmMkts Hgh Div-P USD GL EQ LUX 01/31 USD 104.42 -7.1 -11.2 NS Pictet-EmMkts Index-P USD GL EQ LUX 01/30 USD 228.71 -6.6 -10.9 -1.8 Pictet-EmMkts Sust Eq-P USD GL EQ LUX 01/30 USD 89.75 -7.3 -13.2 NS Pictet-Emerging Markets-P USD GL EQ LUX 01/31 USD 483.28 -7.1 -9.9 -3.5 Pictet-Envir Megatr Sel-P EUR OT OT LUX 01/30 EUR 119.16 -1.6 12.6 11.1 Pictet-Eu Equities Sel-P EUR EU EQ LUX 01/30 EUR 522.19 -4.6 4.0 11.3 Pictet-EURBonds-P EU BD LUX 01/30 EUR 473.19 1.8 3.7 6.5 Pictet-EURCorp Bds Ex Fin-P EU BD LUX 01/30 EUR 132.32 1.1 3.7 5.0 Pictet-EURCorporate Bonds-P EU BD LUX 01/30 EUR 177.95 1.0 4.5 6.5 Pictet-EURGovernment Bonds-P EU BD LUX 01/30 EUR 138.27 1.9 4.2 6.2 Pictet-EURHigh Yield-P EU BD LUX 01/30 EUR 218.92 0.6 9.6 14.2 Pictet-EURInflation Lkd Bds-P EU BD LUX 01/30 EUR 116.88 0.8 -2.1 2.6 Pictet-EURSM-TermBds-P EU BD LUX 01/30 EUR 131.91 0.4 2.2 2.8 Pictet-EURST High Yld-P EU BD LUX 01/30 EUR 115.43 0.5 5.9 7.4 Pictet-Euroland Index-P EUR EU EQ LUX 01/30 EUR 111.81 -1.8 16.2 17.5 Pictet-Europe Index-P EUR EU EQ LUX 01/30 EUR 142.81 -1.5 13.9 15.7 Pictet-European Sust Eq-P EUR EU EQ LUX 01/30 EUR 181.19 -1.7 12.1 13.9 Pictet-Generics-P USD OT EQ LUX 01/30 USD 194.97 2.2 25.8 20.2 Pictet-Glo Bds Fundamental-P USD OT OT LUX 01/30 USD 127.62 -0.3 -5.1 -1.4 Pictet-Glo EmCurrencies-P USD OT OT LUX 01/30 USD 103.55 -1.4 -5.1 -1.0 Pictet-Glo Emerging Debt-P USD GL BD LUX 01/30 USD 305.28 -0.5 -6.4 3.2 Pictet-Glo Megatrend Sel-P USD GL EQ LUX 01/30 USD 201.26 -1.3 19.3 17.9 Pictet-Greater China-P USD AS EQ LUX 01/30 USD 377.56 -5.9 -4.1 4.9 Pictet-High Dividend Sel-P EUR OT OT LUX 01/30 EUR 125.98 -2.0 10.9 11.8 Pictet-India Index-P USD EA EQ LUX 01/30 USD 79.71 -4.3 -13.1 -1.4 Pictet-Indian Equities-P USD EA EQ LUX 01/31 USD 293.92 -2.8 -10.4 -1.3 Pictet-Japan Index-P JPY JP EQ LUX 01/31 JPY 12556.39 -6.7 31.5 29.7 Pictet-Japanese Eq Opp-P JPY JP EQ LUX 01/31 JPY 6985.15 -6.8 32.1 31.5 Pictet-Japanese Eq Sel-P JPY JP EQ LUX 01/31 JPY 10669.60 -7.5 29.7 28.6 Pictet-LatamIndex-P USD GL EQ LUX 01/30 USD 70.93 -9.7 -24.8 -13.5 Pictet-Latin AmLoc Curr Dbt-P USD OT OT LUX 01/30 USD 130.97 -2.9 -16.4 -6.5 Pictet-Pac (ExJpn) Idx-P USD AS EQ LUX 01/31 USD 340.49 -5.2 -5.3 5.9 Pictet-Piclife-P CHF OT OT LUX 01/30 CHF 896.07 -0.4 4.9 7.2 Pictet-PremiumBrands-P EUR OT EQ LUX 01/30 EUR 118.70 -6.7 9.5 13.2 Pictet-Quality Gl Eq-P USD GL EQ LUX 01/30 USD 119.20 -3.7 12.3 NS Pictet-Russia Index-P USD EE EQ LUX 01/30 USD 75.16 -8.9 -14.2 -4.7 Pictet-Russian Equities-P USD EE EQ LUX 01/30 USD 60.82 -10.8 -12.7 -4.0 Pictet-Security-P USD GL EQ LUX 01/30 USD 162.00 -1.8 16.2 16.1 Pictet-Short-T Money Mkt CHF-P CH MM LUX 01/30 CHF 124.25 0.0 0.0 0.0 Pictet-Short-T Money Mkt EUR-P OT OT LUX 01/30 EUR 137.72 0.0 0.0 0.1 Pictet-Short-T Money Mkt JPY-P OT OT LUX 01/30 JPY 10127.92 0.0 0.0 0.0 Pictet-Short-T Money Mkt USD-P OT OT LUX 01/30 USD 132.30 0.0 0.2 0.3 Pictet-Small Cap Europe-P EUR EU EQ LUX 01/30 EUR 830.59 1.1 28.9 25.4 Pictet-Sov. ST Money Mkt-P EUR OT OT LUX 01/30 EUR 102.68 0.0 -0.2 -0.1 Pictet-Sov. ST Money Mkt-P USD OT OT LUX 01/30 USD 102.02 0.0 0.1 0.1 Pictet-Timber-P USD GL EQ LUX 01/30 USD 146.07 -3.1 3.5 15.3 Pictet-US Eq Grwth Sel-P USD US EQ LUX 01/30 USD 166.88 -1.5 27.8 18.8 Pictet-US Eq Value Sel-P USD US EQ LUX 01/30 USD 182.02 -2.5 18.7 16.1 Pictet-US High Yield-P USD US BD LUX 01/30 USD 143.51 0.4 4.6 8.5 Pictet-USAIndex-P USD US EQ LUX 01/30 USD 152.93 -2.9 21.0 18.4 Pictet-USDGovernment Bonds-P US BD LUX 01/30 USD 580.03 1.5 -1.2 -0.2 Pictet-USDShort Mid-TermBds-P US BD LUX 01/30 USD 125.73 0.2 0.3 0.3 Pictet-Water-P EUR OT OT LUX 01/30 EUR 192.97 -1.5 12.3 12.1 Pictet-World Gvt Bonds-P EUR OT OT LUX 01/30 EUR 132.99 3.1 -1.9 -3.4 PTR-Banyan-P USD OT OT LUX 01/30 USD 96.31 -6.1 -8.9 -2.6 PTR-Corto Europe-P EUR OT OT LUX 01/30 EUR 127.84 1.9 14.6 15.3 PTR-Kosmos-P EUR OT OT LUX 01/30 EUR 106.61 0.3 1.0 1.8 PTR-Mandarin-P USD OT OT LUX 01/31 USD 102.51 -3.5 3.4 4.7 nPOLARCAPITAL PARTNERSLIMITED International FundManagers (Ireland) LimitedPH- 353 1 670660Fax - 353 1 6701185 Global Technology OT EQ IRL 01/30 USD 22.75 -0.4 28.2 16.6 Japan Fund USD JP EQ IRL 01/31 USD 21.63 -4.2 15.7 9.6 Polar Healthcare Class I USD OT EQ IRL 01/30 USD 31.84 12.3 62.5 45.1 Polar Healthcare Class RUSD OT EQ IRL 01/30 USD 31.24 12.3 61.9 44.6 nHERMITAGECAPITAL MANAGEMENTLTD. Tel: +7501 2583160 www.hermitagefund.com The Hermitage Fund GL EQ JEY 03/12 USD 963.12 4.5 105.6 -23.2 nHORSEMANCAPITAL MANAGEMENTLTD. T: +44(0)2078387580, F: +44(0) 2078387590, www.horsemancapital.com Horseman EurSelLtd EUR EU EQ GBR 12/31 EUR 334.62 32.0 32.0 29.6 Horseman EurSelLtd USD EU EQ GBR 12/31 USD 363.22 NS NS NS Horseman Glbl Ltd EUR GL EQ CYM 12/31 USD 525.46 NS NS NS Horseman Glbl Ltd USD GL EQ CYM 12/31 USD 525.46 NS NS NS nHSBCALTERNATIVEINVESTMENTSLIMITED T+442078603074 F+ 442078603174www.hail.hsbc.com HSBCALTERNATIVESTRATEGYFUND Special Opp EUR OT OT GGY 12/31 EUR 122.21 14.2 14.2 17.0 Special Opp Inst EUR OT OT GGY 03/31 EUR 88.51 0.7 -0.3 13.3 Special Opp Inst USD OT OT GGY 03/28 USD 123.18 4.2 18.5 10.6 Special Opp USD OT OT GGY 12/31 USD 129.13 14.0 14.0 17.3 nHSBCPortfolioSelectionFund GHFund CHF Hdg OT OT GGY 01/17 CHF 126.59 1.0 8.0 7.0 GHFund EURHdg (Non-V) OT OT GGY 01/17 EUR 140.97 1.1 7.6 7.0 GHFund GBP Hdg OT OT GGY 01/17 GBP 155.72 1.0 8.2 7.6 GHFund Inst USD OT OT GGY 01/17 USD 134.28 1.1 8.6 8.0 GHFUNDS EUR OT OT CYM 01/17 EUR 156.80 1.1 9.0 8.2 nHSBCTrinkaus Investment Managers SA E-Mail:
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[email protected] Antanta Combined Fund EE EQ AND 01/24 USD 207.19 -1.3 -19.3 -17.5 Antanta MidCap Fund EE EQ AND 01/24 USD 373.49 3.5 -7.3 -11.6 Meriden Opps Fund GL OT AND 01/22 EUR 22.68 0.0 -10.9 -11.2 Meriden Protective Div GL EQ AND 11/24 EUR NS.00 -2.8 NS NS nPictet Funds (Europe) SA, ROUTEDESACACIAS60, CH-1211 GENEVA73 Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com Pictet-Abs Ret Gl Div-P EUR GL OT LUX 01/30 EUR 113.48 -0.3 -3.9 -0.6 Pictet-Agriculture-P EUR OT OT LUX 01/30 EUR 148.55 -2.8 -1.6 4.5 Pictet-Asian Eq ExJpn-P USD OT OT LUX 01/30 USD 175.18 -4.8 -3.1 3.1 Pictet-Asian Loc Cur Dbt-P USD AS BD LUX 01/31 USD 141.97 -0.4 -8.1 -2.5 Pictet-Biotech-P USD OT EQ LUX 01/30 USD 611.32 10.4 58.9 40.5 BBVA’s net interest income slipped during the fourth quarter. B l o o m b e r g N e w s THE WALL STREET JOURNAL. Monday, February 3, 2014 | 11 IN DEPTH leave everything in his hands,” said Juan Villanueva, a cousin of the young woman. “One day he will act, and when he balances accounts, he will balance them well.” Outraged after the discovery of the young woman’s body, farmers and pickers allied with dozens of armed vigilantes from self-defense groups that have sprung up in nearby towns. The farmers and vigilantes prevailed during a November firefight in the nearby town of Pareo that ended with the killing of two alleged Templar gunmen, au- thorities said. A few days later, Jose Manuel Mireles, a vigilante leader and doctor, exhorted resi- dents to fight until the gangsters were driven out of the state. “We can choose the way we will die,” Dr. Mireles told a crowd of growers and packers in the town square, “standing up, and not tied meekly with our hands tied behind our backs waiting to be tortured and sliced up into little pieces like animals.” In the first days after their victory, doz- ens of vigilantes built sandbag check points at the entrances to town. Wearing bandan- nas to hide their faces, local men and boys in white T-shirts manned the posts over- night. About 1,000 people from outlying ham- lets took temporary refuge in a religious center run by the town’s Catholic church, fearing the Templars’ return. Two of Tancítaro’s export-certified pack- ing plants closed for nearly six weeks after the vigilantes took over the town, and the USDA removed its two inspectors from the plants for safety. Mexican and U.S. officials collaborate to make sure exported avocados are pest- and disease-free. Officials from the Animal and Plant Health Inspection Service, the USDA unit responsible for inspecting food enter- ing the U.S., maintains employees at pack- ing plants and conducts twice-a-year in- spections of avocado groves. A U.S. official said the government has heard reports of extortion in Michoacán’s avocado industry. “We are in uncharted wa- ters,” the official said, regarding U.S. policy on the matter. The uprising in Tancítaro, which has a population of about 30,000, followed rebel- lions in other towns where residents tired of the government’s inability to boot the gang. These days, residents of Tancítaro said, kidnapping and extortion have nearly disap- peared. The sandbag checkpoints remain, along with an uneasy calm. “They could still come back,” whispered one packinghouse manager. Two weeks ago, Mexico’s President En- rique Peña Nieto appointed Alfredo Castillo, a close political ally, to serve as his delegate and Michoacán’s de facto governor, holding the power to unilaterally take security and economic measures. Mr. Castillo has said the government’s goal is to restore peace by working to dismantle the gang. Last Monday, the federal government signed a treaty with vigilante chiefs that al- lows members of the groups to eventually join rural and town police. In return, the vigilantes promised to provide a list of its members and to register their weapons, in- cluding those illegal to possess here. Most vigilantes say they are loath to give up their weapons because they have little trust in the government’s ability to disman- tle the gang. Federal authorities and sol- diers failed during years of fighting to do what civilian vigilantes have done in many places over a few months. Since signing the agreement, the vigilan- tes have continued their campaign, taking control of at least two more towns. But the Templars remain entrenched in many parts of Michoacán, including Urua- pan, the state’s largest avocado growing re- gion after Tancítaro, and where most avo- cado packinghouses certified for U.S. export are located. A few hundred meters from Tancítaro’s avocado statue are the burned ruins of a massive packinghouse. The skeletons of two burned trailer trucks rust in the parking lot. A second burned packinghouse is on the other side of town, three blocks from the town’s picturesque plaza and colonial-era church Both packinghouses were set on fire on the same April night last year. Residents and local officials said they believed they became targets after workers there didn’t participate in Templar-organized protests against the vigilantes who first surfaced a year ago. No one has been charged in the fires. The owners of the two packinghouses, Empacadora Agroexport S.A. de C.V. and Mevi Avocados, which both operate distri- bution facilities in Pharr, Texas, declined to comment. Sergio Guerrero, the president of the As- sociation of Avocado Producers and Export Packers of Mexico, or APEAM, declined to comment on the alleged extortion or the packinghouse fires. Many growers and packers fear retribu- tion by the Knights Templar. Mr. Guerrero’s predecessor at APEAM, Alejandro Alvarez, was shot and wounded in his car by un- known men two years ago. Mr. Alvarez and his family left Mexico, growers said. In 2009, the mayor and town council re- signed under pressure from drug traffickers who wanted more of the town’s resources, Mr. Montero said. Gustavo Sanchez, a schoolteacher, became mayor and took over administration of the town. He fired Tancítaro’s 60-person police force soon af- ter taking office. In Mexico, corrupt local police often work closely with criminal gangs. A year later, Mr. Sanchez and his chief of staff were found stoned to death, authori- ties said. They were blindfolded and their hands tied behind their backs. In January, Estanislao Beltran—a vigi- lante leader nicknamed Comandante Pitufo, or Commander Smurf, for his Santa-Claus beard—held a meeting in the town square to return about 260 hectares of groves to 25 families whose land had been taken. “We took the groves back from the Tem- plars and gave them to their rightful own- ers,” said Jesús Bucio, a grower, and head of the local vigilantes. “We knew who they are and what happened to them.” The rest of the stolen acreage will even- tually be returned to former owners, he said. One avocado farmer, Alfonso III Cevallos, told how two years ago, the gang killed three of his brothers, his father and two un- cles, driving his family from their land. He has since reclaimed 120 hectares of his avo- cado groves. “Six people they took away,” Mr. Cevallos said. “I would return those properties if I could get those lives back.” J a n e t J a r m a n f o r T h e W a l l S t r e e t J o u r n a l ( 2 ) Online >> See more photos and watch a video about the battle in Tancítaro at WSJ.com/World. *Through October Sources: Mexico’s Ministry of Economy (exports); USDA (consumption) The Wall Street Journal Going Green Four of every five avocados sold in the U.S. originate in Michoacán, the only Mexican state certified by the U.S. Department of Agriculture to export the creamy, dip-friendly Hass variety that local growers call ‘oro verde’ or green gold. Tons of avocados exported to the U.S. from Mexico Per capita consumption of avocados in the U.S. 500 0 100 200 300 400 thousand tons ’03 ’05 ’07 ’09 ’11 ’13 2013: 457,567* 2.0 0 0.4 0.8 1.2 1.6 pounds a year ’03 ’05 ’07 ’09 ’11 2011: 1.673 ‘A day didn’t go by that one didn’t hear about extortion, a kidnapping or a violent death taking place in the municipality,’ said Mayor Torres. Arson remains, above, and avocado packing, left. 18 | Monday, February 3, 2014 THE WALL STREET JOURNAL. BUSINESS & FINANCE ‘Frontier Markets’ Emerge as Big Draws Some investors are finding ref- uge from the recent emerging-mar- kets turbulence in an unexpected place: even less-developed econo- mies. These “frontier markets” are lur- ing money managers who are will- ing to delve into smaller markets with more difficult trading condi- tions in order to gain exposure to robust economic growth. Because they are off the beaten path, frontier markets haven’t been swept up in the selloff that has pummeled emerging markets. Coun- tries such as Nigeria, Pakistan and Bangladesh didn’t see much of the cash that poured into emerging markets after the financial crisis, when low-interest-rate policies in richer economies sent investors in search of better returns in the de- veloping world. Instead, frontier markets have seen a steady trickle of investment from fund managers hoping to ride years of rapid growth. As a result, these economies have come through relatively unscathed even as inves- tors pull out of larger emerging markets such as Turkey and South Africa. The MSCI Frontier Market Index is up 1.3% this year, compared with a 6.6% decline in the MSCI Emerging Market Index. Last year, frontier markets rose 16%, while emerging markets fell 12%. Funds that buy frontier stocks in January drew in $244 million through Jan. 29, the most since Oc- tober, according to EPFR Global. Over the same period, investors yanked $11.6 billion from emerging- market funds. “Frontier markets are very useful diversifiers because…there are fewer links between frontier markets and the international capital markets,” says Sean Lynch, global investment strategist at Wells Fargo Private Bank, a Wells Fargo & Co. unit that manages $170 billion. “We are at- tracted by the long-term growth prospects and the consumption- growth story.” Mr. Lynch recently began recom- mending that clients own stocks in frontier markets such as Vietnam and Nigeria. Bets on frontier markets often take longer to pay off. One key fac- tor: Frontier markets are thinly traded, meaning it usually takes lon- ger to get out of a position than it would in emerging or developed markets. Investors buying stocks in fron- tier markets say conditions are right for these economies to see years of steady growth. Most have young populations, an important factor in the early rise of emerging markets such as Brazil and China. Shares of consumer-products companies, and banks in particular, should benefit as more people in frontier markets make their way into the middle class, these investors say. Emerging markets that rely heavily on China have suffered this year. But frontier markets have been less affected by the slowdown in China’s growth rate, partly because growth in domestic consumption is a more important factor in their economies’ expansion. The International Monetary Fund predicts most large frontier markets will grow at least 5% this year, with Nigeria’s economy forecast to grow by 7.4% and Bangladesh’s by 6%. Some emerging markets are ex- pected to see more moderate expan- sion, with Brazil growing at 2.5% and Turkey by 3.5%. “If the emerging-market selloff deepens, there will be contagion, but over the past few years we’ve seen that correlation dispersing,” says Pradipta Chakrabortty, portfo- lio manager of Harding Loevner’s $335 million frontier emerging-mar- kets fund, which is up 2.5% since the beginning of 2014. To be sure, some investors say frontier economies could succumb to the turmoil now engulfing emerg- ing markets. Pakistan’s stock market fell last Monday, at the start of the latest emerging-market selloff, though the country’s KSE 100 index is still up 5.3% this year. “I wouldn’t be aggressively buy- ing until a major selloff occurs,” says Don Scott, managing director of Global Frontiers Management, a money manager that specializes in frontier markets. Mr. Scott owns stocks in West Africa, the Balkans and Asia. The eye-catching performance of frontier markets in recent years has started to draw in a wider range of investors. While analysts say that has helped bolster share prices in those countries, some regulators are sounding a warning bell. In its an- nual letter in early January, the Fi- nancial Industry Regulatory Author- ity cited a lack of liquidity as a reason why financial advisers should be extremely cautious about recommending frontier-market in- vestments to their clients. If increased regulatory scrutiny discourages some investors, that eventually could limit rallies in these markets, market experts say. BY DAN KEELER Karachi Stock Exchange traders under display boards in early January. Pakistan’s market is up 5.3% this year. E u r o p e a n P r e s s p h o t o A g e n c y U.S. Widens Its Investigation Into Deals With Libya Sources: MSCI (indexes); EPFR Global (flows); IMF (GDP) The Wall Street Journal *Through Friday Survivors Money managers are still investing in less-developed ‘frontier’ markets even as emerging markets sell off. Index performance since the beginning of 2013* Investor flows into frontier stock funds GDP growth forecasts for select countries 0 1 2 3 4 5 6 7 8% ’13 ’14 ’15 ’13 ’14 ’15 ’13 ’14 ’15 Nigeria Brazil U.S. Frontier Markets 22% Emerging Markets 11% 25 –20 –15 –10 –5 0 5 10 15 20 % ’14 2013 $900 0 100 200 300 400 500 600 700 800 million ’14 2013 Gadhafi’s network, and U.S. investi- gators have been aiding in the ef- fort. At the center of the probe is a group of middlemen, known as “fix- ers,” operating in the Middle East, London and elsewhere, people famil- iar with the matter said. The fixers established connections between in- vestment firms and individuals with ties to leaders in developing mar- kets, including those in the Gadhafi regime, these people said. Even the offer of an improper payment can create legal liability for a company under the FCPA, re- gardless of whether the transaction is completed. Not all of the firms under scru- tiny have been directly contacted by the Justice Department, although prosecutors and regulators are shar- ing information, people familiar with the matter said. Prosecutors and regulators haven’t accused any of the companies of wrongdoing. The investigation is looking at fixers’ role in arranging deals be- tween financial firms and Libyan of- ficials, people familiar with the mat- ter said. The fixers acted as placement agents, similar to those in the U.S. who have come under scrutiny for steering investments to large public retirement funds. In some cases, the sovereign-wealth- Continued from first page fund fixers collected a “finder’s fee,” one of the people familiar with the matter said. Fees paid to placement agents can be legal or can be considered bribes, depending on the size of the fees and the nature of the agents’ relationship with the parties to the transaction, legal experts said. Prosecutors are trying to deter- mine whether the fixers funneled il- legal payments to Libyan officials in the Gadhafi regime on behalf of fi- nancial firms in return for business, according to people familiar with the matter. Some of the fixers had connec- tions to at least two of Gadhafi’s sons—primarily his second son, Seif al-Islam Gadhafi, who was most in- volved with the sovereign-invest- ment fund, according to people fa- miliar with the matter. The elder Gadhafi was killed by Libyan revolu- tionaries after he was toppled in 2011, ending his 42-year rule over the country. Seif al-Islam Gadhafi was captured by rebels. The Libyan Investment Author- ity, the nation’s sovereign-wealth fund, invested amounts up to $1 bil- lion in funds run by all these firms except Blackstone, according to a 2010 audit of the sovereign-wealth fund by KPMG LLP. The Libyan fund’s estimated $60 billion in as- sets was frozen under international sanctions after the revolution. Around the time of the 2008 fi- nancial crisis, Blackstone was mov- ing toward a deal with the Libyan fund, with conversations taking place among lower-level executives at the private-equity firm about whether to hire a “placement agent” to obtain a potential investment of Libyan money, according to people familiar with the matter. But the discussions dropped off and no deal was reached, these people said. Prosecutors and regulators also are investigating transactions in- volving real-estate investments in Libya, according to people familiar with the matter. Among the deals being scrutinized is a $120 million hotel project in which Och-Ziff had a stake—a joint venture involving U.K.-based InterContinental Hotels Group as well as a Libyan developer and the Libyan Investment Author- ity to build a luxury hotel in Trip- oli—according to people familiar with the probe. The hotel, which was slated to open in the Libyan capital in 2010, would have 351 rooms and “stun- ning views across the city and wa- terfront,” according to a 2007 news release from InterContinental, but construction stalled as fighting broke out in the country. It still hasn’t been completed. The U.S. lifted sanctions against Libya in 2004 in return for the country’s dismantling of its nuclear- weapons program. By 2008, as the financial crisis set in, Western firms were jockeying for business there. That year, then-Secretary of State Condoleezza Rice visited Libya and met with Col. Gadhafi in part to im- prove the investment climate there for U.S. companies, she said at the time. The government advised com- panies on investing in Libya, and U.S. executives went there on a gov- ernment-sponsored trade mission in 2010. Blackstone Chief Executive Ste- phen Schwarzman and Carlyle Group LP Chief Executive David Rubenstein attended the 2008 wed- ding in Tripoli of Mustafa Zarti, the deputy chief of the Libyan Invest- ment Authority. There is no indica- tion that Messrs. Schwarzman or Rubenstein were involved in any transactions that are under investi- gation. Both declined through spokesmen to comment. “Libya was fragile—one could feel it,” said Gary Garrabrant, the former chief executive of Equity In- ternational, a Chicago-based real- estate investment trust founded by Sam Zell. Equity International con- sidered deals in Libya, including the InterContinental project, according to Mr. Garrabrant. “There was a layer that existed in Libya of people that in effect con- trolled access,” he said. “They were door openers.” Ultimately, the inability of Lib- yan officials to answer basic ques- tions about permits, labor and con- struction caused his firm to back away, he said, adding that the firm’s discussions never advanced beyond that point. “We could never get comfortable with Libya as an institutional mar- ket,” said Mr. Garrabrant, who left Equity International to start his own firm, Jaguar Growth Partners, last year. —Rob Copeland and Liz Rappaport contributed to this article. At the center of the probe is a group of middlemen known as ‘fixers’ operating in the Middle East, London and elsewhere. 12 | Monday, February 3, 2014 THE WALL STREET JOURNAL. OPINION: REVIEW & OUTLOOK I t’s a sign of how lackluster the U.S. economic recovery has been that Thursday’s news of 3.2% growth in the fourth quarter of 2013 was greeted with cheers and relief. The economy has now grown at 2.5% or faster for three quarters, and the pace in the last six months is the fastest since 2003-2004 following George W. Bush’s tax cuts on capital gains, dividends and top incomes. The best news is that growth all came from private spending and investment, not the artificial high of unsustainable government spending. The official gov- ernment contribution to growth was a negative 0.9% due to falling defense out- lays and the federal budget sequester. The national-income accounts have a bias that treats government spending as a net con- tributor to growth even when it’s wasted. Remember how the Keynesians pre- dicted that less spending would mean slower overall growth? Maybe the oppo- site is true: When government shrinks, the private economy has more money and room to expand. This is not to say that the report sug- gests the economy has reached escape ve- locity from the post-recession status quo. The growth was largely due to a healthy gain in consumer spending (a 2.3% contribution) and net exports (1.3%), especially goods. The export story is especially notable because it reflects the rising com- petitiveness of U.S. com- panies. Some of this is due to lower en- ergy costs and some to the self-discipline that has been required during the lean years since 2008. On the other hand, private business in- vestment contributed only 0.6% to growth, and housing deducted from GDP for the first time since 2010 (minus-0.3%). Inventories also climbed, which may re- duce growth this year unless overall spending and investment accelerate. The economy will need many more quarters of 3% or more growth to get anywhere close to the pace of most nor- mal expansions. Growth since the reces- sion ended in June 2009 has been sub- stantially slower than in any postwar expansion. Growth over the last 18 quarters has averaged 2.4%, compared to an aver- age of more than 4% in the 1980s boom and a little less than 4% in the 1990s. Growth for all of 2013 was merely 1.9% despite the acceleration in the last half. The biggest looming threats to growth this year include China’s slowdown as it tries to roll back its stimulus and deal with credit problems. There’s also the global adjustment to Federal Reserve ta- pering, as we’re seeing in emerging mar- kets and as investors pull out of riskier assets. The risks from Washington are fewer than in recent years thanks to gridlock. The main threats are new energy regula- tion in the name of fighting global warm- ing, and the continuing burden of Obama- Care on small-business costs and hiring. Congress ought to make a run at overrid- ing the worst energy rules under the Con- gressional Review Act, which would at least put Senate Democrats on record in an election year and might cause the Ad- ministration to modify its worst plans. President Obama could also help by spending political capital on his three pro-growth ideas—freer trade, and immi- gration and tax reform. But Senate Major- ity Leader Harry Reid has already issued a veto on trade, and Mr. Obama wants to raise some corporate taxes to make up for cutting tax rates. Meanwhile, the U.S. cor- porate tax rate continues to be by far the highest in the developed world, driving capital and job creation overseas. Washington could do more to lift growth, but given what that crowd be- lieves, maybe gridlock is the best we can hope for. ‘A merican diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being elimi- nated.” That was President Obama in his State of the Union Tuesday, boasting about what he regards as one of his signa- ture achievements from 2013. Well, not so fast. On Wednesday Reuters reported how much of Syria’s chemical stockpile has been handed over for destruction: 4.1%. That comes to about 59 tons of chemical weapons surrendered out of a stockpile of 1,433 tons. Oh, and that’s the stockpile that the Bashar Assad regime officially de- clared. In September we reported that U.S. intelligence believes the regime disclosed only 32 of an estimated 50 chemical sites. The Reuters dispatch is based largely on a forthcoming report from the Organi- zation for the Prohibition of Chemical Weapons, which last year won a Nobel Peace Prize and is overseeing the removal of the Syrian weapons. “All the indications are” that “actually the regime has been sort of stalling on the implementation of the agreement,” a diplomatic source told the news agency. There’s a nonshocker. It was predict- able that as soon as Assad became a part- ner in his own chemical disarmament he would seize every opportunity to post- pone and prevaricate. The regime now in- sists it needs armored vehicles and com- munications equipment to move the weapons. Next they’ll demand that the stockpile will only be moved when it has new tanks and attack helicopters to escort the convoys, or perhaps when the rebels lay down their arms. A State Department spokesman reacted to this with the mildest of scoldings that “the delay is increasing the cost to na- tions” for shipping and other removal ef- forts. Shipping costs? Don’t expect the Administration to trumpet these viola- tions at the U.N., where China and Russia have shielded Assad, or in Congress, which played its own role in looking away from the dictator’s predations. And no- body should expect Mr. Obama to make good on his pledge—hollow even when he made it in September—to renew the threat of military action “if diplomacy fails.” But neither should the President get away with treating his Syrian debacle as a victory. Americans may want to wash their hands of the Mideast’s many imbro- glios. But one consequence of inaction is another despot who sleeps securely in the knowledge that a diffident superpower will exact no price on those who gas their own people. F or those Americans who haven’t started preparing for retirement, President Obama is pitching a new “starter savings account.” Whether he has the legal authority to do so is a question congressional staff are beginning to ex- plore. During his State of the Union address and then again at a Wednesday event in Pennsylvania, President Obama hailed his new “MyRA,” a type of Roth Individual Retirement Account, which allows after- tax dollars to grow tax-free until retire- ment. But the money in MyRAs will only be invested in a government bond fund. Unlike most private options for creat- ing a Roth IRA, the government will allow people to open a MyRA with as little as $25, and to contribute as little as $5 in regular payroll deductions. There’s no rea- son private firms couldn’t offer such small accounts, but they don’t because it’s not profitable to do so. Such business can cost more to service than it’s worth. The MyRA is available only to those who don’t have a retirement plan through their employer and whose household income is less than $191,000 each year. Mr. Obama is promising that the re- turns will be the same as those enjoyed by federal workers who invest in the Govern- ment Securities Investment Fund, known as the G Fund and offered via the Thrift Savings Plan. This plan, like the Roth IRA, was created by law. But Mr. Obama says he can create, administratively, a new plan for non-government work- ers that will generate the same returns as the G Fund. Treasury Secretary Jack Lew adds that unlike federal workers who invest in the G Fund, MyRA cus- tomers will pay “no fees.” Hmmm. Regulators are always suspicious of investment fund marketers who understate the costs of their services. And even funds pegged to stock or bond indexes have some ex- penses. Auditing, custody arrangements, call centers and the like cost money. With accounts as small as $25, such expenses would represent an unusually high per- centage of the invested funds. Clearly someone is going to pay for all this, but who? If Mr. Lew is accurate in his promise of no fees, then the money would have to come from a congressional appropriation. But Mr. Obama has explicitly stated that he’s creating this fund unilaterally, and he even made a show in Pennsylvania of sign- ing the executive order, which he then handed to Mr. Lew. An Administration source tells us on background that “Treasury will administer the MyRA program using its longstanding author- ity—granted by Con- gress—to sell securities, such as savings bonds, and hire financial agents.” This suggests that Mr. Obama intends to dip into the funds Congress appro- priates for Treasury’s “fiscal services.” But these are meant to support Treasury’s op- erations to fund the government, not as an all-purpose pot of money to achieve White House policy goals. Under this in- terpretation, could Mr. Obama decide at some point to double or triple the G-Fund returns for MyRA investors? Genius—a new subsidy plan that doesn’t need the approval of that pesky legislature. The part about hiring “financial agents” is also intriguing and may explain why some in the financial industry have responded warmly to the proposal. As- suming the White House has learned not to try to create its own ObamaFunds web- site, one or more private firms could re- ceive big federal contracts. We’d say that decorum prevents Mr. Lew from handing the business off to his former colleagues at Citigroup, though with this White House you never know. Hiring investment agents also costs money, which under the Constitution is supposed to come from Congress. Maybe Messrs. Lew and Obama simply figured they could come up with this new plan, claim it’s legal to pay for it out of existing Treasury cash, and then dare Congress not to fund it in the future. Will they call it the Hope and Spare Change Fund? The investors the Administration is tar- geting for this fund are mostly young or poor, and it only makes sense for them if this really is a backdoor subsidy scheme. The G Fund, which delivered a 1.89% re- turn in 2013, is the last vehicle young workers with a long time horizon should be using to build a nest egg. They need as- set growth, which comes over a lifetime from investing in stocks. So maybe this new fund really is about funding government, and recruiting a new class of investors willing to accept low re- turns to underwrite Washington. Less Government, Faster Growth Assad’s Chemical Charade Barack’s New Bond Fund Private spending and investment lift the U.S. economy in the fourth quarter. How to create a new U.S. retirement subsidy with no vote in Congress. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 17 BUSINESS & FINANCE Bitcoin Market Makes About-Face in China Popular Chinese bitcoin exchange BTC China has restored a facility al- lowing customers to purchase bit- coin by depositing yuan into the ex- change’s corporate bank account. The move reverses a decision in December to halt such deposits, which the exchange made in re- sponse to a Dec. 5 memo from the People’s Bank of China warning na- tional financial institutions not to trade in bitcoin. Those twin devel- opments threatened to curtail vol- umes on BTC China, which had grown to become the biggest bitcoin exchange in the world, and prompted a drop of more than 50% in bitcoin’s international price over a two-week period in December. Reached by phone in Shanghai, BTC China Chief Executive Bobby Lee said the change, which was im- plemented Thursday, was made af- ter the company studied the central bank’s memo and other rules that raised concerns about BTC’s banking activities. The exchange determined that it was legally permitted to ac- cept deposits into its corporate bank account and to transfer those funds into customer accounts, even though banks themselves are barred from engaging in bitcoin businesses and speculation. BTC China isn’t making a high- profile announcement about the change, however, in part because it is taking a cautious view of future government actions. “We are defi- nitely in compliance with the Dec. 5 memo, but the government and the government agencies can change the rules anytime in the future,” Mr. Lee said. “So we are going to take a wait-and-see approach.” The timing, just ahead of Fri- day’s start to the Lunar New Year holiday period, was also important, he said. “It is going to be slow in terms of trading value, so we just wanted to make sure the system is running smoothly, that there is not too much pressure and that it doesn’t pick up too much attention.” Friday also marked the central bank’s deadline by which banks and payment processors were supposed to cease all dealings in bitcoin. Despite the quiet relaunch, word of the policy reversal emerged in the U.S. trading day Thursday after a user cited it on a Reddit forum for bitcoin enthusiasts and a story ap- peared on news site Coindesk. The move appears to have given a modest lift to the international price for bitcoin. Late Thursday in New York, bitcoin was quoted at $843.60, up from a low of $816.36 around 5 a.m. New York time, ac- cording to an index that Coindesk compiles from three exchanges. By Sunday afternoon in New York, the price had climbed to $860.09. Authorities the world over are trying to figure out how to regulate commerce in the currency, with the uncertainty surrounding that pro- cess impeding its adoption and—as with the Chinese central bank’s move in December—sometimes weighing on its price. BY MICHAEL J. CASEY Bitcoin coupons were distributed to Hong Kong pedestrians on Thursday, the eve of the Lunar New Year. A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s Samsung Struggles to Roll Out New Smartphone OS “tying together” of different devices and functions—to serve as a unified operating system that can coordi- nate functions on every device a consumer owns, including a smart- phone, refrigerator, television set and washing machine, all of which the company makes. Prototype Tizen devices look and feel similar to those running An- droid, with which it shares a com- mon programming code base. But those involved in the project say the prototypes can’t be judged as final products, and Tizen’s central appeal is that it allows for more customiza- tion of the interface by carriers and manufacturers than are possible with Android. Yet industry executives and ana- lysts say it has been difficult to get Tizen off the ground. NTT DoCoMo Inc., Japan’s big- gest telecommunications operator and a close partner on Tizen, had been gearing up to announce its first Tizen smartphone in mid-January. Continued from page 15 But on the day DoCoMo was set to release its device, it instead shelved its plans. In the U.S., Sprint Corp. joined the Tizen Association in May 2012, saying it welcomed the broader con- sumer choice offered by a new oper- ating system. But Sprint left last year. Spain’s Telefónica SA also exited the association, which oversees de- velopment of the operating system, and last year released the first com- mercially available mobile phone running on Mozilla’s Firefox, an- other upstart operating system. France’s Orange SA, another partner that had planned to release its first commercial Tizen smart- phone alongside DoCoMo, said the speed of development at Tizen “is not as mature as we may have ex- pected at this point.” The carrier doesn’t have a Tizen device in its current smartphone road map, he said. Samsung responded that it would evaluate product offerings in Japan and France with the mobile opera- tors. Samsung said the company and its partners would offer a “sneak preview” of the newest Tizen de- vices this month on the sidelines of Mobile World Congress, an annual exposition in Barcelona for the global mobile industry. Samsung’s difficulty in introduc- ing its own operating system comes amid a series of moves that appear to have improved an increasingly strained relationship with Google. While Google and Samsung continue to talk up the strength of their part- nership in public, the two companies increasingly were stepping on each other’s toes, pushing Samsung to ac- celerate its efforts to develop Tizen. Samsung and Google last week said they had signed a wide-ranging cross-licensing deal on technology patents that covers the companies’ existing patents, as well as those filed over the next 10 years. Three days later, Google said it would sell its Motorola Mobility unit to Lenovo for $2.9 billion, ridding it- self of a direct competitor to Sam- sung’s Android-powered smart- phones. “With Google we have a close re- lationship and we will continue to be an important strategic partner and collaborate together,” a Sam- sung spokesman said. Samsung’s software pitch to third-party app developers, mean- while, has been built around two of its biggest assets: its clout and its hefty cash reserve of $50 billion. To attract interest in Tizen among third-party app developers, Samsung in October held its first de- velopers’ conference, at a hotel in San Francisco. Samsung and Intel also are spon- soring a contest that will dole out $4 million in prizes for Tizen app developers. But for some of the biggest, most established app makers—the ones most critical to Tizen’s success— even cash incentives haven’t been enough to stir interest in the fledg- ling platform. Several months ago, Samsung of- fered the developers of one of An- droid’s most popular apps, which has been downloaded more than 50 million times, more than $100,000, to adapt its app for Tizen, according to a top executive at the app devel- oper. The company, which had collabo- rated with Samsung closely in the past, turned the Korean company down, concluding that Samsung’s previous track record in software made it unlikely that Tizen could gather an audience, the person said. “Software developers just care about the number of mobile phones on the market,” Tizen Association Chairman Roy Sugimura said. Mr. Sugimura said Tizen had about 6,000 apps as of December, a far cry from the nearly one million apps on Apple’s iOS. —Mayumi Negishi in Tokyo, Sam Schechner in Paris, David Román in Madrid and Ryan Knutson in New York contributed to this article. Microsoft’s Likely CEO Pick: FromIndiatoCompanyInsider communication engineering at Ma- nipal Institute of Technology, a hill- side campus less than 10 kilometers away from the Arabian Sea. “I remember asking him about what’s ahead,” said Ganesh Prasad, a former classmate who said that Mr. Nadella responded that he wanted to get involved in marketing at a software company—namely Mi- crosoft. “His goal was so clear at that time.” After moving to the U.S., he earned a master’s degree in com- puter science from the University of Wisconsin and a master’s degree in business administration from the University of Chicago. Once at Microsoft, Mr. Nadella moved every few years, working on businesses that include Windows and the company’s popular Office suite of PC applications programs. In more recent years, he has helped lead efforts that include Microsoft’s Bing search engine, its SQL Server database and a cloud service called Azure, whose technology underpins Microsoft’s own online services and is also used to run computing opera- tions for other companies. Mr. Nadella, who has two daugh- ters, said in a 2012 interview that it was very easy for them to under- stand what he does for a living when he was working on Bing. The explanations grew tougher, he said, when he began overseeing things like cloud services and tools for de- velopers. “Now I tell them, ‘I work on Windows but it’s not the Win- dows you see,’ and that they don’t really understand,” Mr. Nadella said. Many of his speeches, indeed, are a bit hard to follow, chock-a-block with terms like “platform” and “in- frastructure” and “Internet scale” that characterize what Mr. Nadella calls Microsoft’s cloud operating system. But he knows how to com- municate well with engineers, for- mer colleagues say. Though far from flashy, Mr. Na- della cuts a singular figure on Micro- soft’s Redmond, Wash., campus, where khakis, jeans and T-shirts usually rule. He often wears a stylish sports coat and has a close-cropped haircut and designer eyeglasses, which may switch from tortoise shell to sleek metal depending on the day. Continued from page 15 At Mr. Nadella’s urging, Micro- soft in the last couple of years has stepped up its courting of startups in Silicon Valley. Mr. Nadella takes regular trips to the Bay Area to speak with venture-capital investors and technology executives, and has spoken before groups of Indian-born entrepreneurs. In a sign of bending to the startup lifestyle, at a 2012 Azure event in San Francisco, Mr. Nadella and other executives moved an exec- utive presentation to 1 p.m. from 9 a.m. to accommodate night-owl tech workers. Mr. Nadella also sent a personal apology to Israeli startup Soluto af- ter the 50-person business-software service wrote a blog post last year about how an Azure outage took the company offline, said Soluto CEO Tomer Dvir. His eagerness to show his bosses a high activity level backfired at least once. In August, Mr. Nadella recalls, he initially declined when Mr. Ballmer sent his executive team an email to meet in his office. “I wanted to skip it, and show my CEO that I have more important things to do, something that was M&A related,” Mr. Nadella said in October. Mr. Ballmer’s assistant told Mr. Nadella to reconsider. When he and the fellow execu- tives met in the CEO’s office, Mr. Ballmer shocked them by telling them that he was retiring. Some of his former colleagues question whether Mr. Nadella—or any insider, for that matter—can make the kind of tough changes that may be required to boost the per- ception of Microsoft. Mr. Venkatesan disagrees, argu- ing that an outsider would likely run into conflicts with Microsoft’s cor- porate culture. He believes Mr. Na- della understands the organization and has shown a willingness to take risks. Mr. Nadella, meanwhile, has said success should be easy to judge. “Relevance comes with innovation and marketplace success,” he said in October. “The marketplace will speak so loudly and so clearly that it will not be ambiguous.” —Sean McLain, R. Jai Krishna, Dhanya Thoppil and Shefali Anand contributed to this article. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 13 OPINION The blood libel––the medieval myth that Jews require the blood of Christians, especially of chil- dren, and routinely slaughter them to obtain it—has been in the news to a remarkable degree lately. Civic leaders in the village of Glatigny in northeastern France last month held a ceremony offi- cially exonerating Raphael Levy, a Jewish livestock trader, who had been convicted of ritually murder- ing a Christian child, and was tor- tured and burned at the stake for it in 1670. Around the same time, in the cathedral in the city of Sandomi- erz, Poland, an 18th-century paint- ing entitled Mord Rytualny (“Rit- ual Murder”) was shown to the public for the first time in nearly a decade, with the approval of the Catholic Church and Jewish lead- ers, to educate the public. Finally, there is the release of a new na- tional survey by the Center for Re- search on Prejudice at Warsaw University that found that 13% of Polish respondents agreed that “Jews use Christian blood for their ritual purposes,” up 3% from the last poll in 2009. Meanwhile, only 35% rejected the charge outright, a decline from 49% in 2009. Eight hundred years after its birth in Western Europe, the blood libel myth, though repudiated a thousand times over, remains a part of Western and now world culture. The blood libel today has its believers in Europe, but its greatest currency is in the Middle East. In November of 2013, Sheikh Ra’ad Salah, leader of the northern branch of the Islamic Movement in Israel, was convicted by a Jerusa- lem court of incitement to violence for a sermon where, among other things, he referred to “children of Europe whose blood was mixed into the holy bread,” according to the indictment. His comments were widely seen as a reference to the blood libel myth that Jews use Christian blood to make matzo, though Mr. Salah insisted that his remarks were misinterpreted. More important than direct ex- pressions of the blood libel is the way the myth continues to serve as an unconscious foundation for anti-Semitic attitudes of Jews as “bloodsuckers,” exploiters and parasites, even among those who may shun all superstition. The public vindication of Raphael Levy after 344 years, then, is not merely a well-intentioned exercise, but an extraordinarily meaningful one. On September 25, 1669, Levy was racing home to celebrate Rosh Hashanah, the Jewish New Year. In the deep pocket of his tunic, he carried a traditional ram’s horn or shofar that he had purchased for the synagogue service in his home- town of Boulay that was to begin at sundown. That same day, Didier Le Moyne, the three-year-old son of a Glatigny wheelwright, disappeared from a forest clearing while his mother was doing the washing at a spring just outside of town. His remains, torn apart by animals, were found two months later in the forest. Whether he was mur- dered or simply lost his way in the woods was never determined. Levy had a thoroughly solid al- ibi and there were no reliable wit- nesses against him, yet he was ar- rested for the boy’s supposed murder. Levy refused to confess or convert to Christianity, first under “ordinary” and then under “ex- traordinary” torture ordered by the court in the provincial capital of Metz. Weights were attached to feet and he was hoisted from the ground by ropes and dropped. To withstand the torture he prayed, “crying out and invoking the name of God that he had told the truth,” according to the court record. Levy told the priest who accompa- nied him to the stake: “I am a Jew, I wish to die a Jew.” Soon after the trial, a royal de- cree from Louis XIV put an end to ritual-murder accusations in France. “The King forbids and pro- hibits the acceptance or belief of any such stories,” the decree read, citing a papal bull. Indeed several popes, beginning with Innocent IV in 1247, had condemned the charge. But neither papal bulls nor the proclamations of kings and emperors could put an end to the blood libel—and the story of the two families in the Glatigny case testifies to that in the most per- sonal way. The case of Raphael Levy lived on in the memories of the Lem- oine (as they came to spell the name) and Levy families, who re- mained near their original home- towns for centuries. Bernadette Lemoine, a ninth-generation rela- tive of Didier Le Moyne, became an amateur historian in 2001 at the age of 90 to examine the evi- dence about the boy’s death. In 1669, Didier’s parents had been among Levy’s most insistent ac- cusers. In court, the father had de- clared Levy to be a “new Herod, thirsty for [the boy’s] blood in or- der to sacrifice it to the inhuman- ity and barbarity of his syna- gogue.” According to Bernadette Lem- oine, her own father and her en- tire family had believed Raphael Levy to be guilty. But, after exam- ining the documents in a local ar- chive, she concluded in a report that her family had helped commit “a monumental injustice and per- petuated it for three centuries.” She shared her conclusions with an 11th-generation descendant of Raphael Levy whom she met and befriended some years before her death. The unveiling of the “Ritual Murder” painting in Sandomierz is another powerful exercise in con- fronting a painful past. The paint- ing, which depicts Jews killing Christians, had been covered by a red curtain for eight years due to its offensive content. But the Cath- olic Church, with the support of Jewish leaders, decided that open- ness rather than suppression was the most constructive path. Mounted next to the painting is a plaque explaining that the notion that Jews commit ritual murder is a falsehood and one contrary to the essence of the Jewish religion. “To uncover it, to show it pub- licly,” Poland’s chief Rabbi Michael Schudrich told Agence France- Press, “is to show [the blood libel] for what it is: a lie.” The last Jew actually charged with ritual murder was a brick-fac- tory clerk, Mendel Beilis, whose 1913 trial in Kiev attracted world- wide attention. But the memory and message of the blood libel still run deep. At the ceremony in Glatigny, with descendants of Raphael Levy present, Mayor Vic- tor Stallone hopefully declared, “Today, we are starting from scratch.” In history though, espe- cially in the history of the blood li- bel, there is, unfortunately, no such thing. Mr. Levin is a writer and pro- ducer at ABC’s Good Morning America and is the author of “A Child of Christian Blood: Murder and Conspiracy in Tsarist Rus- sia—The Beilis Blood Libel,” forth- coming from Schocken Books. The Exoneration of Raphael Levy BY EDMUND LEVIN My heart aches as I stand in the light bulb aisle of Home De- pot, looking for an LED light to re- place the incandescent bulbs that went out of U.S. production at the beginning of this month. The saleswoman asks if I prefer a soft white or a warm white—as though between the two either is less harsh. I wonder if the members of Congress who passed the Energy Independence and Security Act of 2007, which slowly outlawed the manufacture of incandescent bulbs, have ever sat beneath an LED or Compact Fluorescent Light (CFL) bulb. If they have, they will know that it induces a sort of drowsy numbness—something I learned recently when my room- mate brought home a set of Nano- leaf LED bulbs with an advertised 30-year life span. After a few minutes sitting in his room, we both realized that there was something almost nau- seating about the quality of the dull light. That the makers of Na- noleaf—or any manufacturer of ef- ficient bulbs—would be deluded enough to think that I would want to spend the next 30 years with their product is beyond me. And not only are their life spans un- bearably long, but the manufac- turers want to charge $20 per bulb. Over time, we are told, they save us money. I’d rather eat the extra cost and avoid having my living room look like an interroga- tion cell. Are we really meant to believe that the ozone will close up and the polar ice caps un-melt if we insert these terrible light bulbs into every socket of our homes? On the other hand, LEDs and CFLs are a kind of modern-day miracle: Somehow they produce a light that is at once harsh and very dim. It’s like seasonal affective disorder crammed into a tiny bulb. When I am asked if I want a Compact Fluorescent Light, the only thought I have is that I don’t want my light to be compact, nor do I wish it to be florescent. I want a light that will incandesce across my room, filling it with a familiar yellow surf, and remind me that it was not with wax or kerosene, but with incandescent bulbs that man conquered the night. Humans became modern when they could stay up at night pen- ning documents and tinkering with inventions, and later, watch- ing Netflix into the small hours of the morning. The same light that I type beside shone on the page as Winston Churchill composed his famous lines, “we shall fight them on the beaches . . . we shall never surrender,” and as James Joyce sat in his dingy foreign chamber finishing “Finnegans Wake.” With these new bulbs, we will usher in an era of global disarray. Political negotiations will become rushed and aggressive as foreign leaders rub their temples and hurry out of the Oval Office. Every restaurant will lose its Michelin stars as guests complain of mi- graines. Children will fear their nightlights, and lovers will be forced to romance each other without the aid of mood lighting. Our brows will remain forever fur- rowed, and we will yearn for a simpler time when bulbs cost 99 cents and didn’t make us feel like we had cataracts. Over the past year, I have seri- ously entertained the notion of hoarding incandescent bulbs, and my instinct is obviously not an un- common one: It now seems easier to buy a gun than it is to track down and purchase 60 watt incan- descent bulbs. I imagine what will happen when the filaments in my final in- candescent bulbs grow weak, and I can hardly read my notes before me. Will I no longer be able to write at night? Or worse, will liv- ing with CFLs and LEDs make ev- ery day feel like I have just spent nine hours plastered before a computer screen? One day, soon, I will turn on my light and hear for the last time the signature, explo- sive death rattle of an incandes- cent bulb, and I’ll hold a vigil for the light that shaped and wit- nessed more than a century of hu- man history. Tender is the light, Keats might say. In my lightless room, I’ll sit for a moment and wonder how many more times in my life I’ll watch a bulb go out again. As I look to my dead bulb, I’ll think of the poet again and whisper: Darkling, you were not a piece of technology born for death. Mr. Aciman is a writer in New York and the author of “Twittera- ture” (Penguin, 2009). Tender Is the Light of My Incandescents BY ALEXANDER ACIMAN Thorold Barker, Editor, Europe, Middle East & Africa Bruce Orwall, Senior Editor, Europe Gren Manuel, Executive Editor, Europe Terence Roth, Managing Editor, Europe Brian M. Carney, Editorial Page Editor Lauren Berkemeyer, Marketing Kate Dobbin, Communications Florence LeFevre, Institutional Sales Europe Michael Lloyd, Institutional Sales U.K. Jonathan Wright, Circulation Sales Kelly Leach, Publisher Published since 1889 by Dow Jones & Company © 2014 Dow Jones & Company. All Rights Reserved Bracing myself for life once the filaments in my beloved bulbs grow weak. The medieval myth that Jews slaughter Christians for their blood remains a part of world culture today. G e t t y I m a g e s Comments? The Journal welcomes readers’ responses to all articles and editorials. It is important to include your full name, address and telephone number. Please send letters to the editor to:
[email protected] 16 | Monday, February 3, 2014 THE WALL STREET JOURNAL. INDEX TO BUSINESSES Aer Lingus Group......... 16 Agricultural Bank of China.......................... 15 Air France-KLM.............16 Air Berlin...................... 16 Air Seychelles...............16 Alitalia.......................... 16 Amazon.com................. 28 Apple...................15,16,20 Australia & New Zealand Banking Group...........20 BAIC Motor...................28 Banco Bilbao Vizcaya Argentaria..................19 Banco Popular...............19 Banco Santander.......... 19 Bank of America...........28 Bank of Communications........15 BlackBerry.....................17 Blackstone Group........... 1 BSG Resources............. 16 BTC China......................17 CaixaBank..................... 19 Canadian Natural Resources.................... 6 Carlyle Group...........16,18 Caterpillar..................... 20 Cenovus Energy..............6 China Citic Bank........... 19 Cisco Systems.............. 20 Citigroup....................... 28 Coca-Cola.......................16 Concurix........................ 15 ConocoPhillips.................6 Credit Suisse Group.. 1,28 Daimler..........................28 Darwin Airline.............. 16 DBS Group Holdings.....15 Deere.............................20 Equity International.....18 Etihad Airways.............16 European Union.............. 9 Exxon Mobil....................6 Freeport-McMoRan Copper & Gold............15 Glencore Xstrata.......... 20 Global Frontiers Management..............18 Goldman Sachs Group.......................1,28 Google........................... 15 Grupo Inaer...................16 Harding Loevner........... 18 H.I.G. Capital.................16 HSBC Holdings............. 20 Imperial Oil.....................6 Industrial & Commercial Bank of China............15 ING Groep N.V. ............. 20 Intel...............................15 InterContinental Hotels Group..........................18 Intesa Sanpaolo............16 Jaguar Growth Partners..................... 18 James Investment Research.................... 20 Jet Airways (India)......16 J.P. Morgan Chase..........1 KKR............................... 16 KPMG............................ 18 Lenovo Group................15 Marathon Petroleum......6 Microsoft..................15,17 Mitsubishi UFJ Financial Group..........................15 Mizuho Financial Group..........................15 Nokia............................. 15 NTT DoCoMo.................17 Och-Ziff Capital Management Group.... 1 Orange...........................17 People’s Bank of China 17 Saba Infraestructuras.. 16 Sage Advisory Services. 1 Samsung Electronics....15 Société Générale............ 1 Sprint............................ 17 Standard Chartered......20 Sumitomo Mitsui Financial Group......... 15 Suncor Energy................ 6 Sun Microsystems........15 Telefonica......................17 TransCanada................... 6 UniCredit.......................16 Valero Energy................. 6 Verizon Communications........15 Virgin Australia............16 Vitol Group................... 20 Wells Fargo...................18 Yum Brands.................. 16 Businesses This index of businesses mentioned in today’s issue of The Wall Street Journal is intended to include all significant reference to companies. First reference to the companies appears in bold face type in all articles except those on page one and the editorial pages. Corrections Amplifications The first name of Jeromin Zettelmeyer, deputy chief economist of the European Bank for Reconstruction and Development, was misspelled as Jeronmin in a front-page article in the Friday-Sunday edition about stumbles in European currencies. A spokesman for BSG Resources Ltd. said the mining company entered into a joint-ven- ture agreement in Guinea with mining company Vale SA in accordance with Guinea’s min- ing code and with the full knowledge and approval of the Guinean government. A Business & Finance article in the Friday-Sunday edition about mining interests in Guinea incorrectly summarized the spokesman’s statement, omitting that BSG Resources said it acted in ac- cordance with the country’s mining code. An Off the Wall article Jan. 27 about unusual résumés featured a job hunter’s creative résumé delivery to the New York office of One Fine Stay, a booking agency for luxury-home stays. The article incorrectly said the résumé was delivered to the company’s Los Angeles office. Gucci’s leather-goods factory in Florence, Italy, shares production processes with some other Kering brands. An article on Gucci executives Frida Giannini and Patrizio di Marco in the February issue of WSJ. Magazine referred to it as a research laboratory, but didn’t specify that its shared resources are restricted to the production process. In addition, com- pany executives say they misspoke when they said Saint Laurent uses the facility; Saint Laurent has operated independently since January 2012. Readers can alert the London newsroom of The Wall Street Journal to any errors in news articles by emailing
[email protected] or by calling +44 (0)20 7842 9901. BUSINESS & FINANCE KKR to Open Office in Madrid Outpost Will Be Buyout Firm’s First in Spain, Where Foreign Investment Is Expanding MADRID—KKR & Co. is set to open its first office in Spain on Monday, as the buyout specialist seeks to build on its billion-euro stake in a country that is attracting a growing volume of investment from abroad. “We believe that there is a lot to do in Spain,” said Jesús Olmos, head of the New York-based firm’s Span- ish operations and its Europe, Mid- dle East and Africa infrastructure team. He said the firm is interested in opportunities such as real estate, infrastructure and direct lending. Spain’s economy is clawing back to meager growth after snowballing losses on real-estate loans threat- ened to bankrupt many of the coun- try’s lenders. KKR will be looking to lend be- tween $50 million to $100 million to Spanish companies with an annual operational cash flow of around €10 million to €15 million ($13.5 million to $20.2 million), Mr. Olmos said. Direct lending has grown in Spain in recent years as bank credit has tightened. Spanish banks have been focusing on cleaning up their real- estate portfolios—which are still full of bad loans—and buffering their capital positions ahead of this year´s balance-sheet exams by Eu- ropean authorities. KKR says it has spent €1.2 billion in Spain in the past three years on investments such as minority stakes in helicopter operator Grupo Inaer and car-park operator Saba Infrae- structuras. Mr. Olmos didn’t say how much KKR plans to invest in Spain in com- ing years. In Europe, the firm has offices in London and Paris. Other private-equity firms have stepped up their presence in Spain in recent months. Apollo Global Management LLC bought a real-es- tate servicing unit from Banco San- tander SA earlier this year for €664 million. Last fall, Apollo also bought Evo Banco, a small unit of a nation- alized Spanish lender. H.I.G. Capital and Carlyle Group LP are among the private-equity firms that have offices in Spain. In November, The Wall Street Journal reported that at least 15 pri- vate-equity groups focused on Spain and Italy were looking to raise funds with a combined value of more than €4 billion, according to several peo- ple familiar with the matter and Preqin, a data provider. That is more than the €1 billion raised since the start of 2010. The growing interest in Spain means good deals are getting harder to come by, Mr. Olmos said, “but for sure there will be more opportuni- ties.” He said he would remain based in London and travel fre- quently to Spain to work with a full- time staff member in the new office in Madrid. KKR employees, he said, already were flying to Spain “practi- cally every week.” BY JEANNETTE NEUMANN Etihad Sets Deadline To Complete Alitalia Deal DUBAI—Etihad Airways of Abu Dhabi is in the final phase of due dil- igence related to the potential pur- chase of a stake in Italian carrier Ali- talia SpA, and has set a deadline of 30 days to complete a deal. The airlines, which started talks last year, said Sunday that both com- panies would use the 30-day period to devise a “common strategy” that satisfied each party. “Any issues that may prevent the establishment of an appropriate business plan will have to be re- solved to ensure the plan can be im- plemented to move Alitalia to sus- tainable profitability,” the airlines said in a joint statement. The potential deal, which could result in Etihad taking a 49% stake in Alitalia, would increase the Abu Dhabi airline’s presence in Europe and provide the Italian carrier with a partner and extra funding. Alitalia is seeking a partner after Air France-KLM SA declined to take part in a €300 million ($405 million) fundraising in December. By not par- ticipating in the rights issue, Air France-KLM’s stake in Alitalia fell to 7.1% from 25%. As part of the fund- raising, Intesa Sanpaolo SpA and UniCredit SpA—two of Alitalia’s largest shareholders—also offered €200 million in fresh loans to the company. Negotiations with Etihad involve government and private-sector stake- holders, with the Italian government eager to avoid bailing out Alitalia for the second time in six years. Etihad is demanding that banks write down some of the debt the Rome-based carrier owes, according to a person familiar with the matter. Alitalia’s net debt at the end of Sep- tember amounted to €813 million. If a deal is completed, it would be Etihad’s eighth such investment as the carrier pursues a strategy of buy- ing minority stakes in other airlines. So far, Etihad has taken stakes in Air Berlin Inc. of Germany, Air Serbia, Darwin Airline SA of Switzerland and Aer Lingus of Ireland. It also holds equity investments in Air Sey- chelles, Virgin Australia and Jet Airways (India) Ltd. BY RORY JONES According to a survey last year, the most powerful foreign brand in China wasn’t Coca- Cola, Apple or Levi’s—it was KFC. But consumers there suddenly didn’t find it finger- licking good after two safety scares related to the chicken it serves. The company’s stock performance will hinge on how quickly it can turn the corner and start growing sales again. Monday’s release of fiscal fourth-quarter results by KFC operator Yum Brands can go a long way toward reassuring investors. It lowered expectations in October after Chinese sales in September— the first month of the period being reported—were weaker than expected. Yum said the drop made it unlikely that same-store sales for the quarter through early December would be positive, reversing an earlier prediction. The difference pointed to a low-double- digit percentage decline in earnings per share instead of the previous forecast of a mid-single-digit one. Analysts promptly lowered their sights, but their forecast for adjusted earnings implies a drop of only around 5%. Unadjusted earnings, seen at 80 cents a share, according to FactSet, would constitute a healthy rise versus a year earlier. Even if analysts weren’t cautious enough, year-over-year comparisons in China, where KFC sales were dented by avian flu and a food-safety scare, are about to start looking much better. The company said in December that it expects earnings per share to grow by at least 20% in 2014. That may make this an opportune time for investors to get exposure to a growth company at a reasonable price. Yum now trades at 18.6 times projected earnings over the next 12 months; It fetched 19.7 times in the first half of 2012—the period preceding KFC’s woes in China. Furthermore, analysts haven’t taken management’s optimism on 2014 earnings fully to heart, so today’s multiple might be artificially high. Caution would be warranted if there has somehow been permanent damage to KFC’s brand. Based on market research released by the company, though, and extensive steps to restore trust, the company deserves the benefit of the doubt. It also makes a strong case that it is far from the point of market saturation in China. It cites Malaysia, where density of KFCs is about six times higher. After an awful year, get ready to witness poultry in motion. Yum’s Shares Could Soon Become Tastier [ Ahead of the Tape ] BY SPENCER JAKAB Source: the company Wing and a Prayer Yum Brands China system sales growth, change from a year earlier 30 –30 –15 0 15 % ’12 ’13 2011 KFC’s China sales were hit by a safety scare. Outlets include this one in Beijing. R e u t e r s 14 | Monday, February 3, 2014 THE WALL STREET JOURNAL. OPINION ‘It is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.” So said President George W. Bush in his second inaugural address in 2005. The goal was—and is—a noble one. Unfortunately, neither Mr. Bush’s ef- forts nor those of his successor have met with the success democracy ad- vocates would wish. In Thailand, the streets are filled with demonstrators demanding the replacement of an elected govern- ment with an appointed council. In Egypt, the largest and most impor- tant Arab country, the 2011 revolu- tion and much-ballyhooed “transi- tion to democracy” ended in a military coup. President Obama’s lead-from-behind approach to Libya has ushered in anarchy, and Pakistan’s transition from one dem- ocratically elected set of powerless and corrupt politicians to another, widely cheered in Washington, has had no discernible positive impact on anything whatsoever. A democratically elected govern- ment in Hungary is flirting with fas- cists. Meantime, political reforms in Burma led to waves of religious vio- lence against that country’s Muslim minority. And in Ukraine, protesters face off against a corrupt, elected government aligned with Vladimir Putin. According to Freedom House’s 2014 Freedom in the World Report, 2013 was the eighth year in a row in which freedom lost ground. Yet the decade of freedom’s retreat was also a decade of unprecedented effort on the part of governments and non- profit organizations to help freedom thrive. Between 2006 and 2012, the U.S. government alone spent $18.6 billion on democracy promotion, partly because of stepped up efforts in Afghanistan and the Middle East. This is a substantially higher rate of spending than during the post-Cold War years, when the former War- saw Pact states were moving toward democracy. The gloomy prospects for demo- cratic self-government in many parts of the world should not come as a surprise. Building democracy took generations in much of the At- lantic world, and most revolutions didn’t succeed in establishing stable democratic regimes. Some, like the Hungarians’ in 1848 and again in 1956, failed to hold power and were overthrown. Others, like the French and Russian Revolutions, gained power only to install dictatorships worse than the ones they overthrew. The South American revolutions against Spain, like many anti-colonial movements in the 20th century, succeeded against the imperial power—but then failed to build stable, demo- cratic governments in its place. Egypt’s transition didn’t fail because Egypt’s democrats didn’t attend enough conferences on democracy building. It failed because the weight of their nation’s history, eco- nomics, religion and culture was too heavy for the relative handful of true democrats to lift. This should be a sobering lesson. While breakthroughs can sometimes occur, the construction of open, democratic systems in many coun- tries around the world is likely to be slower and harder than many thought. This doesn’t mean that democ- racy advocates should wring their hands and stand aside, but it does mean they need to think about pro- moting deeper social change over longer periods. To become and re- main democratic, countries need to develop cultural values hospitable to the rule of law, protection of pri- vate property, transparency and peaceful transitions of power that are grounded in their own religious and cultural identities. That is not, ultimately, a process that foreigners can orchestrate or control. A more sustainable and effective democracy agenda would start with education. Helping talented young people get access to good education will, over time, do more to promote democratic ideals than anything else. This doesn’t just mean offering more students more opportunities to study abroad. Many countries, like Egypt, have terrible postsec- ondary systems. Founding new schools, helping existing ones, and promoting partnerships between Western and foreign institutions can go a long way. In many countries, the lack of ac- cess to good English-language in- struction at an early age is one of the great barriers that struggling families face. Teaching English to large numbers of people from poor backgrounds is ultimately a political act: As their language skills help them get better educations and bet- ter jobs, internal pressure for a fairer society will increase. At the same time, democracy ad- vocates can address one of the big- gest fault lines in our allegedly flat world: People who don’t read Eng- lish or a handful of other languages live in a different information uni- verse. John Locke, Edmund Burke, Thomas Macaulay, Montesquieu, Thomas Paine, Adam Smith, Benja- min Franklin—the works of these thinkers need to be well-translated and widely available. People who read only Urdu, Burmese, Arabic or Punjabi need readily accessible edi- tions (cheap print or Web-based) of important books in their own languages so that people beyond elite circles have access to the ideas and the histories that matter. Smart people from different cul- tural backgrounds should be com- missioned to write introductions and other materials that can give readers in nondemocratic countries the context they need to make sense of these crucial texts. Others should write books about how South Korea, Taiwan, Poland and other countries became democratic. And leading magazines, opinion journals and policy reports should be translated into languages where they can be more widely read. English may be the world’s lingua franca, but de- mocracy building will be grueling in many countries until more people have the ability to follow global news and policy debates in their na- tive tongues. We cannot change the reality that the creation of stable demo- cratic societies in much of the world is going to take time. It took Chris- tian theologians hundreds of years to reconcile democratic and liberal ideas with traditional Christian thought; for Muslims, too, this could be the work of decades or genera- tions. The U.S. cannot control the pace of this change. What it can do is to ensure that as many people as pos- sible have unfettered access to the rich historical and intellectual liter- ature that advocates freedom. “Give us the tools and we will finish the job” is what Winston Churchill said to American democrats during the dark days of World War II. Let’s make it easier for people around the world to inform themselves about the nature of freedom and the his- tory of its emergence. They will fig- ure out the rest. Mr. Mead is a professor of foreign affairs and humanities at Bard Col- lege and editor at large of the American Interest. Edmund Burke. U I G v i a G e t t y I m a g e s A Strategy to Counter Democracy’s Global Retreat BY WALTER RUSSELL MEAD Iraq has returned to the head- lines, with parts of Ramadi and Fal- lujah again under al Qaeda control. American servicemen and women who helped liberate these cities are understandably frustrated. Is every- thing they accomplished in Iraq un- raveling? No, it is not. People have forgot- ten the history of Saddam Hussein’s Iraq: two wars against his neighbors resulting in about a million deaths; brutalization of his own people kill- ing tens if not hundreds of thou- sands; use of poison gas against Iraqi Kurds; lifelong support for ter- rorism; open defiance of the U.N. Security Council. American soldiers can be proud of their role in ending this criminal regime and freeing the Iraqi people from a brutal tyrant. Syria today shows what happens when a bloody dictator goes un- checked. Leaving Saddam in power would have badly undermined the credibility of the U.N. and the U.S. As Iran—Saddam’s mortal enemy— restarted its nuclear program after 2005, Saddam would have resusci- tated his own, igniting a nuclear- arms race. Saddam would likely have intervened in the uprising against Syria’s Bashar Assad, fan- ning the sectarian conflict that now threatens much of the Middle East. The removal of Saddam opened up a very different possibility: an Iraq in which Sunni, Shiites, Kurds, Christians and other minorities would work together to build a democratic and peaceful future. This was the goal that most Iraqis set for themselves. The George W. Bush administra- tion in which I served strongly sup- ported their effort. But we made mistakes—for which many of us bear responsibility— that made the effort more costly than it should have been in lives lost, bodies bro- ken, families disrupted and money spent. For example, the Bush adminis- tration did considerable postwar planning. But as retired Marine Gen. John Allen, a man with deep experi- ence in Iraq and Afghanistan, noted at a retrospective last year, these kinds of military operations must be planned beginning with the post- combat mission and working back- ward. The Bush administration did it the other way around. One consequence was that in the post-combat period the U.S. over- emphasized the distinctions among Shiites, Sunnis and Kurds. This un- wittingly encouraged the very sec- tarian tension among these groups that al Qaeda brutally exploited to plunge the country into near civil war by 2005 and 2006. The war that U.S. soldiers had won in depos- ing Saddam was almost lost to the terrorists. A change in approach was needed. Press coverage at the time described most Americans as skep- tical about President Bush’s decision in January 2007 to “surge” 30,000 more troops and switch to a popula- tion-protection strategy. But with dedication and innovation in execut- ing that strategy, U.S. military per- sonnel, diplomats and intelligence officers joined with Iraqi forces and militia to defeat al Qaeda by the end of 2008. A unity government of Sunnis, Shiites and Kurds was in power in Baghdad. Low levels of al Qaeda attacks continued, but they posed little threat to Iraq’s stability. The Obama administration has made its own mistakes in Iraq. The political process that followed the 2010 parliamentary elections in Iraq—in which the U.S. had a major role—produced a government in which many Sunnis felt underrepre- sented. An increase in sectarian ten- sions followed, compounded by the Shiite-led Iraqi government’s ac- tions that were widely viewed as a crackdown on Sunni leadership. The failure to leave any military force in Iraq after 2011 reduced U.S. leverage to mitigate these sectarian splits. It also deprived Iraqi forces of two more years of counterterrorism training to meet the re-emerging al Qaeda threat. The recent spike in al Qaeda at- tacks in Iraq results from nearly three years of civil war in neighbor- ing Syria, mistakes by the Iraqi gov- ernment, and an inadequate re- sponse from the U.S. and its regional allies. The Syrian civil war attracted al Qaeda foreign fighters who soon spilled into Iraq. The Iraqi government’s perceived crackdown on its Sunni citizens further encour- aged the re-emergence of al Qaeda in Iraq. Press reports suggest that the numbers of foreign fighters in- volved are in the thousands, more than were present at the height of the Iraq War. These fighters are ap- parently well supplied with money and weapons. Yet all is not lost. Americans helped build and train an Iraqi secu- rity force that numbers well over 500,000. Sunni tribes that rallied to American forces in 2007-08 are re- joining the fight against al Qaeda. As the price of their support, they are demanding a greater role in the Iraqi government—a step that would help restore the original vi- sion of a tolerant and inclusive Iraq. Iraqis will determine the out- come of this struggle, but the U.S. can help. At the request of the Iraqi government, the U.S. has promised Hellfire missiles, helicopters and other military equipment, and intel- ligence is being shared. Congress needs to approve the funding and transfer of this equipment to Iraq. The American people need to un- derstand that their own security now rides on this fight. This about al Qaeda: Ultimately, Americans and their interests, friends and territory will be their target. The Iraqi people can win this re- newed fight against al Qaeda. When they do, they will have a chance to restart the effort they began in 2003: to build a state where Sunni, Shiites, Kurds, Christians and other minorities work together to build a democratic future in a peaceful and prosperous Iraq. Meanwhile, the great hopes sparked by the 2011 “Arab Spring” have faded. Violence in Egypt and elsewhere is rampant, politics are broken and economies are in sham- bles. What the region desperately needs is a successful example of dis- parate communities working to- gether to defeat terrorists, reduce violence, establish tolerant and in- clusive politics, and generate jobs and a growing economy. If it can overcome its current challenges, Iraq can be that example. When it does, it will be building on the efforts of American men and women who served in Iraq. Debates about the origin and conduct of the Iraq war will go on. But Americans who served there can be proud of their service: toppling a brutal dic- tator, defeating al Qaeda in Iraq in 2007-08, and giving the Iraqi people a chance to build a nation unique in the history of Iraq and the Middle East. Washington and its allies must do all they can to make sure that this opportunity is not squandered. Mr. Hadley was the 21st U.S. as- sistant to the president for National Security Affairs, serving under George W. Bush. Americans Can Be Proud of Iraq BY STEPHEN J. HADLEY A brutal dictator who supported terrorism is gone. Al Qaeda’s resurgence doesn’t change that fact. Monday, February 3, 2014 Pound/Euro 0.8208 g 0.13% Yen/$ ¥102.28 g 0.54% Global Dow 2389.92 g 0.69% Gold 1240.10 g 0.17% Oil 97.49 g 0.75% 3-month Libor 0.23660 10-year Treasury À 7/32 yield 2.669% THE WALL STREET JOURNAL. europe.WSJ.com Chinese Bitcoin Exchange Makes An About-Face on Regulation BUSINESS &FINANCE 17 Red Alert on Russia Looks Premature HEARDONTHE STREET 28 Microsoft’s Likely Pick for CEO Satya Nadella recalls asking Steve Ballmer in a management perform- ance review how he stacked up against “greats” from Microsoft Corp.’s past. The chief executive called the question “nonsense,” because it didn’t focus on the future of the com- pany. The moment transformed Mr. Na- della’s thinking. “What drives me every morning and what keeps me up every night is one thing: this business is not about longevity, it’s about relevance,” Mr. Nadella said in an interviewin Oc- tober. It is also a window into the 46- year-old Indian immigrant and con- summate Microsoft insider who ap- pears on the brink of being chosen to pilot the tech giant as it seeks to re- verse years of waning influence. Mr. Nadella is currently in contract negotiations to succeed Mr. Ballmer as chief executive, a person familiar with the situation said. Microsoft’s board is scheduled to meet early this week to approve Mr. Nadella’s contract, this person said. It may also weigh whether to choose a newboard chair if co-founder and current chair Bill Gates spends more time as an adviser to Mr. Nadella, a request Mr. Nadella made during his contract negotiations. Mr. Nadella is a specialist in some of the software giant’s least sexy but most technology-intensive businesses, including software for server systems and what the indus- try calls cloud computing services. He has helped wring better numbers from some of the company’s biggest operations, and is known for his ea- gerness to please superiors. But people who have worked with Mr. Nadella say his greatest as- set is an affable, collaborative style that stands out at a company known for big egos and heated arguments. His personality and deep technical background could help retain key engineers or programmers that sometimes head for the exits follow- ing a big management change. “It’s hard to find a single person who doesn’t have a nice thing to say about him, which is rare at the top of a company,” said Ravi Ven- katesan, former head of Microsoft’s India operations. “You have to be pretty hard-driving to get there, and he’s humble, incredibly hum- ble.” A key question is whether Mr. Nadella is ready for a task of this size, one that could require tough organizational decisions that won’t be popular with some insiders. Microsoft’s next CEO, among other things, must integrate roughly 32,000 employees from the handset business purchased from Nokia Corp., boost the popularity of its touch-oriented version of Windows and match the technical cachet of ri- vals like Google Inc. and Apple Inc. “The compliments that he is a good collaborator, that makes him popular—but at the same time that could be his biggest challenge,” says Alexander Gounares, a 17-year Mi- crosoft veteran who is now chief ex- ecutive of a startup called Concurix Corp. “Was Steve Jobs really a great collaborator? No.” In interviews and speeches, Mr. Nadella has given considerable credit to Messrs. Ballmer and Gates, Microsoft’s chairman and co- founder, for educating him about technology and management skills after he joined Microsoft in 1992 from Sun Microsystems. Mr. Nadella’s journey to the up- per echelons of the tech sector be- gan in the southern Indian city of Hyderabad, where he attended high school and bowled on the cricket pitch. He studied electronics and Please turn to page 17 By Don Clark, Monica Langley and Shira Ovide Satya Nadella, seen in July, is currently in talks to succeed Steve Ballmer as CEO, a person familiar with the situation said. M i c r o s o f t / R e u t e r s Samsung Struggles to Roll Out Mobile OS SEOUL—An ambitious effort by Samsung Electronics Co. to roll out smartphones powered by a new op- erating system is on shaky ground. The world’s largest smartphone maker is investing a large amount of resources on an operating system called Tizen to challenge the mobile software duopoly of Apple Inc. and Google Inc. But some of the world’s major wireless carriers are beginning to pull their support of phones slated to run the platform. Tizen (pronounced TAI-zen) also has had trouble attracting large de- velopers of applications that are in- creasingly at the center of the user experience. That is leaving the fledgling platform in the hands of tiny, relatively unknown players, like Daniel Escobar, a 34-year-old devel- oper in Atlanta. The South Korean company is supporting Mr. Escobar’s Maestro music-sharing service, which has about 30,000 subscribers, with tens of thousands of dollars in cash in- centives and technical support to develop an app for Tizen. The imperative for Samsung to figure out a mobile software and services strategy is critical. Chinese smartphone makers—in- cluding a potentially strengthened Lenovo Group Ltd. following its planned acquisition of Google’s Mo- torola Mobility handset unit— threaten to push down handset prices and squeeze hardware mar- gins. That would make software and services the industry’s primary profit engine. “Consumer needs are changing along with the changing times,” Samsung co-Chief Executive Boo- Keun Yoo said last month. “I don’t feel you can lead the market by fo- cusing solely on software or hard- ware.” Samsung’s best-selling smart- phones currently run on Google’s Android operating system and come preloaded with Google mail, map- ping functions and mobile-ad searches. As a result, it is the Moun- tain View, Calif., company that is taking a cut of every purchase made on its app store. If Tizen were to succeed, it would give Samsung its own stream of revenue from sales of third-party apps, software and services on its devices. The potential is enormous. In its most recent fiscal year, Apple gener- ated $16 billion in sales from soft- ware and services, including the iTunes and App stores. Samsung, which has been devel- oping Tizen with help from Intel Corp. and others, is pouring billions of dollars a year into software devel- opment more generally and devoting about 60% of its 67,000 research and development engineers to software innovation, with plans to hire an- other 800 engineers a year. Samsung’s longer-term aim is for Tizen—named to evoke a Zen-like Please turn to page 17 BY JONATHAN CHENG Source: Gartner The Wall Street Journal Shifing Tides Global smartphone operating-system market share, by devices in use 100 0 20 40 60 80 2010 ’11 ’12 ’13 forecast iOS Android Windows Blackberry Others % Asian Banks Reach for Bigger Role In Lending HONG KONG—When Freeport- McMoRan Copper & Gold Inc., the world’s largest publicly traded cop- per producer, arranged $7 billion in financing last year, its roster of lenders included the usual catalog of European and U.S. banks. But it also boasted the biggest list of Asian lenders the company has ever dealt with. Some 21 Asian lenders joined in on the deal, including five from Ja- pan, nine from China and five from across Singapore, Taiwan, India and Indonesia, a spokesman for the com- pany said in an emailed response to questions. The Phoenix-based miner is using the money to help pay for $20 billion of acquisitions. Asian banks have been prominent on other high-profile deals, too. Ver- izon Communications Inc.’s $12 bil- lion package of loans in October linked to the buyout of its U.S. wire- less partner included Agricultural Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co., among others. Those deals reflect a push by Asia’s banks into new markets around the world. Their efforts come at a time when Western banks are reining in some lending as they recover from the global financial cri- sis. Buoyed by strong credit ratings and rising deposits—Asian banks largely sidestepped the 2008 finan- cial crisis—and flush with cash linked to ultra-loose monetary policy in the U.S. and Japan that has poured cash into Asia, lenders from the region led by the likes of Japan’s Mitsubishi UFJ Financial Group Inc., or MUFG, have become bigger players as they chase higher yields and look to diversify their business. “Asian banks are growing outside Asia, there is just no doubt,” said Atul Sodhi, Hong Kong-based man- aging director and head of loan syn- dication for Asia Pacific at Crédit Agricole and chairman of the Asia Pacific Loan Market Association. A spokesman for Verizon de- clined to comment. While the gains are nascent— MUFG, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are the only Asian banks in the top 20 rankings of global lenders last year—there are signs of Asian banks picking up business. In 2007, MUFG was the only Asian bank in the top 20, Thomson Reuters data show. And since then it has jumped to seventh from 17th. Bank of China has moved to 29th from 124th and Singapore’s DBS Group Holdings Ltd. has edged up to 40th place from 61st. Both Mizuho and SMFG plan to Please turn to page 20 BY ENDA CURRAN 14 | Monday, February 3, 2014 THE WALL STREET JOURNAL. OPINION ‘It is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.” So said President George W. Bush in his second inaugural address in 2005. The goal was—and is—a noble one. Unfortunately, neither Mr. Bush’s ef- forts nor those of his successor have met with the success democracy ad- vocates would wish. In Thailand, the streets are filled with demonstrators demanding the replacement of an elected govern- ment with an appointed council. In Egypt, the largest and most impor- tant Arab country, the 2011 revolu- tion and much-ballyhooed “transi- tion to democracy” ended in a military coup. President Obama’s lead-from-behind approach to Libya has ushered in anarchy, and Pakistan’s transition from one dem- ocratically elected set of powerless and corrupt politicians to another, widely cheered in Washington, has had no discernible positive impact on anything whatsoever. A democratically elected govern- ment in Hungary is flirting with fas- cists. Meantime, political reforms in Burma led to waves of religious vio- lence against that country’s Muslim minority. And in Ukraine, protesters face off against a corrupt, elected government aligned with Vladimir Putin. According to Freedom House’s 2014 Freedom in the World Report, 2013 was the eighth year in a row in which freedom lost ground. Yet the decade of freedom’s retreat was also a decade of unprecedented effort on the part of governments and non- profit organizations to help freedom thrive. Between 2006 and 2012, the U.S. government alone spent $18.6 billion on democracy promotion, partly because of stepped up efforts in Afghanistan and the Middle East. This is a substantially higher rate of spending than during the post-Cold War years, when the former War- saw Pact states were moving toward democracy. The gloomy prospects for demo- cratic self-government in many parts of the world should not come as a surprise. Building democracy took generations in much of the At- lantic world, and most revolutions didn’t succeed in establishing stable democratic regimes. Some, like the Hungarians’ in 1848 and again in 1956, failed to hold power and were overthrown. Others, like the French and Russian Revolutions, gained power only to install dictatorships worse than the ones they overthrew. The South American revolutions against Spain, like many anti-colonial movements in the 20th century, succeeded against the imperial power—but then failed to build stable, demo- cratic governments in its place. Egypt’s transition didn’t fail because Egypt’s democrats didn’t attend enough conferences on democracy building. It failed because the weight of their nation’s history, eco- nomics, religion and culture was too heavy for the relative handful of true democrats to lift. This should be a sobering lesson. While breakthroughs can sometimes occur, the construction of open, democratic systems in many coun- tries around the world is likely to be slower and harder than many thought. This doesn’t mean that democ- racy advocates should wring their hands and stand aside, but it does mean they need to think about pro- moting deeper social change over longer periods. To become and re- main democratic, countries need to develop cultural values hospitable to the rule of law, protection of pri- vate property, transparency and peaceful transitions of power that are grounded in their own religious and cultural identities. That is not, ultimately, a process that foreigners can orchestrate or control. A more sustainable and effective democracy agenda would start with education. Helping talented young people get access to good education will, over time, do more to promote democratic ideals than anything else. This doesn’t just mean offering more students more opportunities to study abroad. Many countries, like Egypt, have terrible postsec- ondary systems. Founding new schools, helping existing ones, and promoting partnerships between Western and foreign institutions can go a long way. In many countries, the lack of ac- cess to good English-language in- struction at an early age is one of the great barriers that struggling families face. Teaching English to large numbers of people from poor backgrounds is ultimately a political act: As their language skills help them get better educations and bet- ter jobs, internal pressure for a fairer society will increase. At the same time, democracy ad- vocates can address one of the big- gest fault lines in our allegedly flat world: People who don’t read Eng- lish or a handful of other languages live in a different information uni- verse. John Locke, Edmund Burke, Thomas Macaulay, Montesquieu, Thomas Paine, Adam Smith, Benja- min Franklin—the works of these thinkers need to be well-translated and widely available. People who read only Urdu, Burmese, Arabic or Punjabi need readily accessible edi- tions (cheap print or Web-based) of important books in their own languages so that people beyond elite circles have access to the ideas and the histories that matter. Smart people from different cul- tural backgrounds should be com- missioned to write introductions and other materials that can give readers in nondemocratic countries the context they need to make sense of these crucial texts. Others should write books about how South Korea, Taiwan, Poland and other countries became democratic. And leading magazines, opinion journals and policy reports should be translated into languages where they can be more widely read. English may be the world’s lingua franca, but de- mocracy building will be grueling in many countries until more people have the ability to follow global news and policy debates in their na- tive tongues. We cannot change the reality that the creation of stable demo- cratic societies in much of the world is going to take time. It took Chris- tian theologians hundreds of years to reconcile democratic and liberal ideas with traditional Christian thought; for Muslims, too, this could be the work of decades or genera- tions. The U.S. cannot control the pace of this change. What it can do is to ensure that as many people as pos- sible have unfettered access to the rich historical and intellectual liter- ature that advocates freedom. “Give us the tools and we will finish the job” is what Winston Churchill said to American democrats during the dark days of World War II. Let’s make it easier for people around the world to inform themselves about the nature of freedom and the his- tory of its emergence. They will fig- ure out the rest. Mr. Mead is a professor of foreign affairs and humanities at Bard Col- lege and editor at large of the American Interest. Edmund Burke. U I G v i a G e t t y I m a g e s A Strategy to Counter Democracy’s Global Retreat BY WALTER RUSSELL MEAD Iraq has returned to the head- lines, with parts of Ramadi and Fal- lujah again under al Qaeda control. American servicemen and women who helped liberate these cities are understandably frustrated. Is every- thing they accomplished in Iraq un- raveling? No, it is not. People have forgot- ten the history of Saddam Hussein’s Iraq: two wars against his neighbors resulting in about a million deaths; brutalization of his own people kill- ing tens if not hundreds of thou- sands; use of poison gas against Iraqi Kurds; lifelong support for ter- rorism; open defiance of the U.N. Security Council. American soldiers can be proud of their role in ending this criminal regime and freeing the Iraqi people from a brutal tyrant. Syria today shows what happens when a bloody dictator goes un- checked. Leaving Saddam in power would have badly undermined the credibility of the U.N. and the U.S. As Iran—Saddam’s mortal enemy— restarted its nuclear program after 2005, Saddam would have resusci- tated his own, igniting a nuclear- arms race. Saddam would likely have intervened in the uprising against Syria’s Bashar Assad, fan- ning the sectarian conflict that now threatens much of the Middle East. The removal of Saddam opened up a very different possibility: an Iraq in which Sunni, Shiites, Kurds, Christians and other minorities would work together to build a democratic and peaceful future. This was the goal that most Iraqis set for themselves. The George W. Bush administra- tion in which I served strongly sup- ported their effort. But we made mistakes—for which many of us bear responsibility— that made the effort more costly than it should have been in lives lost, bodies bro- ken, families disrupted and money spent. For example, the Bush adminis- tration did considerable postwar planning. But as retired Marine Gen. John Allen, a man with deep experi- ence in Iraq and Afghanistan, noted at a retrospective last year, these kinds of military operations must be planned beginning with the post- combat mission and working back- ward. The Bush administration did it the other way around. One consequence was that in the post-combat period the U.S. over- emphasized the distinctions among Shiites, Sunnis and Kurds. This un- wittingly encouraged the very sec- tarian tension among these groups that al Qaeda brutally exploited to plunge the country into near civil war by 2005 and 2006. The war that U.S. soldiers had won in depos- ing Saddam was almost lost to the terrorists. A change in approach was needed. Press coverage at the time described most Americans as skep- tical about President Bush’s decision in January 2007 to “surge” 30,000 more troops and switch to a popula- tion-protection strategy. But with dedication and innovation in execut- ing that strategy, U.S. military per- sonnel, diplomats and intelligence officers joined with Iraqi forces and militia to defeat al Qaeda by the end of 2008. A unity government of Sunnis, Shiites and Kurds was in power in Baghdad. Low levels of al Qaeda attacks continued, but they posed little threat to Iraq’s stability. The Obama administration has made its own mistakes in Iraq. The political process that followed the 2010 parliamentary elections in Iraq—in which the U.S. had a major role—produced a government in which many Sunnis felt underrepre- sented. An increase in sectarian ten- sions followed, compounded by the Shiite-led Iraqi government’s ac- tions that were widely viewed as a crackdown on Sunni leadership. The failure to leave any military force in Iraq after 2011 reduced U.S. leverage to mitigate these sectarian splits. It also deprived Iraqi forces of two more years of counterterrorism training to meet the re-emerging al Qaeda threat. The recent spike in al Qaeda at- tacks in Iraq results from nearly three years of civil war in neighbor- ing Syria, mistakes by the Iraqi gov- ernment, and an inadequate re- sponse from the U.S. and its regional allies. The Syrian civil war attracted al Qaeda foreign fighters who soon spilled into Iraq. The Iraqi government’s perceived crackdown on its Sunni citizens further encour- aged the re-emergence of al Qaeda in Iraq. Press reports suggest that the numbers of foreign fighters in- volved are in the thousands, more than were present at the height of the Iraq War. These fighters are ap- parently well supplied with money and weapons. Yet all is not lost. Americans helped build and train an Iraqi secu- rity force that numbers well over 500,000. Sunni tribes that rallied to American forces in 2007-08 are re- joining the fight against al Qaeda. As the price of their support, they are demanding a greater role in the Iraqi government—a step that would help restore the original vi- sion of a tolerant and inclusive Iraq. Iraqis will determine the out- come of this struggle, but the U.S. can help. At the request of the Iraqi government, the U.S. has promised Hellfire missiles, helicopters and other military equipment, and intel- ligence is being shared. Congress needs to approve the funding and transfer of this equipment to Iraq. The American people need to un- derstand that their own security now rides on this fight. This about al Qaeda: Ultimately, Americans and their interests, friends and territory will be their target. The Iraqi people can win this re- newed fight against al Qaeda. When they do, they will have a chance to restart the effort they began in 2003: to build a state where Sunni, Shiites, Kurds, Christians and other minorities work together to build a democratic future in a peaceful and prosperous Iraq. Meanwhile, the great hopes sparked by the 2011 “Arab Spring” have faded. Violence in Egypt and elsewhere is rampant, politics are broken and economies are in sham- bles. What the region desperately needs is a successful example of dis- parate communities working to- gether to defeat terrorists, reduce violence, establish tolerant and in- clusive politics, and generate jobs and a growing economy. If it can overcome its current challenges, Iraq can be that example. When it does, it will be building on the efforts of American men and women who served in Iraq. Debates about the origin and conduct of the Iraq war will go on. But Americans who served there can be proud of their service: toppling a brutal dic- tator, defeating al Qaeda in Iraq in 2007-08, and giving the Iraqi people a chance to build a nation unique in the history of Iraq and the Middle East. Washington and its allies must do all they can to make sure that this opportunity is not squandered. Mr. Hadley was the 21st U.S. as- sistant to the president for National Security Affairs, serving under George W. Bush. Americans Can Be Proud of Iraq BY STEPHEN J. HADLEY A brutal dictator who supported terrorism is gone. Al Qaeda’s resurgence doesn’t change that fact. Monday, February 3, 2014 Pound/Euro 0.8208 g 0.13% Yen/$ ¥102.28 g 0.54% Global Dow 2389.92 g 0.69% Gold 1240.10 g 0.17% Oil 97.49 g 0.75% 3-month Libor 0.23660 10-year Treasury À 7/32 yield 2.669% THE WALL STREET JOURNAL. europe.WSJ.com Chinese Bitcoin Exchange Makes An About-Face on Regulation BUSINESS &FINANCE 17 Red Alert on Russia Looks Premature HEARDONTHE STREET 28 Microsoft’s Likely Pick for CEO Satya Nadella recalls asking Steve Ballmer in a management perform- ance review how he stacked up against “greats” from Microsoft Corp.’s past. The chief executive called the question “nonsense,” because it didn’t focus on the future of the com- pany. The moment transformed Mr. Na- della’s thinking. “What drives me every morning and what keeps me up every night is one thing: this business is not about longevity, it’s about relevance,” Mr. Nadella said in an interviewin Oc- tober. It is also a window into the 46- year-old Indian immigrant and con- summate Microsoft insider who ap- pears on the brink of being chosen to pilot the tech giant as it seeks to re- verse years of waning influence. Mr. Nadella is currently in contract negotiations to succeed Mr. Ballmer as chief executive, a person familiar with the situation said. Microsoft’s board is scheduled to meet early this week to approve Mr. Nadella’s contract, this person said. It may also weigh whether to choose a newboard chair if co-founder and current chair Bill Gates spends more time as an adviser to Mr. Nadella, a request Mr. Nadella made during his contract negotiations. Mr. Nadella is a specialist in some of the software giant’s least sexy but most technology-intensive businesses, including software for server systems and what the indus- try calls cloud computing services. He has helped wring better numbers from some of the company’s biggest operations, and is known for his ea- gerness to please superiors. But people who have worked with Mr. Nadella say his greatest as- set is an affable, collaborative style that stands out at a company known for big egos and heated arguments. His personality and deep technical background could help retain key engineers or programmers that sometimes head for the exits follow- ing a big management change. “It’s hard to find a single person who doesn’t have a nice thing to say about him, which is rare at the top of a company,” said Ravi Ven- katesan, former head of Microsoft’s India operations. “You have to be pretty hard-driving to get there, and he’s humble, incredibly hum- ble.” A key question is whether Mr. Nadella is ready for a task of this size, one that could require tough organizational decisions that won’t be popular with some insiders. Microsoft’s next CEO, among other things, must integrate roughly 32,000 employees from the handset business purchased from Nokia Corp., boost the popularity of its touch-oriented version of Windows and match the technical cachet of ri- vals like Google Inc. and Apple Inc. “The compliments that he is a good collaborator, that makes him popular—but at the same time that could be his biggest challenge,” says Alexander Gounares, a 17-year Mi- crosoft veteran who is now chief ex- ecutive of a startup called Concurix Corp. “Was Steve Jobs really a great collaborator? No.” In interviews and speeches, Mr. Nadella has given considerable credit to Messrs. Ballmer and Gates, Microsoft’s chairman and co- founder, for educating him about technology and management skills after he joined Microsoft in 1992 from Sun Microsystems. Mr. Nadella’s journey to the up- per echelons of the tech sector be- gan in the southern Indian city of Hyderabad, where he attended high school and bowled on the cricket pitch. He studied electronics and Please turn to page 17 By Don Clark, Monica Langley and Shira Ovide Satya Nadella, seen in July, is currently in talks to succeed Steve Ballmer as CEO, a person familiar with the situation said. M i c r o s o f t / R e u t e r s Samsung Struggles to Roll Out Mobile OS SEOUL—An ambitious effort by Samsung Electronics Co. to roll out smartphones powered by a new op- erating system is on shaky ground. The world’s largest smartphone maker is investing a large amount of resources on an operating system called Tizen to challenge the mobile software duopoly of Apple Inc. and Google Inc. But some of the world’s major wireless carriers are beginning to pull their support of phones slated to run the platform. Tizen (pronounced TAI-zen) also has had trouble attracting large de- velopers of applications that are in- creasingly at the center of the user experience. That is leaving the fledgling platform in the hands of tiny, relatively unknown players, like Daniel Escobar, a 34-year-old devel- oper in Atlanta. The South Korean company is supporting Mr. Escobar’s Maestro music-sharing service, which has about 30,000 subscribers, with tens of thousands of dollars in cash in- centives and technical support to develop an app for Tizen. The imperative for Samsung to figure out a mobile software and services strategy is critical. Chinese smartphone makers—in- cluding a potentially strengthened Lenovo Group Ltd. following its planned acquisition of Google’s Mo- torola Mobility handset unit— threaten to push down handset prices and squeeze hardware mar- gins. That would make software and services the industry’s primary profit engine. “Consumer needs are changing along with the changing times,” Samsung co-Chief Executive Boo- Keun Yoo said last month. “I don’t feel you can lead the market by fo- cusing solely on software or hard- ware.” Samsung’s best-selling smart- phones currently run on Google’s Android operating system and come preloaded with Google mail, map- ping functions and mobile-ad searches. As a result, it is the Moun- tain View, Calif., company that is taking a cut of every purchase made on its app store. If Tizen were to succeed, it would give Samsung its own stream of revenue from sales of third-party apps, software and services on its devices. The potential is enormous. In its most recent fiscal year, Apple gener- ated $16 billion in sales from soft- ware and services, including the iTunes and App stores. Samsung, which has been devel- oping Tizen with help from Intel Corp. and others, is pouring billions of dollars a year into software devel- opment more generally and devoting about 60% of its 67,000 research and development engineers to software innovation, with plans to hire an- other 800 engineers a year. Samsung’s longer-term aim is for Tizen—named to evoke a Zen-like Please turn to page 17 BY JONATHAN CHENG Source: Gartner The Wall Street Journal Shifing Tides Global smartphone operating-system market share, by devices in use 100 0 20 40 60 80 2010 ’11 ’12 ’13 forecast iOS Android Windows Blackberry Others % Asian Banks Reach for Bigger Role In Lending HONG KONG—When Freeport- McMoRan Copper & Gold Inc., the world’s largest publicly traded cop- per producer, arranged $7 billion in financing last year, its roster of lenders included the usual catalog of European and U.S. banks. But it also boasted the biggest list of Asian lenders the company has ever dealt with. Some 21 Asian lenders joined in on the deal, including five from Ja- pan, nine from China and five from across Singapore, Taiwan, India and Indonesia, a spokesman for the com- pany said in an emailed response to questions. The Phoenix-based miner is using the money to help pay for $20 billion of acquisitions. Asian banks have been prominent on other high-profile deals, too. Ver- izon Communications Inc.’s $12 bil- lion package of loans in October linked to the buyout of its U.S. wire- less partner included Agricultural Bank of China Ltd., Bank of China Ltd. and Bank of Communications Co., among others. Those deals reflect a push by Asia’s banks into new markets around the world. Their efforts come at a time when Western banks are reining in some lending as they recover from the global financial cri- sis. Buoyed by strong credit ratings and rising deposits—Asian banks largely sidestepped the 2008 finan- cial crisis—and flush with cash linked to ultra-loose monetary policy in the U.S. and Japan that has poured cash into Asia, lenders from the region led by the likes of Japan’s Mitsubishi UFJ Financial Group Inc., or MUFG, have become bigger players as they chase higher yields and look to diversify their business. “Asian banks are growing outside Asia, there is just no doubt,” said Atul Sodhi, Hong Kong-based man- aging director and head of loan syn- dication for Asia Pacific at Crédit Agricole and chairman of the Asia Pacific Loan Market Association. A spokesman for Verizon de- clined to comment. While the gains are nascent— MUFG, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are the only Asian banks in the top 20 rankings of global lenders last year—there are signs of Asian banks picking up business. In 2007, MUFG was the only Asian bank in the top 20, Thomson Reuters data show. And since then it has jumped to seventh from 17th. Bank of China has moved to 29th from 124th and Singapore’s DBS Group Holdings Ltd. has edged up to 40th place from 61st. Both Mizuho and SMFG plan to Please turn to page 20 BY ENDA CURRAN THE WALL STREET JOURNAL. Monday, February 3, 2014 | 13 OPINION The blood libel––the medieval myth that Jews require the blood of Christians, especially of chil- dren, and routinely slaughter them to obtain it—has been in the news to a remarkable degree lately. Civic leaders in the village of Glatigny in northeastern France last month held a ceremony offi- cially exonerating Raphael Levy, a Jewish livestock trader, who had been convicted of ritually murder- ing a Christian child, and was tor- tured and burned at the stake for it in 1670. Around the same time, in the cathedral in the city of Sandomi- erz, Poland, an 18th-century paint- ing entitled Mord Rytualny (“Rit- ual Murder”) was shown to the public for the first time in nearly a decade, with the approval of the Catholic Church and Jewish lead- ers, to educate the public. Finally, there is the release of a new na- tional survey by the Center for Re- search on Prejudice at Warsaw University that found that 13% of Polish respondents agreed that “Jews use Christian blood for their ritual purposes,” up 3% from the last poll in 2009. Meanwhile, only 35% rejected the charge outright, a decline from 49% in 2009. Eight hundred years after its birth in Western Europe, the blood libel myth, though repudiated a thousand times over, remains a part of Western and now world culture. The blood libel today has its believers in Europe, but its greatest currency is in the Middle East. In November of 2013, Sheikh Ra’ad Salah, leader of the northern branch of the Islamic Movement in Israel, was convicted by a Jerusa- lem court of incitement to violence for a sermon where, among other things, he referred to “children of Europe whose blood was mixed into the holy bread,” according to the indictment. His comments were widely seen as a reference to the blood libel myth that Jews use Christian blood to make matzo, though Mr. Salah insisted that his remarks were misinterpreted. More important than direct ex- pressions of the blood libel is the way the myth continues to serve as an unconscious foundation for anti-Semitic attitudes of Jews as “bloodsuckers,” exploiters and parasites, even among those who may shun all superstition. The public vindication of Raphael Levy after 344 years, then, is not merely a well-intentioned exercise, but an extraordinarily meaningful one. On September 25, 1669, Levy was racing home to celebrate Rosh Hashanah, the Jewish New Year. In the deep pocket of his tunic, he carried a traditional ram’s horn or shofar that he had purchased for the synagogue service in his home- town of Boulay that was to begin at sundown. That same day, Didier Le Moyne, the three-year-old son of a Glatigny wheelwright, disappeared from a forest clearing while his mother was doing the washing at a spring just outside of town. His remains, torn apart by animals, were found two months later in the forest. Whether he was mur- dered or simply lost his way in the woods was never determined. Levy had a thoroughly solid al- ibi and there were no reliable wit- nesses against him, yet he was ar- rested for the boy’s supposed murder. Levy refused to confess or convert to Christianity, first under “ordinary” and then under “ex- traordinary” torture ordered by the court in the provincial capital of Metz. Weights were attached to feet and he was hoisted from the ground by ropes and dropped. To withstand the torture he prayed, “crying out and invoking the name of God that he had told the truth,” according to the court record. Levy told the priest who accompa- nied him to the stake: “I am a Jew, I wish to die a Jew.” Soon after the trial, a royal de- cree from Louis XIV put an end to ritual-murder accusations in France. “The King forbids and pro- hibits the acceptance or belief of any such stories,” the decree read, citing a papal bull. Indeed several popes, beginning with Innocent IV in 1247, had condemned the charge. But neither papal bulls nor the proclamations of kings and emperors could put an end to the blood libel—and the story of the two families in the Glatigny case testifies to that in the most per- sonal way. The case of Raphael Levy lived on in the memories of the Lem- oine (as they came to spell the name) and Levy families, who re- mained near their original home- towns for centuries. Bernadette Lemoine, a ninth-generation rela- tive of Didier Le Moyne, became an amateur historian in 2001 at the age of 90 to examine the evi- dence about the boy’s death. In 1669, Didier’s parents had been among Levy’s most insistent ac- cusers. In court, the father had de- clared Levy to be a “new Herod, thirsty for [the boy’s] blood in or- der to sacrifice it to the inhuman- ity and barbarity of his syna- gogue.” According to Bernadette Lem- oine, her own father and her en- tire family had believed Raphael Levy to be guilty. But, after exam- ining the documents in a local ar- chive, she concluded in a report that her family had helped commit “a monumental injustice and per- petuated it for three centuries.” She shared her conclusions with an 11th-generation descendant of Raphael Levy whom she met and befriended some years before her death. The unveiling of the “Ritual Murder” painting in Sandomierz is another powerful exercise in con- fronting a painful past. The paint- ing, which depicts Jews killing Christians, had been covered by a red curtain for eight years due to its offensive content. But the Cath- olic Church, with the support of Jewish leaders, decided that open- ness rather than suppression was the most constructive path. Mounted next to the painting is a plaque explaining that the notion that Jews commit ritual murder is a falsehood and one contrary to the essence of the Jewish religion. “To uncover it, to show it pub- licly,” Poland’s chief Rabbi Michael Schudrich told Agence France- Press, “is to show [the blood libel] for what it is: a lie.” The last Jew actually charged with ritual murder was a brick-fac- tory clerk, Mendel Beilis, whose 1913 trial in Kiev attracted world- wide attention. But the memory and message of the blood libel still run deep. At the ceremony in Glatigny, with descendants of Raphael Levy present, Mayor Vic- tor Stallone hopefully declared, “Today, we are starting from scratch.” In history though, espe- cially in the history of the blood li- bel, there is, unfortunately, no such thing. Mr. Levin is a writer and pro- ducer at ABC’s Good Morning America and is the author of “A Child of Christian Blood: Murder and Conspiracy in Tsarist Rus- sia—The Beilis Blood Libel,” forth- coming from Schocken Books. The Exoneration of Raphael Levy BY EDMUND LEVIN My heart aches as I stand in the light bulb aisle of Home De- pot, looking for an LED light to re- place the incandescent bulbs that went out of U.S. production at the beginning of this month. The saleswoman asks if I prefer a soft white or a warm white—as though between the two either is less harsh. I wonder if the members of Congress who passed the Energy Independence and Security Act of 2007, which slowly outlawed the manufacture of incandescent bulbs, have ever sat beneath an LED or Compact Fluorescent Light (CFL) bulb. If they have, they will know that it induces a sort of drowsy numbness—something I learned recently when my room- mate brought home a set of Nano- leaf LED bulbs with an advertised 30-year life span. After a few minutes sitting in his room, we both realized that there was something almost nau- seating about the quality of the dull light. That the makers of Na- noleaf—or any manufacturer of ef- ficient bulbs—would be deluded enough to think that I would want to spend the next 30 years with their product is beyond me. And not only are their life spans un- bearably long, but the manufac- turers want to charge $20 per bulb. Over time, we are told, they save us money. I’d rather eat the extra cost and avoid having my living room look like an interroga- tion cell. Are we really meant to believe that the ozone will close up and the polar ice caps un-melt if we insert these terrible light bulbs into every socket of our homes? On the other hand, LEDs and CFLs are a kind of modern-day miracle: Somehow they produce a light that is at once harsh and very dim. It’s like seasonal affective disorder crammed into a tiny bulb. When I am asked if I want a Compact Fluorescent Light, the only thought I have is that I don’t want my light to be compact, nor do I wish it to be florescent. I want a light that will incandesce across my room, filling it with a familiar yellow surf, and remind me that it was not with wax or kerosene, but with incandescent bulbs that man conquered the night. Humans became modern when they could stay up at night pen- ning documents and tinkering with inventions, and later, watch- ing Netflix into the small hours of the morning. The same light that I type beside shone on the page as Winston Churchill composed his famous lines, “we shall fight them on the beaches . . . we shall never surrender,” and as James Joyce sat in his dingy foreign chamber finishing “Finnegans Wake.” With these new bulbs, we will usher in an era of global disarray. Political negotiations will become rushed and aggressive as foreign leaders rub their temples and hurry out of the Oval Office. Every restaurant will lose its Michelin stars as guests complain of mi- graines. Children will fear their nightlights, and lovers will be forced to romance each other without the aid of mood lighting. Our brows will remain forever fur- rowed, and we will yearn for a simpler time when bulbs cost 99 cents and didn’t make us feel like we had cataracts. Over the past year, I have seri- ously entertained the notion of hoarding incandescent bulbs, and my instinct is obviously not an un- common one: It now seems easier to buy a gun than it is to track down and purchase 60 watt incan- descent bulbs. I imagine what will happen when the filaments in my final in- candescent bulbs grow weak, and I can hardly read my notes before me. Will I no longer be able to write at night? Or worse, will liv- ing with CFLs and LEDs make ev- ery day feel like I have just spent nine hours plastered before a computer screen? One day, soon, I will turn on my light and hear for the last time the signature, explo- sive death rattle of an incandes- cent bulb, and I’ll hold a vigil for the light that shaped and wit- nessed more than a century of hu- man history. Tender is the light, Keats might say. In my lightless room, I’ll sit for a moment and wonder how many more times in my life I’ll watch a bulb go out again. As I look to my dead bulb, I’ll think of the poet again and whisper: Darkling, you were not a piece of technology born for death. Mr. Aciman is a writer in New York and the author of “Twittera- ture” (Penguin, 2009). Tender Is the Light of My Incandescents BY ALEXANDER ACIMAN Thorold Barker, Editor, Europe, Middle East & Africa Bruce Orwall, Senior Editor, Europe Gren Manuel, Executive Editor, Europe Terence Roth, Managing Editor, Europe Brian M. Carney, Editorial Page Editor Lauren Berkemeyer, Marketing Kate Dobbin, Communications Florence LeFevre, Institutional Sales Europe Michael Lloyd, Institutional Sales U.K. Jonathan Wright, Circulation Sales Kelly Leach, Publisher Published since 1889 by Dow Jones & Company © 2014 Dow Jones & Company. All Rights Reserved Bracing myself for life once the filaments in my beloved bulbs grow weak. The medieval myth that Jews slaughter Christians for their blood remains a part of world culture today. G e t t y I m a g e s Comments? 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[email protected] 16 | Monday, February 3, 2014 THE WALL STREET JOURNAL. INDEX TO BUSINESSES Aer Lingus Group......... 16 Agricultural Bank of China.......................... 15 Air France-KLM.............16 Air Berlin...................... 16 Air Seychelles...............16 Alitalia.......................... 16 Amazon.com................. 28 Apple...................15,16,20 Australia & New Zealand Banking Group...........20 BAIC Motor...................28 Banco Bilbao Vizcaya Argentaria..................19 Banco Popular...............19 Banco Santander.......... 19 Bank of America...........28 Bank of Communications........15 BlackBerry.....................17 Blackstone Group........... 1 BSG Resources............. 16 BTC China......................17 CaixaBank..................... 19 Canadian Natural Resources.................... 6 Carlyle Group...........16,18 Caterpillar..................... 20 Cenovus Energy..............6 China Citic Bank........... 19 Cisco Systems.............. 20 Citigroup....................... 28 Coca-Cola.......................16 Concurix........................ 15 ConocoPhillips.................6 Credit Suisse Group.. 1,28 Daimler..........................28 Darwin Airline.............. 16 DBS Group Holdings.....15 Deere.............................20 Equity International.....18 Etihad Airways.............16 European Union.............. 9 Exxon Mobil....................6 Freeport-McMoRan Copper & Gold............15 Glencore Xstrata.......... 20 Global Frontiers Management..............18 Goldman Sachs Group.......................1,28 Google........................... 15 Grupo Inaer...................16 Harding Loevner........... 18 H.I.G. Capital.................16 HSBC Holdings............. 20 Imperial Oil.....................6 Industrial & Commercial Bank of China............15 ING Groep N.V. ............. 20 Intel...............................15 InterContinental Hotels Group..........................18 Intesa Sanpaolo............16 Jaguar Growth Partners..................... 18 James Investment Research.................... 20 Jet Airways (India)......16 J.P. Morgan Chase..........1 KKR............................... 16 KPMG............................ 18 Lenovo Group................15 Marathon Petroleum......6 Microsoft..................15,17 Mitsubishi UFJ Financial Group..........................15 Mizuho Financial Group..........................15 Nokia............................. 15 NTT DoCoMo.................17 Och-Ziff Capital Management Group.... 1 Orange...........................17 People’s Bank of China 17 Saba Infraestructuras.. 16 Sage Advisory Services. 1 Samsung Electronics....15 Société Générale............ 1 Sprint............................ 17 Standard Chartered......20 Sumitomo Mitsui Financial Group......... 15 Suncor Energy................ 6 Sun Microsystems........15 Telefonica......................17 TransCanada................... 6 UniCredit.......................16 Valero Energy................. 6 Verizon Communications........15 Virgin Australia............16 Vitol Group................... 20 Wells Fargo...................18 Yum Brands.................. 16 Businesses This index of businesses mentioned in today’s issue of The Wall Street Journal is intended to include all significant reference to companies. First reference to the companies appears in bold face type in all articles except those on page one and the editorial pages. Corrections Amplifications The first name of Jeromin Zettelmeyer, deputy chief economist of the European Bank for Reconstruction and Development, was misspelled as Jeronmin in a front-page article in the Friday-Sunday edition about stumbles in European currencies. A spokesman for BSG Resources Ltd. said the mining company entered into a joint-ven- ture agreement in Guinea with mining company Vale SA in accordance with Guinea’s min- ing code and with the full knowledge and approval of the Guinean government. A Business & Finance article in the Friday-Sunday edition about mining interests in Guinea incorrectly summarized the spokesman’s statement, omitting that BSG Resources said it acted in ac- cordance with the country’s mining code. An Off the Wall article Jan. 27 about unusual résumés featured a job hunter’s creative résumé delivery to the New York office of One Fine Stay, a booking agency for luxury-home stays. The article incorrectly said the résumé was delivered to the company’s Los Angeles office. Gucci’s leather-goods factory in Florence, Italy, shares production processes with some other Kering brands. An article on Gucci executives Frida Giannini and Patrizio di Marco in the February issue of WSJ. Magazine referred to it as a research laboratory, but didn’t specify that its shared resources are restricted to the production process. In addition, com- pany executives say they misspoke when they said Saint Laurent uses the facility; Saint Laurent has operated independently since January 2012. Readers can alert the London newsroom of The Wall Street Journal to any errors in news articles by emailing
[email protected] or by calling +44 (0)20 7842 9901. BUSINESS & FINANCE KKR to Open Office in Madrid Outpost Will Be Buyout Firm’s First in Spain, Where Foreign Investment Is Expanding MADRID—KKR & Co. is set to open its first office in Spain on Monday, as the buyout specialist seeks to build on its billion-euro stake in a country that is attracting a growing volume of investment from abroad. “We believe that there is a lot to do in Spain,” said Jesús Olmos, head of the New York-based firm’s Span- ish operations and its Europe, Mid- dle East and Africa infrastructure team. He said the firm is interested in opportunities such as real estate, infrastructure and direct lending. Spain’s economy is clawing back to meager growth after snowballing losses on real-estate loans threat- ened to bankrupt many of the coun- try’s lenders. KKR will be looking to lend be- tween $50 million to $100 million to Spanish companies with an annual operational cash flow of around €10 million to €15 million ($13.5 million to $20.2 million), Mr. Olmos said. Direct lending has grown in Spain in recent years as bank credit has tightened. Spanish banks have been focusing on cleaning up their real- estate portfolios—which are still full of bad loans—and buffering their capital positions ahead of this year´s balance-sheet exams by Eu- ropean authorities. KKR says it has spent €1.2 billion in Spain in the past three years on investments such as minority stakes in helicopter operator Grupo Inaer and car-park operator Saba Infrae- structuras. Mr. Olmos didn’t say how much KKR plans to invest in Spain in com- ing years. In Europe, the firm has offices in London and Paris. Other private-equity firms have stepped up their presence in Spain in recent months. Apollo Global Management LLC bought a real-es- tate servicing unit from Banco San- tander SA earlier this year for €664 million. Last fall, Apollo also bought Evo Banco, a small unit of a nation- alized Spanish lender. H.I.G. Capital and Carlyle Group LP are among the private-equity firms that have offices in Spain. In November, The Wall Street Journal reported that at least 15 pri- vate-equity groups focused on Spain and Italy were looking to raise funds with a combined value of more than €4 billion, according to several peo- ple familiar with the matter and Preqin, a data provider. That is more than the €1 billion raised since the start of 2010. The growing interest in Spain means good deals are getting harder to come by, Mr. Olmos said, “but for sure there will be more opportuni- ties.” He said he would remain based in London and travel fre- quently to Spain to work with a full- time staff member in the new office in Madrid. KKR employees, he said, already were flying to Spain “practi- cally every week.” BY JEANNETTE NEUMANN Etihad Sets Deadline To Complete Alitalia Deal DUBAI—Etihad Airways of Abu Dhabi is in the final phase of due dil- igence related to the potential pur- chase of a stake in Italian carrier Ali- talia SpA, and has set a deadline of 30 days to complete a deal. The airlines, which started talks last year, said Sunday that both com- panies would use the 30-day period to devise a “common strategy” that satisfied each party. “Any issues that may prevent the establishment of an appropriate business plan will have to be re- solved to ensure the plan can be im- plemented to move Alitalia to sus- tainable profitability,” the airlines said in a joint statement. The potential deal, which could result in Etihad taking a 49% stake in Alitalia, would increase the Abu Dhabi airline’s presence in Europe and provide the Italian carrier with a partner and extra funding. Alitalia is seeking a partner after Air France-KLM SA declined to take part in a €300 million ($405 million) fundraising in December. By not par- ticipating in the rights issue, Air France-KLM’s stake in Alitalia fell to 7.1% from 25%. As part of the fund- raising, Intesa Sanpaolo SpA and UniCredit SpA—two of Alitalia’s largest shareholders—also offered €200 million in fresh loans to the company. Negotiations with Etihad involve government and private-sector stake- holders, with the Italian government eager to avoid bailing out Alitalia for the second time in six years. Etihad is demanding that banks write down some of the debt the Rome-based carrier owes, according to a person familiar with the matter. Alitalia’s net debt at the end of Sep- tember amounted to €813 million. If a deal is completed, it would be Etihad’s eighth such investment as the carrier pursues a strategy of buy- ing minority stakes in other airlines. So far, Etihad has taken stakes in Air Berlin Inc. of Germany, Air Serbia, Darwin Airline SA of Switzerland and Aer Lingus of Ireland. It also holds equity investments in Air Sey- chelles, Virgin Australia and Jet Airways (India) Ltd. BY RORY JONES According to a survey last year, the most powerful foreign brand in China wasn’t Coca- Cola, Apple or Levi’s—it was KFC. But consumers there suddenly didn’t find it finger- licking good after two safety scares related to the chicken it serves. The company’s stock performance will hinge on how quickly it can turn the corner and start growing sales again. Monday’s release of fiscal fourth-quarter results by KFC operator Yum Brands can go a long way toward reassuring investors. It lowered expectations in October after Chinese sales in September— the first month of the period being reported—were weaker than expected. Yum said the drop made it unlikely that same-store sales for the quarter through early December would be positive, reversing an earlier prediction. The difference pointed to a low-double- digit percentage decline in earnings per share instead of the previous forecast of a mid-single-digit one. Analysts promptly lowered their sights, but their forecast for adjusted earnings implies a drop of only around 5%. Unadjusted earnings, seen at 80 cents a share, according to FactSet, would constitute a healthy rise versus a year earlier. Even if analysts weren’t cautious enough, year-over-year comparisons in China, where KFC sales were dented by avian flu and a food-safety scare, are about to start looking much better. The company said in December that it expects earnings per share to grow by at least 20% in 2014. That may make this an opportune time for investors to get exposure to a growth company at a reasonable price. Yum now trades at 18.6 times projected earnings over the next 12 months; It fetched 19.7 times in the first half of 2012—the period preceding KFC’s woes in China. Furthermore, analysts haven’t taken management’s optimism on 2014 earnings fully to heart, so today’s multiple might be artificially high. Caution would be warranted if there has somehow been permanent damage to KFC’s brand. Based on market research released by the company, though, and extensive steps to restore trust, the company deserves the benefit of the doubt. It also makes a strong case that it is far from the point of market saturation in China. It cites Malaysia, where density of KFCs is about six times higher. After an awful year, get ready to witness poultry in motion. Yum’s Shares Could Soon Become Tastier [ Ahead of the Tape ] BY SPENCER JAKAB Source: the company Wing and a Prayer Yum Brands China system sales growth, change from a year earlier 30 –30 –15 0 15 % ’12 ’13 2011 KFC’s China sales were hit by a safety scare. Outlets include this one in Beijing. R e u t e r s 12 | Monday, February 3, 2014 THE WALL STREET JOURNAL. OPINION: REVIEW & OUTLOOK I t’s a sign of how lackluster the U.S. economic recovery has been that Thursday’s news of 3.2% growth in the fourth quarter of 2013 was greeted with cheers and relief. The economy has now grown at 2.5% or faster for three quarters, and the pace in the last six months is the fastest since 2003-2004 following George W. Bush’s tax cuts on capital gains, dividends and top incomes. The best news is that growth all came from private spending and investment, not the artificial high of unsustainable government spending. The official gov- ernment contribution to growth was a negative 0.9% due to falling defense out- lays and the federal budget sequester. The national-income accounts have a bias that treats government spending as a net con- tributor to growth even when it’s wasted. Remember how the Keynesians pre- dicted that less spending would mean slower overall growth? Maybe the oppo- site is true: When government shrinks, the private economy has more money and room to expand. This is not to say that the report sug- gests the economy has reached escape ve- locity from the post-recession status quo. The growth was largely due to a healthy gain in consumer spending (a 2.3% contribution) and net exports (1.3%), especially goods. The export story is especially notable because it reflects the rising com- petitiveness of U.S. com- panies. Some of this is due to lower en- ergy costs and some to the self-discipline that has been required during the lean years since 2008. On the other hand, private business in- vestment contributed only 0.6% to growth, and housing deducted from GDP for the first time since 2010 (minus-0.3%). Inventories also climbed, which may re- duce growth this year unless overall spending and investment accelerate. The economy will need many more quarters of 3% or more growth to get anywhere close to the pace of most nor- mal expansions. Growth since the reces- sion ended in June 2009 has been sub- stantially slower than in any postwar expansion. Growth over the last 18 quarters has averaged 2.4%, compared to an aver- age of more than 4% in the 1980s boom and a little less than 4% in the 1990s. Growth for all of 2013 was merely 1.9% despite the acceleration in the last half. The biggest looming threats to growth this year include China’s slowdown as it tries to roll back its stimulus and deal with credit problems. There’s also the global adjustment to Federal Reserve ta- pering, as we’re seeing in emerging mar- kets and as investors pull out of riskier assets. The risks from Washington are fewer than in recent years thanks to gridlock. The main threats are new energy regula- tion in the name of fighting global warm- ing, and the continuing burden of Obama- Care on small-business costs and hiring. Congress ought to make a run at overrid- ing the worst energy rules under the Con- gressional Review Act, which would at least put Senate Democrats on record in an election year and might cause the Ad- ministration to modify its worst plans. President Obama could also help by spending political capital on his three pro-growth ideas—freer trade, and immi- gration and tax reform. But Senate Major- ity Leader Harry Reid has already issued a veto on trade, and Mr. Obama wants to raise some corporate taxes to make up for cutting tax rates. Meanwhile, the U.S. cor- porate tax rate continues to be by far the highest in the developed world, driving capital and job creation overseas. Washington could do more to lift growth, but given what that crowd be- lieves, maybe gridlock is the best we can hope for. ‘A merican diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being elimi- nated.” That was President Obama in his State of the Union Tuesday, boasting about what he regards as one of his signa- ture achievements from 2013. Well, not so fast. On Wednesday Reuters reported how much of Syria’s chemical stockpile has been handed over for destruction: 4.1%. That comes to about 59 tons of chemical weapons surrendered out of a stockpile of 1,433 tons. Oh, and that’s the stockpile that the Bashar Assad regime officially de- clared. In September we reported that U.S. intelligence believes the regime disclosed only 32 of an estimated 50 chemical sites. The Reuters dispatch is based largely on a forthcoming report from the Organi- zation for the Prohibition of Chemical Weapons, which last year won a Nobel Peace Prize and is overseeing the removal of the Syrian weapons. “All the indications are” that “actually the regime has been sort of stalling on the implementation of the agreement,” a diplomatic source told the news agency. There’s a nonshocker. It was predict- able that as soon as Assad became a part- ner in his own chemical disarmament he would seize every opportunity to post- pone and prevaricate. The regime now in- sists it needs armored vehicles and com- munications equipment to move the weapons. Next they’ll demand that the stockpile will only be moved when it has new tanks and attack helicopters to escort the convoys, or perhaps when the rebels lay down their arms. A State Department spokesman reacted to this with the mildest of scoldings that “the delay is increasing the cost to na- tions” for shipping and other removal ef- forts. Shipping costs? Don’t expect the Administration to trumpet these viola- tions at the U.N., where China and Russia have shielded Assad, or in Congress, which played its own role in looking away from the dictator’s predations. And no- body should expect Mr. Obama to make good on his pledge—hollow even when he made it in September—to renew the threat of military action “if diplomacy fails.” But neither should the President get away with treating his Syrian debacle as a victory. Americans may want to wash their hands of the Mideast’s many imbro- glios. But one consequence of inaction is another despot who sleeps securely in the knowledge that a diffident superpower will exact no price on those who gas their own people. F or those Americans who haven’t started preparing for retirement, President Obama is pitching a new “starter savings account.” Whether he has the legal authority to do so is a question congressional staff are beginning to ex- plore. During his State of the Union address and then again at a Wednesday event in Pennsylvania, President Obama hailed his new “MyRA,” a type of Roth Individual Retirement Account, which allows after- tax dollars to grow tax-free until retire- ment. But the money in MyRAs will only be invested in a government bond fund. Unlike most private options for creat- ing a Roth IRA, the government will allow people to open a MyRA with as little as $25, and to contribute as little as $5 in regular payroll deductions. There’s no rea- son private firms couldn’t offer such small accounts, but they don’t because it’s not profitable to do so. Such business can cost more to service than it’s worth. The MyRA is available only to those who don’t have a retirement plan through their employer and whose household income is less than $191,000 each year. Mr. Obama is promising that the re- turns will be the same as those enjoyed by federal workers who invest in the Govern- ment Securities Investment Fund, known as the G Fund and offered via the Thrift Savings Plan. This plan, like the Roth IRA, was created by law. But Mr. Obama says he can create, administratively, a new plan for non-government work- ers that will generate the same returns as the G Fund. Treasury Secretary Jack Lew adds that unlike federal workers who invest in the G Fund, MyRA cus- tomers will pay “no fees.” Hmmm. Regulators are always suspicious of investment fund marketers who understate the costs of their services. And even funds pegged to stock or bond indexes have some ex- penses. Auditing, custody arrangements, call centers and the like cost money. With accounts as small as $25, such expenses would represent an unusually high per- centage of the invested funds. Clearly someone is going to pay for all this, but who? If Mr. Lew is accurate in his promise of no fees, then the money would have to come from a congressional appropriation. But Mr. Obama has explicitly stated that he’s creating this fund unilaterally, and he even made a show in Pennsylvania of sign- ing the executive order, which he then handed to Mr. Lew. An Administration source tells us on background that “Treasury will administer the MyRA program using its longstanding author- ity—granted by Con- gress—to sell securities, such as savings bonds, and hire financial agents.” This suggests that Mr. Obama intends to dip into the funds Congress appro- priates for Treasury’s “fiscal services.” But these are meant to support Treasury’s op- erations to fund the government, not as an all-purpose pot of money to achieve White House policy goals. Under this in- terpretation, could Mr. Obama decide at some point to double or triple the G-Fund returns for MyRA investors? Genius—a new subsidy plan that doesn’t need the approval of that pesky legislature. The part about hiring “financial agents” is also intriguing and may explain why some in the financial industry have responded warmly to the proposal. As- suming the White House has learned not to try to create its own ObamaFunds web- site, one or more private firms could re- ceive big federal contracts. We’d say that decorum prevents Mr. Lew from handing the business off to his former colleagues at Citigroup, though with this White House you never know. Hiring investment agents also costs money, which under the Constitution is supposed to come from Congress. Maybe Messrs. Lew and Obama simply figured they could come up with this new plan, claim it’s legal to pay for it out of existing Treasury cash, and then dare Congress not to fund it in the future. Will they call it the Hope and Spare Change Fund? The investors the Administration is tar- geting for this fund are mostly young or poor, and it only makes sense for them if this really is a backdoor subsidy scheme. The G Fund, which delivered a 1.89% re- turn in 2013, is the last vehicle young workers with a long time horizon should be using to build a nest egg. They need as- set growth, which comes over a lifetime from investing in stocks. So maybe this new fund really is about funding government, and recruiting a new class of investors willing to accept low re- turns to underwrite Washington. Less Government, Faster Growth Assad’s Chemical Charade Barack’s New Bond Fund Private spending and investment lift the U.S. economy in the fourth quarter. How to create a new U.S. retirement subsidy with no vote in Congress. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 17 BUSINESS & FINANCE Bitcoin Market Makes About-Face in China Popular Chinese bitcoin exchange BTC China has restored a facility al- lowing customers to purchase bit- coin by depositing yuan into the ex- change’s corporate bank account. The move reverses a decision in December to halt such deposits, which the exchange made in re- sponse to a Dec. 5 memo from the People’s Bank of China warning na- tional financial institutions not to trade in bitcoin. Those twin devel- opments threatened to curtail vol- umes on BTC China, which had grown to become the biggest bitcoin exchange in the world, and prompted a drop of more than 50% in bitcoin’s international price over a two-week period in December. Reached by phone in Shanghai, BTC China Chief Executive Bobby Lee said the change, which was im- plemented Thursday, was made af- ter the company studied the central bank’s memo and other rules that raised concerns about BTC’s banking activities. The exchange determined that it was legally permitted to ac- cept deposits into its corporate bank account and to transfer those funds into customer accounts, even though banks themselves are barred from engaging in bitcoin businesses and speculation. BTC China isn’t making a high- profile announcement about the change, however, in part because it is taking a cautious view of future government actions. “We are defi- nitely in compliance with the Dec. 5 memo, but the government and the government agencies can change the rules anytime in the future,” Mr. Lee said. “So we are going to take a wait-and-see approach.” The timing, just ahead of Fri- day’s start to the Lunar New Year holiday period, was also important, he said. “It is going to be slow in terms of trading value, so we just wanted to make sure the system is running smoothly, that there is not too much pressure and that it doesn’t pick up too much attention.” Friday also marked the central bank’s deadline by which banks and payment processors were supposed to cease all dealings in bitcoin. Despite the quiet relaunch, word of the policy reversal emerged in the U.S. trading day Thursday after a user cited it on a Reddit forum for bitcoin enthusiasts and a story ap- peared on news site Coindesk. The move appears to have given a modest lift to the international price for bitcoin. Late Thursday in New York, bitcoin was quoted at $843.60, up from a low of $816.36 around 5 a.m. New York time, ac- cording to an index that Coindesk compiles from three exchanges. By Sunday afternoon in New York, the price had climbed to $860.09. Authorities the world over are trying to figure out how to regulate commerce in the currency, with the uncertainty surrounding that pro- cess impeding its adoption and—as with the Chinese central bank’s move in December—sometimes weighing on its price. BY MICHAEL J. CASEY Bitcoin coupons were distributed to Hong Kong pedestrians on Thursday, the eve of the Lunar New Year. A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s Samsung Struggles to Roll Out New Smartphone OS “tying together” of different devices and functions—to serve as a unified operating system that can coordi- nate functions on every device a consumer owns, including a smart- phone, refrigerator, television set and washing machine, all of which the company makes. Prototype Tizen devices look and feel similar to those running An- droid, with which it shares a com- mon programming code base. But those involved in the project say the prototypes can’t be judged as final products, and Tizen’s central appeal is that it allows for more customiza- tion of the interface by carriers and manufacturers than are possible with Android. Yet industry executives and ana- lysts say it has been difficult to get Tizen off the ground. NTT DoCoMo Inc., Japan’s big- gest telecommunications operator and a close partner on Tizen, had been gearing up to announce its first Tizen smartphone in mid-January. Continued from page 15 But on the day DoCoMo was set to release its device, it instead shelved its plans. In the U.S., Sprint Corp. joined the Tizen Association in May 2012, saying it welcomed the broader con- sumer choice offered by a new oper- ating system. But Sprint left last year. Spain’s Telefónica SA also exited the association, which oversees de- velopment of the operating system, and last year released the first com- mercially available mobile phone running on Mozilla’s Firefox, an- other upstart operating system. France’s Orange SA, another partner that had planned to release its first commercial Tizen smart- phone alongside DoCoMo, said the speed of development at Tizen “is not as mature as we may have ex- pected at this point.” The carrier doesn’t have a Tizen device in its current smartphone road map, he said. Samsung responded that it would evaluate product offerings in Japan and France with the mobile opera- tors. Samsung said the company and its partners would offer a “sneak preview” of the newest Tizen de- vices this month on the sidelines of Mobile World Congress, an annual exposition in Barcelona for the global mobile industry. Samsung’s difficulty in introduc- ing its own operating system comes amid a series of moves that appear to have improved an increasingly strained relationship with Google. While Google and Samsung continue to talk up the strength of their part- nership in public, the two companies increasingly were stepping on each other’s toes, pushing Samsung to ac- celerate its efforts to develop Tizen. Samsung and Google last week said they had signed a wide-ranging cross-licensing deal on technology patents that covers the companies’ existing patents, as well as those filed over the next 10 years. Three days later, Google said it would sell its Motorola Mobility unit to Lenovo for $2.9 billion, ridding it- self of a direct competitor to Sam- sung’s Android-powered smart- phones. “With Google we have a close re- lationship and we will continue to be an important strategic partner and collaborate together,” a Sam- sung spokesman said. Samsung’s software pitch to third-party app developers, mean- while, has been built around two of its biggest assets: its clout and its hefty cash reserve of $50 billion. To attract interest in Tizen among third-party app developers, Samsung in October held its first de- velopers’ conference, at a hotel in San Francisco. Samsung and Intel also are spon- soring a contest that will dole out $4 million in prizes for Tizen app developers. But for some of the biggest, most established app makers—the ones most critical to Tizen’s success— even cash incentives haven’t been enough to stir interest in the fledg- ling platform. Several months ago, Samsung of- fered the developers of one of An- droid’s most popular apps, which has been downloaded more than 50 million times, more than $100,000, to adapt its app for Tizen, according to a top executive at the app devel- oper. The company, which had collabo- rated with Samsung closely in the past, turned the Korean company down, concluding that Samsung’s previous track record in software made it unlikely that Tizen could gather an audience, the person said. “Software developers just care about the number of mobile phones on the market,” Tizen Association Chairman Roy Sugimura said. Mr. Sugimura said Tizen had about 6,000 apps as of December, a far cry from the nearly one million apps on Apple’s iOS. —Mayumi Negishi in Tokyo, Sam Schechner in Paris, David Román in Madrid and Ryan Knutson in New York contributed to this article. Microsoft’s Likely CEO Pick: FromIndiatoCompanyInsider communication engineering at Ma- nipal Institute of Technology, a hill- side campus less than 10 kilometers away from the Arabian Sea. “I remember asking him about what’s ahead,” said Ganesh Prasad, a former classmate who said that Mr. Nadella responded that he wanted to get involved in marketing at a software company—namely Mi- crosoft. “His goal was so clear at that time.” After moving to the U.S., he earned a master’s degree in com- puter science from the University of Wisconsin and a master’s degree in business administration from the University of Chicago. Once at Microsoft, Mr. Nadella moved every few years, working on businesses that include Windows and the company’s popular Office suite of PC applications programs. In more recent years, he has helped lead efforts that include Microsoft’s Bing search engine, its SQL Server database and a cloud service called Azure, whose technology underpins Microsoft’s own online services and is also used to run computing opera- tions for other companies. Mr. Nadella, who has two daugh- ters, said in a 2012 interview that it was very easy for them to under- stand what he does for a living when he was working on Bing. The explanations grew tougher, he said, when he began overseeing things like cloud services and tools for de- velopers. “Now I tell them, ‘I work on Windows but it’s not the Win- dows you see,’ and that they don’t really understand,” Mr. Nadella said. Many of his speeches, indeed, are a bit hard to follow, chock-a-block with terms like “platform” and “in- frastructure” and “Internet scale” that characterize what Mr. Nadella calls Microsoft’s cloud operating system. But he knows how to com- municate well with engineers, for- mer colleagues say. Though far from flashy, Mr. Na- della cuts a singular figure on Micro- soft’s Redmond, Wash., campus, where khakis, jeans and T-shirts usually rule. He often wears a stylish sports coat and has a close-cropped haircut and designer eyeglasses, which may switch from tortoise shell to sleek metal depending on the day. Continued from page 15 At Mr. Nadella’s urging, Micro- soft in the last couple of years has stepped up its courting of startups in Silicon Valley. Mr. Nadella takes regular trips to the Bay Area to speak with venture-capital investors and technology executives, and has spoken before groups of Indian-born entrepreneurs. In a sign of bending to the startup lifestyle, at a 2012 Azure event in San Francisco, Mr. Nadella and other executives moved an exec- utive presentation to 1 p.m. from 9 a.m. to accommodate night-owl tech workers. Mr. Nadella also sent a personal apology to Israeli startup Soluto af- ter the 50-person business-software service wrote a blog post last year about how an Azure outage took the company offline, said Soluto CEO Tomer Dvir. His eagerness to show his bosses a high activity level backfired at least once. In August, Mr. Nadella recalls, he initially declined when Mr. Ballmer sent his executive team an email to meet in his office. “I wanted to skip it, and show my CEO that I have more important things to do, something that was M&A related,” Mr. Nadella said in October. Mr. Ballmer’s assistant told Mr. Nadella to reconsider. When he and the fellow execu- tives met in the CEO’s office, Mr. Ballmer shocked them by telling them that he was retiring. Some of his former colleagues question whether Mr. Nadella—or any insider, for that matter—can make the kind of tough changes that may be required to boost the per- ception of Microsoft. Mr. Venkatesan disagrees, argu- ing that an outsider would likely run into conflicts with Microsoft’s cor- porate culture. He believes Mr. Na- della understands the organization and has shown a willingness to take risks. Mr. Nadella, meanwhile, has said success should be easy to judge. “Relevance comes with innovation and marketplace success,” he said in October. “The marketplace will speak so loudly and so clearly that it will not be ambiguous.” —Sean McLain, R. Jai Krishna, Dhanya Thoppil and Shefali Anand contributed to this article. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 11 IN DEPTH leave everything in his hands,” said Juan Villanueva, a cousin of the young woman. “One day he will act, and when he balances accounts, he will balance them well.” Outraged after the discovery of the young woman’s body, farmers and pickers allied with dozens of armed vigilantes from self-defense groups that have sprung up in nearby towns. The farmers and vigilantes prevailed during a November firefight in the nearby town of Pareo that ended with the killing of two alleged Templar gunmen, au- thorities said. A few days later, Jose Manuel Mireles, a vigilante leader and doctor, exhorted resi- dents to fight until the gangsters were driven out of the state. “We can choose the way we will die,” Dr. Mireles told a crowd of growers and packers in the town square, “standing up, and not tied meekly with our hands tied behind our backs waiting to be tortured and sliced up into little pieces like animals.” In the first days after their victory, doz- ens of vigilantes built sandbag check points at the entrances to town. Wearing bandan- nas to hide their faces, local men and boys in white T-shirts manned the posts over- night. About 1,000 people from outlying ham- lets took temporary refuge in a religious center run by the town’s Catholic church, fearing the Templars’ return. Two of Tancítaro’s export-certified pack- ing plants closed for nearly six weeks after the vigilantes took over the town, and the USDA removed its two inspectors from the plants for safety. Mexican and U.S. officials collaborate to make sure exported avocados are pest- and disease-free. Officials from the Animal and Plant Health Inspection Service, the USDA unit responsible for inspecting food enter- ing the U.S., maintains employees at pack- ing plants and conducts twice-a-year in- spections of avocado groves. A U.S. official said the government has heard reports of extortion in Michoacán’s avocado industry. “We are in uncharted wa- ters,” the official said, regarding U.S. policy on the matter. The uprising in Tancítaro, which has a population of about 30,000, followed rebel- lions in other towns where residents tired of the government’s inability to boot the gang. These days, residents of Tancítaro said, kidnapping and extortion have nearly disap- peared. The sandbag checkpoints remain, along with an uneasy calm. “They could still come back,” whispered one packinghouse manager. Two weeks ago, Mexico’s President En- rique Peña Nieto appointed Alfredo Castillo, a close political ally, to serve as his delegate and Michoacán’s de facto governor, holding the power to unilaterally take security and economic measures. Mr. Castillo has said the government’s goal is to restore peace by working to dismantle the gang. Last Monday, the federal government signed a treaty with vigilante chiefs that al- lows members of the groups to eventually join rural and town police. In return, the vigilantes promised to provide a list of its members and to register their weapons, in- cluding those illegal to possess here. Most vigilantes say they are loath to give up their weapons because they have little trust in the government’s ability to disman- tle the gang. Federal authorities and sol- diers failed during years of fighting to do what civilian vigilantes have done in many places over a few months. Since signing the agreement, the vigilan- tes have continued their campaign, taking control of at least two more towns. But the Templars remain entrenched in many parts of Michoacán, including Urua- pan, the state’s largest avocado growing re- gion after Tancítaro, and where most avo- cado packinghouses certified for U.S. export are located. A few hundred meters from Tancítaro’s avocado statue are the burned ruins of a massive packinghouse. The skeletons of two burned trailer trucks rust in the parking lot. A second burned packinghouse is on the other side of town, three blocks from the town’s picturesque plaza and colonial-era church Both packinghouses were set on fire on the same April night last year. Residents and local officials said they believed they became targets after workers there didn’t participate in Templar-organized protests against the vigilantes who first surfaced a year ago. No one has been charged in the fires. The owners of the two packinghouses, Empacadora Agroexport S.A. de C.V. and Mevi Avocados, which both operate distri- bution facilities in Pharr, Texas, declined to comment. Sergio Guerrero, the president of the As- sociation of Avocado Producers and Export Packers of Mexico, or APEAM, declined to comment on the alleged extortion or the packinghouse fires. Many growers and packers fear retribu- tion by the Knights Templar. Mr. Guerrero’s predecessor at APEAM, Alejandro Alvarez, was shot and wounded in his car by un- known men two years ago. Mr. Alvarez and his family left Mexico, growers said. In 2009, the mayor and town council re- signed under pressure from drug traffickers who wanted more of the town’s resources, Mr. Montero said. Gustavo Sanchez, a schoolteacher, became mayor and took over administration of the town. He fired Tancítaro’s 60-person police force soon af- ter taking office. In Mexico, corrupt local police often work closely with criminal gangs. A year later, Mr. Sanchez and his chief of staff were found stoned to death, authori- ties said. They were blindfolded and their hands tied behind their backs. In January, Estanislao Beltran—a vigi- lante leader nicknamed Comandante Pitufo, or Commander Smurf, for his Santa-Claus beard—held a meeting in the town square to return about 260 hectares of groves to 25 families whose land had been taken. “We took the groves back from the Tem- plars and gave them to their rightful own- ers,” said Jesús Bucio, a grower, and head of the local vigilantes. “We knew who they are and what happened to them.” The rest of the stolen acreage will even- tually be returned to former owners, he said. One avocado farmer, Alfonso III Cevallos, told how two years ago, the gang killed three of his brothers, his father and two un- cles, driving his family from their land. He has since reclaimed 120 hectares of his avo- cado groves. “Six people they took away,” Mr. Cevallos said. “I would return those properties if I could get those lives back.” J a n e t J a r m a n f o r T h e W a l l S t r e e t J o u r n a l ( 2 ) Online >> See more photos and watch a video about the battle in Tancítaro at WSJ.com/World. *Through October Sources: Mexico’s Ministry of Economy (exports); USDA (consumption) The Wall Street Journal Going Green Four of every five avocados sold in the U.S. originate in Michoacán, the only Mexican state certified by the U.S. Department of Agriculture to export the creamy, dip-friendly Hass variety that local growers call ‘oro verde’ or green gold. Tons of avocados exported to the U.S. from Mexico Per capita consumption of avocados in the U.S. 500 0 100 200 300 400 thousand tons ’03 ’05 ’07 ’09 ’11 ’13 2013: 457,567* 2.0 0 0.4 0.8 1.2 1.6 pounds a year ’03 ’05 ’07 ’09 ’11 2011: 1.673 ‘A day didn’t go by that one didn’t hear about extortion, a kidnapping or a violent death taking place in the municipality,’ said Mayor Torres. Arson remains, above, and avocado packing, left. 18 | Monday, February 3, 2014 THE WALL STREET JOURNAL. BUSINESS & FINANCE ‘Frontier Markets’ Emerge as Big Draws Some investors are finding ref- uge from the recent emerging-mar- kets turbulence in an unexpected place: even less-developed econo- mies. These “frontier markets” are lur- ing money managers who are will- ing to delve into smaller markets with more difficult trading condi- tions in order to gain exposure to robust economic growth. Because they are off the beaten path, frontier markets haven’t been swept up in the selloff that has pummeled emerging markets. Coun- tries such as Nigeria, Pakistan and Bangladesh didn’t see much of the cash that poured into emerging markets after the financial crisis, when low-interest-rate policies in richer economies sent investors in search of better returns in the de- veloping world. Instead, frontier markets have seen a steady trickle of investment from fund managers hoping to ride years of rapid growth. As a result, these economies have come through relatively unscathed even as inves- tors pull out of larger emerging markets such as Turkey and South Africa. The MSCI Frontier Market Index is up 1.3% this year, compared with a 6.6% decline in the MSCI Emerging Market Index. Last year, frontier markets rose 16%, while emerging markets fell 12%. Funds that buy frontier stocks in January drew in $244 million through Jan. 29, the most since Oc- tober, according to EPFR Global. Over the same period, investors yanked $11.6 billion from emerging- market funds. “Frontier markets are very useful diversifiers because…there are fewer links between frontier markets and the international capital markets,” says Sean Lynch, global investment strategist at Wells Fargo Private Bank, a Wells Fargo & Co. unit that manages $170 billion. “We are at- tracted by the long-term growth prospects and the consumption- growth story.” Mr. Lynch recently began recom- mending that clients own stocks in frontier markets such as Vietnam and Nigeria. Bets on frontier markets often take longer to pay off. One key fac- tor: Frontier markets are thinly traded, meaning it usually takes lon- ger to get out of a position than it would in emerging or developed markets. Investors buying stocks in fron- tier markets say conditions are right for these economies to see years of steady growth. Most have young populations, an important factor in the early rise of emerging markets such as Brazil and China. Shares of consumer-products companies, and banks in particular, should benefit as more people in frontier markets make their way into the middle class, these investors say. Emerging markets that rely heavily on China have suffered this year. But frontier markets have been less affected by the slowdown in China’s growth rate, partly because growth in domestic consumption is a more important factor in their economies’ expansion. The International Monetary Fund predicts most large frontier markets will grow at least 5% this year, with Nigeria’s economy forecast to grow by 7.4% and Bangladesh’s by 6%. Some emerging markets are ex- pected to see more moderate expan- sion, with Brazil growing at 2.5% and Turkey by 3.5%. “If the emerging-market selloff deepens, there will be contagion, but over the past few years we’ve seen that correlation dispersing,” says Pradipta Chakrabortty, portfo- lio manager of Harding Loevner’s $335 million frontier emerging-mar- kets fund, which is up 2.5% since the beginning of 2014. To be sure, some investors say frontier economies could succumb to the turmoil now engulfing emerg- ing markets. Pakistan’s stock market fell last Monday, at the start of the latest emerging-market selloff, though the country’s KSE 100 index is still up 5.3% this year. “I wouldn’t be aggressively buy- ing until a major selloff occurs,” says Don Scott, managing director of Global Frontiers Management, a money manager that specializes in frontier markets. Mr. Scott owns stocks in West Africa, the Balkans and Asia. The eye-catching performance of frontier markets in recent years has started to draw in a wider range of investors. While analysts say that has helped bolster share prices in those countries, some regulators are sounding a warning bell. In its an- nual letter in early January, the Fi- nancial Industry Regulatory Author- ity cited a lack of liquidity as a reason why financial advisers should be extremely cautious about recommending frontier-market in- vestments to their clients. If increased regulatory scrutiny discourages some investors, that eventually could limit rallies in these markets, market experts say. BY DAN KEELER Karachi Stock Exchange traders under display boards in early January. Pakistan’s market is up 5.3% this year. E u r o p e a n P r e s s p h o t o A g e n c y U.S. Widens Its Investigation Into Deals With Libya Sources: MSCI (indexes); EPFR Global (flows); IMF (GDP) The Wall Street Journal *Through Friday Survivors Money managers are still investing in less-developed ‘frontier’ markets even as emerging markets sell off. Index performance since the beginning of 2013* Investor flows into frontier stock funds GDP growth forecasts for select countries 0 1 2 3 4 5 6 7 8% ’13 ’14 ’15 ’13 ’14 ’15 ’13 ’14 ’15 Nigeria Brazil U.S. Frontier Markets 22% Emerging Markets 11% 25 –20 –15 –10 –5 0 5 10 15 20 % ’14 2013 $900 0 100 200 300 400 500 600 700 800 million ’14 2013 Gadhafi’s network, and U.S. investi- gators have been aiding in the ef- fort. At the center of the probe is a group of middlemen, known as “fix- ers,” operating in the Middle East, London and elsewhere, people famil- iar with the matter said. The fixers established connections between in- vestment firms and individuals with ties to leaders in developing mar- kets, including those in the Gadhafi regime, these people said. Even the offer of an improper payment can create legal liability for a company under the FCPA, re- gardless of whether the transaction is completed. Not all of the firms under scru- tiny have been directly contacted by the Justice Department, although prosecutors and regulators are shar- ing information, people familiar with the matter said. Prosecutors and regulators haven’t accused any of the companies of wrongdoing. The investigation is looking at fixers’ role in arranging deals be- tween financial firms and Libyan of- ficials, people familiar with the mat- ter said. The fixers acted as placement agents, similar to those in the U.S. who have come under scrutiny for steering investments to large public retirement funds. In some cases, the sovereign-wealth- Continued from first page fund fixers collected a “finder’s fee,” one of the people familiar with the matter said. Fees paid to placement agents can be legal or can be considered bribes, depending on the size of the fees and the nature of the agents’ relationship with the parties to the transaction, legal experts said. Prosecutors are trying to deter- mine whether the fixers funneled il- legal payments to Libyan officials in the Gadhafi regime on behalf of fi- nancial firms in return for business, according to people familiar with the matter. Some of the fixers had connec- tions to at least two of Gadhafi’s sons—primarily his second son, Seif al-Islam Gadhafi, who was most in- volved with the sovereign-invest- ment fund, according to people fa- miliar with the matter. The elder Gadhafi was killed by Libyan revolu- tionaries after he was toppled in 2011, ending his 42-year rule over the country. Seif al-Islam Gadhafi was captured by rebels. The Libyan Investment Author- ity, the nation’s sovereign-wealth fund, invested amounts up to $1 bil- lion in funds run by all these firms except Blackstone, according to a 2010 audit of the sovereign-wealth fund by KPMG LLP. The Libyan fund’s estimated $60 billion in as- sets was frozen under international sanctions after the revolution. Around the time of the 2008 fi- nancial crisis, Blackstone was mov- ing toward a deal with the Libyan fund, with conversations taking place among lower-level executives at the private-equity firm about whether to hire a “placement agent” to obtain a potential investment of Libyan money, according to people familiar with the matter. But the discussions dropped off and no deal was reached, these people said. Prosecutors and regulators also are investigating transactions in- volving real-estate investments in Libya, according to people familiar with the matter. Among the deals being scrutinized is a $120 million hotel project in which Och-Ziff had a stake—a joint venture involving U.K.-based InterContinental Hotels Group as well as a Libyan developer and the Libyan Investment Author- ity to build a luxury hotel in Trip- oli—according to people familiar with the probe. The hotel, which was slated to open in the Libyan capital in 2010, would have 351 rooms and “stun- ning views across the city and wa- terfront,” according to a 2007 news release from InterContinental, but construction stalled as fighting broke out in the country. It still hasn’t been completed. The U.S. lifted sanctions against Libya in 2004 in return for the country’s dismantling of its nuclear- weapons program. By 2008, as the financial crisis set in, Western firms were jockeying for business there. That year, then-Secretary of State Condoleezza Rice visited Libya and met with Col. Gadhafi in part to im- prove the investment climate there for U.S. companies, she said at the time. The government advised com- panies on investing in Libya, and U.S. executives went there on a gov- ernment-sponsored trade mission in 2010. Blackstone Chief Executive Ste- phen Schwarzman and Carlyle Group LP Chief Executive David Rubenstein attended the 2008 wed- ding in Tripoli of Mustafa Zarti, the deputy chief of the Libyan Invest- ment Authority. There is no indica- tion that Messrs. Schwarzman or Rubenstein were involved in any transactions that are under investi- gation. Both declined through spokesmen to comment. “Libya was fragile—one could feel it,” said Gary Garrabrant, the former chief executive of Equity In- ternational, a Chicago-based real- estate investment trust founded by Sam Zell. Equity International con- sidered deals in Libya, including the InterContinental project, according to Mr. Garrabrant. “There was a layer that existed in Libya of people that in effect con- trolled access,” he said. “They were door openers.” Ultimately, the inability of Lib- yan officials to answer basic ques- tions about permits, labor and con- struction caused his firm to back away, he said, adding that the firm’s discussions never advanced beyond that point. “We could never get comfortable with Libya as an institutional mar- ket,” said Mr. Garrabrant, who left Equity International to start his own firm, Jaguar Growth Partners, last year. —Rob Copeland and Liz Rappaport contributed to this article. At the center of the probe is a group of middlemen known as ‘fixers’ operating in the Middle East, London and elsewhere. 10 | Monday, February 3, 2014 THE WALL STREET JOURNAL. In Mexico, Bloody Struggle Erupts Over Avocado Trade T he entrance to this remote and seem- ingly peaceful mountain town is marked by a statue of an avocado. But behind the serenity is a violent criminal gang that has made millions of dollars ex- torting avocado farmers and packinghouse operators while strong-arming groves from landowners, said residents and local offi- cials who recently began fighting back. Four of every five avocados sold in the U.S. originate in Tancítaro’s home state of Michoacán, the only Mexican state certified by the U.S. Department of Agriculture to ex- port avocados, mostly the creamy, dip- friendly Hass variety that locals here call “oro verde” or green gold. Michoacán, which last year exported more than 500,000 tons of avocado to the U.S., expects a $1 billion haul in 2014. Tancítaro alone produced 157,000 tons last year, said Jose Ayala, a local agricultural of- ficial, “more than any other municipality in the world.” Some say the fruit was tainted. “They are ‘blood avocados,’ ” said Raul Benitez, a security expert at UNAM, the National Autonomous University of Mexico in Mexico City. “They are the Mexican equiva- lent of the conflict diamonds that are sold from war-torn parts of Africa.” In November, a band of Tancítaro resi- dents wielding wooden clubs and old hunt- ing rifles joined forces with well-armed vigi- lantes from nearby towns to run off most members of the Knights Templar, a criminal gang allegedly involved in extortion, kidnap- ping, rape and homicide throughout the state. “The people were sick and tired of the situation,” said Mayor Salvador Torres, who is now guarded round-the-clock by federal police because of threats. “A day didn’t go by that one didn’t hear about extortion, a kidnapping, or a violent death taking place in the municipality.” The Knights Templar grew out of a drug cartel known as La Familia and in the past few years moved from trafficking to extor- tion, stealing from every facet of this rich agricultural state, local and federal officials said. The gang took a cut of fertilizer and pesticide sales and charged a fee for every box of limes and avocados packed and trucked away. Many towns were forced to turn over 10% of municipal budgets. “They ran off a lot of people to other states,” a local official said, and in many cases forced owners to turn over title to their avocado groves. One local official estimated that the Knights Templar, named for a medieval group of crusading warrior monks, made $150 million a year extorting growers and packers, as well as selling avocados from the 2,025 hectares they took from farmers. Tancítaro has about 22,660 hectares of avo- cado groves, officials said. The criminal enterprise may have raised prices. Despite soaring production, the wholesale price of avocados in Mexico has jumped 22% from a year ago, according to government data. Mexico’s Economy Minis- ter Ildefonso Guajardo said prices rose be- cause of fluctuations in supply and demand and not from violence afflicting the state. Cuauhtémoc Montero, a major avocado grower and former federal congressman, said he believed that extortion added 10% to the price of avocados consumed in the U.S. Until the vigilantes sent the gang packing, local grove owners were taxed at a yearly rate of about $60 an acre, he said. Avocado packers in Tancítaro include dozens of mom-and-pop outfits that handle fruit not considered export quality. The town also has large-scale packers that send tons of the best avocados to the U.S., Eu- rope and Asia. The manager of one hole-in-the-wall packinghouse said he paid the Templar gang a tax of one cent a kilo, or about some $2,200 a month. The largest packers alleg- edly paid $15,000 a month, Mr. Montero said. Tancítaro’s avocado growers and towns- people rose up in arms shortly after the early November kidnapping of Maria Irene Villanueva, the daughter of a local preacher and avocado grower, residents said. The young woman was raped and killed as her father prepared to transfer title of his grove to a gang capo after failing to raise a $600,000 ransom, according to the mayor, family relatives and two friends of the woman’s father. “We believe in the Lord’s justice and BY JOSÉ DE CÓRDOBA Tancítaro, Mexico Tancítaro Mayor Salvador Torres, above left, and vigilante leader Jose Manuel Mireles, right. Four of every five avocados sold in the U.S. originate in Tancítaro’s home state of Michoacán. IN DEPTH MEXI CO U. S. Paci fic Ocean Gul f of Mexi co 500 miles 500 km Mexico City Tancítaro MICHOACÁN MICHOACÁN J a n e t J a r m a n f o r T h e W a l l S t r e e t J o u r n a l THE WALL STREET JOURNAL. Monday, February 3, 2014 | 19 For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email:
[email protected] Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown aren’t registered with the U.S. Securities and Exchange Commission and aren’t available for sale to United States citizens and/or residents except as noted. Prices are in local currencies. All performance figures are calculated using the most recent prices available. 12-month and 2-year returns may be calculated over 11- and 23-month periods pending receipt and publication of the last month end price. NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR NAV —%RETURN— FUNDNAME GF AT LB DATE CR NAV YTD 12-MO 2-YR Advertisement INTERNATIONAL INVESTMENT FUNDS INDICES NAV ——————%RETURN—————— FUNDNAME GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR nARIXABSOLUTERETURNINVESTABLEINDEX Feri Institutional Advisors, www.feri.de ARIXComposite Gross USD OT OT GBR 12/31.00 USD1602.40 8.0 8.0 6.7 nCGPortfolioFundLtd NAV OT OT CYM 06/07.00 GBP25839.68 5.3 10.9 9.8 Bad Loans Keep Rising At Big Spanish Banks MADRID—Three of Spain’s big- gest banks are still paying for the country’s real-estate bust. In earnings released Friday, the lenders—Banco Bilbao Vizcaya Ar- gentaria SA, Caixabank SA and Banco Popular SA—showed signifi- cant improvement in their capital strength since the euro-zone finan- cial crisis but reported rising bad loans and falling net interest income in the final quarter of 2013. Net in- terest income is the difference be- tween what banks earn from lending and the amount they pay for depos- its. BBVA, Spain’s second-biggest bank by market value, reported a fourth-quarter net loss of €849 mil- lion ($1.15 billion), compared with a profit of €20 million a year earlier, The latest results included a charge related to a sale of shares in a Chi- nese bank. Analysts had forecast a fourth-quarter net loss of €765 mil- lion. BBVA said net interest income fell in the fourth quarter to €3.8 bil- lion from €3.9 billion a year earlier. The lender said 6.8% of its loans were more than 90 days overdue at the end of 2013, up from 5.1% a year earlier. The bank set aside less than half the amount it did a year earlier to cover souring loans, making €1.2 bil- lion in loan-loss provisions in the fourth quarter compared with €2.7 billion a year earlier. For the full year, the bank re- ported net profit of €2.2 billion, up 33% from 2012. In October, BBVA cut its stake in China Citic Bank Corp. to just be- low 10%, a move meant to bolster its capital ahead of balance-sheet tests by European authorities. The bank said at the time the sale would trig- ger a €2.3 billion hit to its re- sults.The sale generated an account- ing loss but freed up capital, giving the bank a 9.8% capital ratio by the end of the year under new Basel III rules. The results come after Spain’s largest bank, Banco Santander SA, said Thursday that fourth-quarter net profit more than doubled as it set aside a smaller proportion of its earnings to cover loan losses, offset- ting lower net interest income. Caixabank, Spain’s third-largest bank, said its rate of bad loans as a portion of total lending in the fourth quarter jumped to 11.66% from 8.63% a year earlier and were up slightly from the previous pe- riod. Overall, bad loans held by Span- ish banks have continued to climb since February 2013, representing an all-time high of 13.1% of total lending in November. Caixabank said fourth-quarter net profit fell 21% from a year ear- lier, to €45 million. Over the full year, net profit more than doubled to €503 million. Its fourth-quarter net interest margin slipped to €1.02 billion from €1.03 billion the previous year. Banco Popular said it swung to a net profit of €98 million in the fourth quarter, from a loss of €2.7 billion in the year-earlier period, af- ter cleaning up its real-estate assets. Still, Banco Popular also posted a big increase in souring loans, to 14.27% in the fourth quarter from 8.98% a year earlier. Its fourth-quar- ter net interest margin fell 3.9%, to €590.9 million, from €615 million the previous year In Madrid, BBVA’s shares rose 0.2%, Caixabank gained 1.4% and Banco Popular fell 2.1%. BBVA’s net profit in Spain nearly halved in 2013, while in Mexico, where the lender has its biggest di- vision, it rose 6.8% year over year. In its domestic market, bad loans jumped to 6.4% in 2013 from 4.1% the year before. The rate climbs to 10.3% if soured loans from BBVA’s Spanish real-estate unit are included, the lender said Friday. The real-estate division includes bad loans to real- estate developers. BBVA Chief Operating Officer An- gel Cano said Friday that the bad- loan ratio was beginning to stabi- lize. “The worst has passed,” Mr. Cano said of the outlook for Spain. He said BBVA was open to selling its real-estate servicing unit. Other Spanish banks, such as Santander, have sold property-man- agement units amid an uptick in in- terest from foreign investors in Spain’s distressed real-estate mar- ket. BY JEANNETTE NEUMANN Data provided by: MARKETS nALEXANDRAINVESTMENTMANAGEMENT Alexandra Convertible Bond Fund I, Ltd. (Class A) OT OT VGB 08/31 USD 2155.22 NS NS NS nBANCINTERNACIONAL D'ANDORRA. BANCAMORA. Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad Andfs. Anglaterra UK EQ AND 11/16 GBP 8.47 2.8 3.6 14.9 Andfs. Borsa Global GL EQ AND 01/30 EUR 6.64 -0.2 9.9 6.6 Andfs. Emergents GL EQ AND 11/02 USD 14.77 -20.4 -19.2 -4.7 Andfs. Espanya EU EQ AND 01/30 EUR 15.02 6.3 37.3 21.3 Andfs. Estats Units US EQ AND 01/30 USD 20.68 -1.1 21.9 16.0 Andfs. Europa EU EQ AND 01/30 EUR 7.79 3.4 20.7 13.4 Andfs. Franca EU EQ AND 01/30 EUR 10.77 -1.6 14.9 15.2 Andfs. Japo JP EQ AND 01/30 JPY 688.74 -1.3 34.8 29.2 Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2 Andfs. RF Dolars US BD AND 01/30 USD 12.18 0.2 -0.6 1.5 Andfs. RF Euros EU BD AND 01/30 EUR 11.66 0.0 1.2 1.8 Andorfons EU BD AND 01/30 EUR 15.73 0.4 2.8 3.0 Andorfons Alternative Premium GL EQ AND 11/30 EUR 115.41 23.3 23.0 10.9 Andorfons Mix 30 EU BA AND 01/30 EUR 10.31 0.0 4.8 3.9 Andorfons Mix 60 EU BA AND 12/19 EUR 8.96 4.4 7.1 -2.5 nCGPortfolioFundLtd NAV OT OT CYM 06/07 GBP 25839.68 5.3 10.9 9.8 nCHARTEREDASSETMANAGEMENTPTELTD- TEL NO: 65-6835-8866 Fax No: 65-68358865, Website: www.cam.com.sg, Email:
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[email protected] Antanta Combined Fund EE EQ AND 01/24 USD 207.19 -1.3 -19.3 -17.5 Antanta MidCap Fund EE EQ AND 01/24 USD 373.49 3.5 -7.3 -11.6 Meriden Opps Fund GL OT AND 01/22 EUR 22.68 0.0 -10.9 -11.2 Meriden Protective Div GL EQ AND 11/24 EUR NS.00 -2.8 NS NS nPictet Funds (Europe) SA, ROUTEDESACACIAS60, CH-1211 GENEVA73 Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com Pictet-Abs Ret Gl Div-P EUR GL OT LUX 01/30 EUR 113.48 -0.3 -3.9 -0.6 Pictet-Agriculture-P EUR OT OT LUX 01/30 EUR 148.55 -2.8 -1.6 4.5 Pictet-Asian Eq ExJpn-P USD OT OT LUX 01/30 USD 175.18 -4.8 -3.1 3.1 Pictet-Asian Loc Cur Dbt-P USD AS BD LUX 01/31 USD 141.97 -0.4 -8.1 -2.5 Pictet-Biotech-P USD OT EQ LUX 01/30 USD 611.32 10.4 58.9 40.5 BBVA’s net interest income slipped during the fourth quarter. B l o o m b e r g N e w s THE WALL STREET JOURNAL. Monday, February 3, 2014 | 9 WORLD NEWS Killings Mar Afghan Campaign’s Start KABUL—Afghanistan’s presiden- tial campaign kicked off Sunday un- der stiff security, as the leading con- tenders wooed crowds at their first rallies and insurgents seeking to dis- rupt the vote killed two campaigners. Eleven candidates are vying to succeed Hamid Karzai, who came to power following the U.S.-led invasion that ousted the Taliban regime in 2001, and who is constitutionally barred from seeking another term. If the April 5 elections are suc- cessful, they would mark the first democratic transfer of power in Af- ghanistan’s history. If disrupted by the Taliban, or ended with a con- tested result, however, the vote could plunge the country into a new round of bloodshed just as the U.S. ends its 12-year combat mission and foreign aid money dries up. Yusuf Nuristani, the chairman of the Afghan election commission, warned against campaigning that could stoke Afghanistan’s ethnic and sectarian tensions, and urged the presidential hopefuls not to attack each other. “The candidates should not add to the misery of the Afghan people further,” Mr. Nuristani said. Though Mr. Karzai hasn’t backed any successor, three of the contend- ers are most likely to win his en- dorsement: former finance minister Ashraf Ghani, former foreign minis- ter Zalmai Rassoul, and the presi- dent’s brother Qayum Karzai. The leading opposition candidate in the race is former foreign minister Ab- dullah Abdullah, who came in second in the previous presidential election, in 2009. On Saturday, unidentified gun- men in the western city of Herat as- sassinated two campaigners for Mr. Abdullah. There was no immediate claim of responsibility. But the Tali- ban have vowed to disrupt the cam- paign and the election, dismissing the vote as illegitimate because they say the country remains under for- eign occupation. “It was an unforgivable crime,” Mr. Abdullah said, adding he has dis- cussed the assassination with Mr. Karzai. “People are awakening and are interested in the election. Unfor- tunately, in some corners of the country, they are not able to partici- pate due to insecurity.” Gen. Abdul Rahim Wardak, the U.S.-educated former defense minis- ter who is also running for president, said, “One thing we know for sure, is this election has been targeted.” A senior U.S. military official said he expected the Taliban to continue assassinating government officials and campaign workers, and to mount more high-profile attacks in the capi- tal, Kabul. Helping the insurgents is an unusually mild winter that has cleared of snow the mountain passes between Kabul and the Taliban’s ha- vens in Pakistan, facilitating mili- tants’ movements. “We joke about the snow: Give me snow! Give me snow!” the U.S. mili- tary official said. Underscoring the threat, the cam- paigning began Sunday under tight security, with armed troops manning roadblocks at key intersections, ma- chine guns mounted on pickup trucks. The rallies were mostly held indoors, at venues such as the gaudy neon-lit wedding halls that have mushroomed in Kabul in recent years. At a campaign event for Mr. Ghani on Sunday, guards confiscated pens, cigarettes and packets of snuff from supporters as they passed through metal detectors. Like almost all candidates, Mr. Ghani, a technocrat who holds a Ph.D. from Columbia University and once worked at the World Bank, has chosen a multiethnic ticket to appeal to a broad swath of the electorate. While Mr. Ghani is a Pashtun, his first vice-presidential candidate is Uzbek leader Abdul Rashid Dostum, a former warlord who backed Mr. Karzai in 2009. “Our debates should be about na- tional topics and national goals,” Mr. Ghani said at Sunday’s rally. Haji Mohammad Hussein, a medi- cal doctor from Kabul attending the event, was yet to be convinced about the wisdom of choosing Mr. Dostum as Mr. Ghani’s running mate. “We know him as a warlord,” Mr. Hussein said. “He only understands weap- ons.” At Mr. Abdullah’s campaign rally, tensions between various camps sup- porting his candidacy were also on display. Shortly before his second vice-presidential candidate, ethnic Hazara leader Mohammed Mohaqeq, took to the podium, a mixed-gender band, accompanied by a longhaired male keyboard player on a Yamaha performed a patriotic song, “From Bamiyan to Kandahar, We’re All Brothers.” —Margherita Stancati, Sharifullah Sahak and Ehsanullah Amiri contributed to this article. BY NATHAN HODGE AND YAROSLAV TROFIMOV Afghan security officials protect one of 11 presidential candidates, Ashraf Ghani, on Sunday in Kabul, as the campaign got under way ahead of the April 5 vote. E u r o p e a n P r e s s p h o t o A g e n c y EU Willing to Extend ‘Difficult’ Iran Nuclear Talks MUNICH—The six powers negoti- ating a nuclear accord with Iran will take the time they need to seal what will be an “extremely difficult” ac- cord even if that means extending their six-month timeline, European Union foreign-policy chief Catherine Ashton said. In an interview with The Wall Street Journal on the sidelines of the Munich Security Conference on Sunday, Baroness Ashton, who is the EU’s chief negotiator, said a final deal must make the international community certain that Iran’s nu- clear program is peaceful. Iran and the six powers in No- vember sealed an interim six-month accord in which Iran pledged to scale back some of its most ad- vanced nuclear activities in ex- change for an easing of Western sanctions. The deal, which took af- fect on Jan. 20, can be rolled over after six months by mutual consent, but Iranian and Western officials have said they hope to seal a com- prehensive accord within 180 days. “But everyone will say to you, and rightly so, this is extremely dif- ficult,” she said. “We have no guar- antees in this and we will take the time that is necessary to get this to be the right agreement." Privately, Western officials say they are doubtful an accord can be sealed by July, given the complexity of the issues. They include an agree- ment on whether Iran must either stop most of its nuclear enrichment activities, whether to physically dis- mantle large parts of its nuclear in- frastructure and what to do about its planned plutonium heavy-water reactor in Arak. Any deal also would need to specify what enrichment rights Tehran will have under a final accord and how to phase out inter- national sanctions against Iran. Some diplomats think it could take many months just to draw up a draft text for serious negotiations. Baroness Ashton is due to step down as EU foreign-policy chief in October. Iran says its nuclear program is for purely civilian, energy purposes and denies accusations it is seeking to develop nuclear weapons. Iran is negotiating with the so-called P5+1 group—the five permanent members of the United Nations Security Coun- cil plus Germany. The first round of talks for a final deal will take place in Vienna on Feb. 18. An extension of the talks could escalate pressure in the U.S. Con- gress for fresh Iran sanctions and would mean the continuation of ne- gotiations during the American mid- term vote in November. An exten- sion could also strengthen the hand of hard-liners in Iran since it would delay the broad sanctions relief the Iranian government was relying on to boost the economy. Sen. Chris Murphy (D., Conn.) said Sunday in Munich he was confi- dent the U.S. Senate won’t vote to approve new Iran sanctions any time soon. But he warned that if there were signs Tehran was using the talks to stall for time “that window will not last long.” Baroness Ashton said the main focus of the next round of talks will be the format and timeline for the talks. Both she and U.S. Secretary of State John Kerry met this weekend in Munich with Iranian Foreign Min- ister Javad Zarif. Mr. Zarif described his meeting with Mr. Kerry on Sun- day morning as “good” but gave no details. But a senior U.S. official said that during the meeting Mr. Kerry stressed the importance of both sides standing by their commit- ments and made clear the U.S. would continue enforcing existing sanc- tions. Iran reacted angrily in Decem- ber when the U.S. expanded its list of nuclear-related sanctions targets, saying it ran against the spirit of the November agreement. According to the official, Mr. Kerry also raised his concerns about the delay in transporting chemical weapons out of Syria, but Mr. Zarif said he didn’t have the authority to discuss Syria. On Saturday, Mr. Kerry urged Russia and others to press Syria to fulfill commitments to give up its chemical arsenal, saying Damascus needed to stop making “excuses.” Just 4% of Syria’s 530 metric tons of most-dangerous chemicals have been removed so far, despite a Dec. 31, 2013, deadline for removing all of them, according to U.S. offi- cials. Speaking Sunday afternoon at the Munich conference, Mr. Zarif said Tehran was committed to seek- ing a final nuclear deal, saying fail- ure would be a “disaster.” “What I can promise is that we will go to those negotiations with the political will and good faith to reach an agreement,” he said. Iranian officials have said repeat- edly they aren’t prepared to see the country’s nuclear infrastructure dis- mantled as part of a final deal, whereas Israel and some members of Congress are calling for many of the nearly 20,000 centrifuges Iran has to be scrapped. BY LAURENCE NORMAN Baroness Catherine Ashton A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s 20 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Sector EquityBiotechnology Fundsthat invest primarilyintheequitiesof companiesthat focusonbiotechnology. At least 75% of total assets are invested in equities. Ranked on % total return (dividends reinvested) inEuros for one year ending January 31, 2014 Leading 10Performers FUND FUND LEGAL %Return in $US ** RATING* NAME FUNDMGM'T CO. CURR. BASE YTD 1-YR 2-YR 5-YR 3 Adamant Zurcher CHFCHE 13.94 75.97 44.07 NS Global Biotech A Kantonalbank 4 BBBiotech Bellevue Asset CHFCHE 12.47 74.29 51.53 26.94 AGOrd Management, LLC 4 AXA AXAInvestment GBPGBR 13.00 72.44 44.29 23.66 Framlington Biotech RAcc Managers UK Ltd. 4 Franklin Franklin Templeton USDLUX 15.06 72.17 43.47 25.76 Biotechnology Disc AAcc $ Investment Funds 3 DekaLux-BioTech Deka International EURLUX 12.03 70.32 42.41 22.70 CF S.A. 3 BBBiotech B Bellevue Asset USDLUX 13.20 70.32 43.27 NS USD Management AG 3 CS SICAV Credit Suisse USDLUX 13.00 68.63 44.91 23.27 (Lux) Eq Biotechnology B (Luxembourg) S.A. 5 SEBConcept SEBAsset EURLUX 8.55 67.40 39.29 23.94 BioTech D Management S.A. 3 UBS (Lux) EF UBS Fund USDLUX 17.81 67.36 44.84 25.44 Biotech (USD) P-acc Management (Luxembourg) S.A. 3 CCRActions CCRAsset EURFRA 15.77 67.03 41.93 19.38 Biotech A Management NOTE: Changes in currency rates will affect performance and rankings. Source: Morningstar, Ltd KEY: ** 2YRand 5YRperformance is annualized 1 Oliver’s Yard, 55-71 City Road NA-not available due to incomplete data; London EC1Y 1HQUnited Kingdom NS-fund not in existence for entire period www.morningstar.co.uk; Email:
[email protected] Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001 MARKETS Fund Scorecard U.S Investors Brace For a Bumpy Ride demand for some assets and boost- ing volatility, or price swings. In January, the S&P 500 aver- aged daily stock swings of plus or minus 0.6%. That is an 11% increase over the average daily move in 2013. “I expect a lot of up and down in the first half of the year,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith, Thomas, which manages about $2.5 billion out of Norfolk, Va. In particular, Mr. Wilbanks likes big technology companies that pay dividends, such as Cisco Systems Inc. and Apple Inc., and industrial dividend payers such as Caterpillar Inc. and Deere & Co., he said. All four lagged behind the market last year, leaving them less vulnerable to declines, Mr. Wilbanks said. Cisco Systems rose 14% last year, about half as much as the S&P 500. Deere rose 5.7%, Apple 5.4% and Caterpillar 0.5%. The dividends, to- gether with the small increases last year in the companies’ share prices, reduce the risk of steep declines in the investments, Mr. Wilbanks said. Deere stock “hasn’t gone anywhere, but it certainly isn’t going to hurt you to hold,” said Mr. Wilbanks. Barry James, president at James Investment Research Inc., which manages about $5 billion in assets, said he wouldn’t be surprised to see stocks fall as much as 20% during the year and recover to finish slightly higher. Mr. James said he looks for stocks with strong earnings, and that return cash to shareholders through share buybacks and divi- dends. He likes Deere and the U.S. energy sector, which he thinks will benefit from continued development of the U.S. industry for shale oil and gas. “I feel like a football coach,” he said. “Back to the fundamentals, kids.” Investors across markets are tak- ing a more risk-averse stance. Investors yanked more than $900 million from bond funds dedi- Continued from first page cated to the risky corporate debt known as “junk” bonds in the week ended Wednesday, according to fund tracker Lipper. That was the biggest outflow since late August. January had 110 high-grade cor- porate debt issues, down from 206 a year earlier, according to data pro- vider Dealogic, amid signs that in- vestors are starting to demand more compensation. “As you dismantle quantitative easing, you dismantle a lot of the free ride,” says Sage’s Mr. Smith. For Mr. Smith, whose firm has a heavy emphasis on fixed-income portfolios, that means a tilt away from bond investments that are vul- nerable to rising interest rates. The firm is focusing on short-term bond- holdings and high-yield bonds that haven’t had as big a run as the over- all junk-bond market, such as bonds issued by utilities. But in a sign of how the market has wrong-footed many investors this year, the yield on the 10-year U.S. Treasury note actually has fallen to a recent 2.7% from 3% at the end of 2013. Many Wall Street forecasters expect the yield to rise to 3.5% or so this year. Prices fall when yields rise. Lawrence Creatura, portfolio manager of the $500 million Feder- ated Clover Small Value Fund, said last year’s market calm allowed for a big expansion of stock multiples, meaning an increase in the ratio of stock prices to earnings. Stock multiples last year ex- panded the most since 2009, when the market was recovering from the depths of the financial crisis. The price/earnings ratio on the S&P 500 over the next 12 months rose to 15.4 from 12.6, according to FactSet. Mr. Creatura said he is looking at the technology sector, which he said should see strong growth as compa- nies upgrade internal infrastructure. “In the middle innings of an eco- nomic cycle, earnings growth should come from more-cyclical sectors like technology,” he said. —Dan Strumpf contributed to this article. Asian Banks Branch Out build up their business in foreign loans, company representatives said. A spokesman for MUFG said the bank can lend at higher rates in markets outside Japan, bolstering returns. For example, in 2013 the Japanese bank was among the lend- ers on a $14.2 billion loan to Russia’s largest oil producer, state-controlled OAO Rosneft. By contrast, French lender So- ciété Générale has slipped to 18th place in 2013 from ninth place in 2007. Embattled U.K. lender Royal Bank of Scotland Group PLC has fallen to eighth place from third and Dutch bank ING Groep NV has fallen to 20th from 13th. RBS declined to comment. A spokeswoman for ING said the league table moves reflect market conditions. A spokeswoman for So- ciété Générale couldn’t immediately comment. “European banks, in particular, are still trying to deleverage,” said Derek Ovington, CLSA’s head of re- gional banks in Asia. He also said that U.K.-listed but Asia-focused lenders such as HSBC Holdings PLC and Standard Chartered PLC con- tinue to grow. Analysis by the Bank for Interna- tional Settlements, the central bank- ers’ bank, shows that at the end of September, Asian banks were ex- panding their cross-border lending— such as trade finance and loans— across the region, while U.S. banks scaled back exposure to emerging markets and Europeans held steady. According to the BIS, the share of emerging-market loans for non-U.S. and European banks—led by banks in Asia, excluding Japan—rose to 12.8% at the end of September from 11.6% at the end of 2012. But for the banks, this expansion isn’t without risk. A move by the U.S. Federal Reserve to slow the pace of its huge bond-buying pro- gram, which had the side effect of supplying Asia with cheap credit, could slow economic growth across Continued from page 15 the region. Investors have dumped currencies across emerging markets from Russia to South Africa to India and Indonesia. That volatility could strain those companies exposed to market swings and hinder their ability to re- pay debt. “We have become a bit more cau- tious about bank risk in emerging Asia with the impact of Fed taper- ing,” said Mark Young, head of Asia- Pacific financial institutions at Fitch Ratings. “Over the longer term you could see lower ratings,” he said. A credit-rating downgrade could push up the bank’s own cost of borrowing and trigger a pullback in lending. China’s slowing growth is also unnerving investors. A gauge of manufacturing activity released in January showed its weakest level in six months, helping to cool demand for commodities. Iron-ore prices have fallen to six-month lows. Japanese banks still are the big- gest lenders from the region. Since the fourth quarter of 2008, foreign lending by Japanese banks—buoyed by the country’s ultra-loose mone- tary policy—has increased 34% to $3 trillion, according to an analysis by the International Institute of Fi- nance. In that period Japanese lending across emerging Asia and the Pacific grew 95%, while lending to Latin American and Caribbean borrowers jumped 140%. Loans to developed countries rose 25%. Chinese banks are lending in part to fuel trade and growth by domes- tic companies. Foreign lending by China’s four largest banks has grown to $378 billion since 2008, $120 bil- lion of which was lent in 2013 alone. “We are seeing the international loan books of the mainland Chinese banks grow very, very quickly, but off a small base,” said CLSA’s Mr. Ovington. The Chinese banks didn’t re- spond to requests for comment on Thursday, the eve of China’s Lunar New Year holiday. Southeast Asian banks are also building their book, in particular on the regional stage. Singapore-based OCBC Bank increased its foreign lending by 22% in the year to Sept. 30—well ahead of the 11% growth in lending in Singapore. Overseas loans now make up 50% of the bank’s total gross loans, compared with 44% three years ago. The bank’s focus is on Malaysia, Indonesia and Greater China where margins are more at- tractive. Rival DBS increased its loan book by 19% on year to Sept. 30—around 55% of which came from outside Sin- gapore. A $7 billion loan last year for Swiss oil-and-gas company Vitol Group SA featured DBS, according to Dealogic data. “The key to our growth is our ability to leverage our Asian under- standing and connect clients across the region,” said Chng Sok Hui, chief financial officer for DBS. Some of the biggest financings in 2013 involved commodity and en- ergy producers. A $17 billion credit facility arranged for trading and mining titan Glencore Xstrata PLC last year included the biggest Japa- nese lenders along with Australia & New Zealand Banking Group Ltd. While some Asian lenders have long been present in global markets, the push overseas is expected to continue. “When the Asian banks start growing in a new market, they go for the whole hog,” said Crédit Agri- cole’s Mr. Sodhi. —Mike Cherney and Atsuko Fukase contributed to this article. J.P. Morgan Chase Citigroup Royal Bank of Scotland Bank of America BNP Paribas Calyon Corporate & Investment Bank Barclays Bank Deutsche Bank Société Générale ABN AMRO Bank N.V. HSBC Credit Suisse ING Groep Dresdner Bank Goldman Sachs Group UniCredit Mitsubishi UFJ Financial Group Natixis Banco Bilbao Vizcaya Argentaria Morgan Stanley $1,088 1,035 696 640 614 540 521 481 464 417 382 369 355 325 313 290 281 237 232 230 J.P. Morgan Chase Bank of America Citigroup Barclays Bank Wells Fargo Deutsche Bank Mitsubishi UFJ Financial Group Royal Bank of Scotland BNP Paribas HSBC Morgan Stanley Credit Suisse RBC Capital Markets Goldman Sachs Group Crédit Agricole Corporate and Investment Bank Mizuho Financial Sumitomo Mitsui Financial Group Société Générale UBS ING Groep $1,459 1,396 1,028 831 673 645 582 550 548 477 471 449 446 405 348 342 294 288 248 204 Source: Thomson Reuters The Wall Street Journal Top 20 Global Lenders Asian banks are climbing the ranks for global lending. In 2007, only one bank from the region made the top 20 list. In 2013, three made the list, all from Japan. 2007 2013 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Ranked higher in 2013 Ranked lower Ranked the same New entrant to 2013 top 20 Asian lenders in bold Bank Bank Total amount lent, in billions of dollars Total amount lent, in billions of dollars Rank Since the fourth quarter of 2008, foreign lending by Japanese banks has increased 34% to $3 trillion. 8 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Big Indonesian Volcano Claims Its First Victims JAKARTA, Indonesia—More than a dozen tourists and villagers were killed after venturing too close to In- donesia’s most active volcano over the weekend, prompting authorities to tighten a restricted-entry zone around the mountain on Sumatra is- land. At least 15 people, mostly high- school students, were killed near an evacuated village when Mount Sinabung erupted Saturday, officials said. Sinabung has been erupting daily for the past three months, but these were the first deaths directly related to the volcanic activity. The national disaster-mitigation agency said the students and several villagers were struck by a pyroclas- tic flow, a superheated cloud of ash and gases that can barrel down a mountain side at high speeds during an ash eruption. The flow gushed down the moun- tain side at about 100 kilometers an hour with a temperature of around 700 degrees Celsius, the agency said. The students, who had ventured near a village about three kilometers southeast of the volcano, had been trying to get a better view of the eruption, said agency spokesman Su- topo Purwo Nugroho, adding that the students weren’t on an orga- nized school trip. Sinabung’s southeastern flank has been site of the majority of the pyroclastic flows emanating from the crater since the round of erup- tions began in November. Eruptions have forced the evacu- ation of some 30,000 people—many of them small farmers—on northern Sumatra island, blanketing the high- lands countryside in gray ash that has destroyed millions of dollars of cash crops. More than 10,000 people who had evacuated from villages just be- yond the mandatory evacuation zone—which runs five kilometers from the peak in most places—chose to return home last week. Up to now, entry into the evacua- tion zone has been permitted but discouraged by local authorities. But Jhonson Tarigan, spokesman for the local relief effort, said Sun- day police and military increased their patrol personnel to 200 from 75 after the deaths and would now declare the evacuation zone com- pletely off limits. “Starting today, we installed road blocks at access roads to the danger zone,” he said. “Now nobody will be allowed to enter the danger zone.” He also said some of the new personnel would come from areas beyond Kabanjahe, the headquarters for a district of several hundred thousand people around the volcano. “Previously the patrolling officers knew the villagers, so they were less stern in stopping the them” from en- tering, he said. Tourist trips to the volcano have been a common sight in recent months, often led by guides who used to take people hiking to the top of the nearly 2,500-meter peak. Erwin Sinaga, a local guide, said he takes groups into the evacuation zone two to three times a week. On Sunday, he was planning to take travelers from the U.S. and Taiwan as close as four kilometers on the roads at the base of the mountain, until the route was closed by au- thorities. He found another vantage point at seven kilometers, he said. The fatalities occurred a day af- ter authorities allowed some 13,800 people to go back to their villages outside the five-kilometer danger zone. Many had fled in December and January amid ash fall and an uptick in pyroclastic flows further up the mountain. Thousands of villagers have been living for months in mosques, churches and event halls. On Sunday, Hendrasto, the head of the government volcano agency who, like many Indonesians, goes by one name, said Sinabung’s activity remains unchanged. “The eruptions are not expected to stop in the near future,” he said. For locals living at a safe distance from the volcano, Sinabung has of- fered a nightly diversion for months. On a recent evening in Kabanjahe, about 200 locals braved the high- lands chill to stand in a field about 13 kilometers from the summit, looking up at the mountain for occasional burst of lava. Vendors sold cheap noodle soup to ward off the chill. A quiet murmur went up in the crowd when a fireball flew silently down the side of the volcano, at that distance little more than a drop of red on a black hillside. “Wait awhile,” one of onlookers said. “It’ll happen again, bigger.” BY I MADE SENTANA AND BEN OTTO A rescue team passes ash-covered motorcycles Sunday in North Sumatra during operations around the village of Karo. R e u t e r s MyanmarReport IndicatesPolitical HurdlesforSuuKyi YANGON, Myanmar—A commit- tee evaluating changes to Myan- mar’s constitution found resistance to opening the door for opposition leader Aung San Suu Kyi to assume the presidency, underscoring the hurdles to her political ambitions. The question mark surrounding whether Ms. Suu Kyi will be able to run for president is considered the defining political issue leading up to Myanmar’s general elections, scheduled for 2015. This initial report was produced by a 109-member parliamentary committee tasked with collecting suggestions from various stakehold- ers—including from political parties and the military—on what should be amended within the constitution. The committee said it received more than 28,000 letters following its call for comment on the pro- posed changes, drafted in 2008 by the junta that ran Myanmar at the time. The document, drafted by military generals who kept Ms. Suu Kyi under house arrest for over a decade, includes a clause that pre- vents anyone with foreign family members from assuming the presi- dency or vice-presidency. The Nobel laureate, who was married to a British national and has two foreign sons, is widely revered and consid- ered the strongest presidential can- didate, should she be cleared to run for the post. But of these letters, the ones that opposed making changes to al- low Ms. Suu Kyi to run or dismantle the provision that guarantees a place in politics for Myanmar’s mili- tary received more than 100,000 signatures. Conversely, only 592 signatures were in favor of scrap- ping the section on presidential qualifications that disqualify Ms. Suu Kyi. The committee will send Parlia- ment its recommendations on changes. It remains unclear how or when the Parliament might act on any constitutional changes. The initial report, released to Parliament on Friday, isn’t binding, nor is it a formal recommendation. But the task of collecting sugges- tions on potential changes for the constitution was the first of its kind since a nominally civilian govern- ment took the helm in 2011 after six decades of military rule, and is the first temperature-taking exercise of sentiments around these crucial changes. “It is clear that there is resis- tance to amending the clause [on presidential qualifications], some- thing Aung San Suu Kyi has been pushing hard for,” said Richard Horsey, a Yangon-based political an- alyst.Ms. Suu Kyi, who recently traveled across Myanmar to Chin, Shan and Karen states, has made constitutional change the priority of her party. Her calls have also re- ceived significant backing outside Myanmar’s borders, with govern- ments including the U.S. and U.K. Mr. Horsey, like many other ana- lysts, had been predicting that the military, which holds 25% of seats in parliament, might use its veto powers to block a change in the constitution that would allow Ms. Suu Kyi to run. But, he added, the report indicates that the issue may not “even get to the stage of being voted on in the legislature.” Any constitutional amendment requires 75% of parliamentary votes in agreement. The committee will deliver a for- mal report at an unspecified time to a separate parliamentary panel, providing more specific recommen- dations and analysis on changes to the constitution. Representatives from Ms. Suu Kyi’s National League for Democ- racy party on Sunday dismissed the letters, saying they reflected an or- ganized government movement. “There were no reasons given as to why they want to keep article 59f, only signatures,” said Zaw My- int Oo, a NLD member of parlia- ment who sits on the committee looking at constitutional reform. “The process has no transparency— if our party chairman, Aung San Suu Kyi, went on similar campaigns, we can get more signatures to change this section.” BY SHIBANI MAHTANI AND MYO MYO Opposition leader Aung San Suu Kyi supporters allege a government movement. G e t t y I m a g e s Barrier Reef Dumping Plan Draws Ire CANBERRA—Australia approved plans to dump vast amounts of mud and rock into oceans surrounding the Great Barrier Reef, paving the way for developers to expand a coal port on the country’s eastern coast. The government agency that manages the reef, a designated World Heritage site, said it would allow as much as 3 million cubic meters of dredged-up material from the sea floor to be dumped. The dredging is part of a project to expand Abbot Point, a coal port in Queensland state which sits adja- cent to the park. The marine author- ity’s decision is expected to facili- tate eventually a 70% ramp-up in coal exports from Queensland. Coal, along with iron ore, is one of Aus- tralia’s biggest exports in big de- mand from Asian countries, includ- ing China, the nation’s biggest trading partner. The government approved the port expansion last year, but charged the marine authority with deciding where the dredged-up mud and rock would be shifted to. Sup- porters of the plan say it will unlock up to 28 billion Australian dollars (US$24.5 billion) in coal-develop- ment projects, helping provide much-needed jobs as a China-led mining-investment boom cools. Environmental campaigners, however, criticized the Great Barrier Reef Marine Park Authority’s deci- sion, saying the dumping of sludge to help make way for more ships to access the port threatened coral and fish around the reef, the world’s largest living organism. BY ROB TAYLOR WORLD NEWS THE WALL STREET JOURNAL. Monday, February 3, 2014 | 21 Major stockmarket indexes Stock indexes fromaround the world, grouped by region. Showninlocal-currency terms. PREVIOUS SESSION PERFORMANCE Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. EUROPE Stoxx Europe 600 322.52 -0.80 -0.25% -1.7% 11.9% Stoxx Europe 50 2853.33 -7.14 -0.25 -2.3 8.1 Euro Zone Euro Stoxx 307.33 -1.56 -0.51 -2.2 13.7 Euro Stoxx 50 3013.96 -13.34 -0.44 -3.1 11.2 Austria ATX 2559.74 -22.27 -0.86 0.5 4.9 Belgium Bel-20 2891.25 -6.72 -0.23 -1.1 12.9 Czech Republic PX 990.61 -3.82 -0.38 0.2 -2.6 Denmark OMXCopenhagen 593.18 7.05 1.20% 4.8 19.0 Finland OMXHelsinki 7030.60 -104.03 -1.46 -4.2 14.4 France CAC-40 4165.72 -14.30 -0.34 -3.0 10.4 Germany DAX 9306.48 -67.00 -0.71 -2.6 18.8 Hungary BUX 18958.24 341.56 1.83 2.1 -2.1 Ireland ISEQ 4652.30 -32.34 -0.69 2.5 30.2 Italy FTSE MIB 19418.34 6.79 0.03 2.4 12.1 Netherlands AEX 386.85 -2.76 -0.71 -3.7 8.8 Norway All-Shares 590.88 -4.74 -0.80 -2.0 13.7 Poland WIG 50831.61 414.44 0.82 -0.9 8.3 Portugal PSI 20 6696.67 -68.27 -1.01 2.1 7.1 PREVIOUS SESSION PERFORMANCE Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. Russia RTSI 1301.02 -19.88 -1.51% -9.8 -20.1 Spain IBEX35 9920.20 -44.30 -0.44 ... 20.5 Sweden OMXStockholm 416.72 0.27 0.06% -1.6 14.0 Switzerland SMI 8191.33 -13.63 -0.17 -0.1 10.4 Turkey BIST 100 61858.21 -843.18 -1.34 -8.8 -22.9 U.K. FTSE 100 6510.44 -28.01 -0.43 -3.5 2.6 ASIA-PACIFIC DJ Asia-Pacific 140.83 0.19 0.14 -4.2 2.8 Australia SPX/ASX200 5190.00 1.90 0.04 -3.0 5.5 China Shanghai Composite 2033.08 Closed -3.9 -14.8 Hong Kong Hang Seng 22035.42 Closed -5.5 -7.1 India S&P BSE Sensex 20513.85 15.60 0.08 -3.1 3.7 Japan Nikkei Stock Average 14914.53 -92.53 -0.62 -8.5 33.3 Singapore Straits Times 3027.22 Closed -4.4 -7.8 South Korea Kospi 1941.15 Closed -3.5 -1.2 AMERICAS DJ Americas 448.93 -2.47 -0.55 -3.6 14.2 Brazil Bovespa 47638.99 394.73 0.84 -7.5 -21.1 Mexico IPC 40879.75 -128.55 -0.31 -4.3 -10.7 Note: Americas index data are as of 5:00p.m. ET. Sources: SIXFinancial Information; WSJ Market Data Group Cross rates U.S.-dollar and euro foreign-exchange rates inglobal trading USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD Australia 1.1440 1.8818 1.2640 0.1748 0.0325 0.1822 0.0112 0.3252 1.5446 0.2070 1.0287 ... Canada 1.1121 1.8293 1.2287 0.1699 0.0316 0.1771 0.0109 0.3161 1.5015 0.2012 ... 0.9721 Denmark 5.5267 9.0908 6.1060 0.8445 0.1572 0.8802 0.0540 1.5711 7.4616 ... 4.9696 4.8308 Euro 0.7407 1.2183 0.8183 0.1132 0.0211 0.1180 0.0072 0.2106 ... 0.1340 0.6660 0.6474 Israel 3.5177 5.7862 3.8864 0.5375 0.1001 0.5602 0.0344 ... 4.7492 0.6365 3.1631 3.0748 Japan 102.2755 168.2306 112.9952 15.6279 2.9090 16.2878 ... 29.0746 138.0810 18.5057 91.9650 89.3979 Norway 6.2793 10.3286 6.9374 0.9595 0.1786 ... 0.0614 1.7851 8.4776 1.1362 5.6463 5.4886 Russia 35.1579 57.8304 38.8429 5.3722 ... 5.5990 0.3438 9.9946 47.4663 6.3614 31.6136 30.7312 Sweden 6.5444 10.7647 7.2303 ... 0.1861 1.0422 0.0640 1.8604 8.8355 1.1841 5.8846 5.7204 Switzerland 0.9051 1.4888 ... 0.1383 0.0257 0.1441 0.0088 0.2573 1.2220 0.1638 0.8139 0.7912 U.K. 0.6079 ... 0.6717 0.0929 0.0173 0.0968 0.0059 0.1728 0.8208 0.1100 0.5467 0.5314 U.S. ... 1.6449 1.1048 0.1528 0.0284 0.1593 0.0098 0.2843 1.3501 0.1809 0.8992 0.8741 Source: ICAPPlc. MSCI indexes Developed and emerging-market regional and country indexes fromMSCI as of January 31, 2014 Price-to- LOCAL-CURRENCY Dividend earnings PERFORMANCE yield ratio MSCI Index Last Daily YTD 52-wk. 2.40% 17 MSCI ACWI* 393.89 -0.21% -3.6% 15.9% 2.40 17 World(DevelopedMarkets) 1,607.46 -0.24 -3.2 20.1 2.30 17 Worldex-EMU 196.02 -0.31 -3.2 19.9 2.30 18 Worldex-UK 1,619.74 -0.31 -3.2 21.0 3.00 17 EAFE 1,847.18 0.95 -3.6 15.2 2.60 12 EmergingMarkets (EM) 936.37 0.03 -6.6 -11.3 3.20 17 EUROPE 110.36 0.27 -1.6 14.6 3.20 18 EMU 191.11 0.30 -3.3 21.6 3.10 18 Europe ex-UK 118.69 0.34 -1.3 17.6 4.10 13 Europe Value 112.61 0.54 -0.8 16.1 2.30 22 Europe Growth 104.09 -0.01 -2.4 12.9 2.30 23 Europe Small Cap 262.87 0.31 0.8 31.5 3.50 6 EMEurope 256.07 1.40 -6.8 -17.5 3.50 14 UK 1,928.51 -0.15 -3.2 10.4 3.20 17 Nordic Countries 198.74 -0.01 -1.5 15.0 3.50 5 Russia 758.99 0.35 -4.2 -1.0 2.90 18 SouthAfrica 1,084.57 -0.90 -4.7 7.3 2.90 13 ACASIAPACIFICEX-JAPAN 444.34 0.44 -5.1 -4.7 1.70 17 Japan 753.62 -2.57 -6.4 42.1 3.10 10 China 58.96 -0.46 -6.6 -6.2 1.40 17 India 791.69 -0.82 -3.1 3.6 1.00 10 Korea 562.12 0.00 -4.6 -3.1 2.80 17 Taiwan 297.55 0.00 -1.7 7.6 1.80 19 USBROADMARKET 2,051.01 -1.18 -2.6 27.6 1.40 31 USSmall Cap 3,181.01 -1.49 -1.5 35.1 3.00 16 EMLATINAMERICA 2,887.42 -0.47 -9.8 -24.0 *Twenty-four developed and 21 emerging markets Source: MSCI S&PDowJones Indices Price-to- Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars) yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk. 2.35%19.41 Global TSM 3113.70 -0.42% 10.7% 2.91 17.87 Global DOW 1667.27 -0.20% 14.0% 2391.51 -0.62 12.4 2.90 14.37 Global Titans 50 220.97 -0.05 10.8 222.91 -0.47 9.3 3.04 20.00 DevEurope TSM 3270.95 -0.68 11.6 2.30 20.34 DevelopedMarkets TSM 3140.32 -0.46 13.7 2.80 13.68 S&PBMI EmgMarkets 238.30 -0.01 -13.1 3.19 19.31 S&PEurope 350 1314.20 -0.27 11.6 1594.32 -0.63 10.1 3.09 22.34 S&PEuro 1303.85 -0.50 14.0 1602.99 -0.86 12.4 3.68 17.85 Europe Dow 1367.55 -0.16 10.8 1958.59 -0.74 9.1 3.33 9.09 BRIC50 360.65 0.40 -15.9 464.39 -0.02 -17.0 1.87 21.07 U.S. TSM 18810.34 -0.50 19.1 Kuwait Titans 30 -c 202.30 -0.08 1.9 Price-to- Dividend earnings PERFORMANCE(euros) PERFORMANCE(U.S.dollars) yield* ratio* S&PDowJones Index Last Daily 52-wk. Last Daily 52-wk. TurkeyTitans 20 -c 628.79 -1.25% -22.8% 6.16%15.50 Global Select Div 241.63 -0.47 4.7 6.50 14.88 Asia/Pacific Select Div 276.60 0.87% -5.5% 319.22 0.29 -7.0 U.S. Select Dividend -d 1207.61 -0.25 19.1 3.13 29.06 S&PGlbNat Resources 1928.28 -0.28 -9.9 2587.71 -0.69 -11.1 2.07 19.88 Islamic Market 2642.48 -0.38 9.7 2.39 17.93 Islamic Market 100 2883.89 -0.35 11.3 Islamic Turkey -c 3843.31 -0.83 -12.1 3.15 22.28 Sustainability Europe 106.06 -0.10 10.5 157.22 -0.67 8.8 4.24 23.10 S&PGlbInfrastructure 1473.95 0.50 7.0 2248.85 0.09 5.5 1.80 14.54 Luxury 1933.15 0.99 5.4 DJ-UBSCommodity-p 111.42 -0.34 -12.1 125.91 -0.34 -11.9 *Fundamentals are based on data in U.S. dollar. Footnotes: a-in USdollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&PDowJones Indices GLOBAL MARKETS LINEUP WSJ.com >> Follow the markets throughout the day with updated stock quotes, news and commentary at WSJ.com. Also, receive email alerts that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/email. Commodities Prices of futures contracts withthe most openinterest EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; NYMEX: NewYork Mercantile Exchange;ICE-EU: ICE Futures Europe *Data as of January 30, 2014 ONE-DAY CHANGE Year Year Commodity Exchange Last price Net Percentage high low Corn (cents/bu.) CBOT 433.50 6.00 1.40% 435.50 406.25 Soybeans (cents/bu.) CBOT 1282.75 7.75 0.61 1,330.50 1,260.50 Wheat (cents/bu.) CBOT 557.25 3.75 0.68 612.75 550.00 Live cattle (cents/lb.) CME 140.575 0.050 0.04 143.200 135.375 Cocoa ($/ton) ICE-US 2,893 -19 -0.65% 2,933 2,629 Coffee (cents/lb.) ICE-US 125.55 5.55 4.63 125.95 110.20 Sugar (cents/lb.) ICE-US 15.60 0.61 4.07 16.42 14.70 Cotton (cents/lb.) ICE-US 85.87 -0.16 -0.19 88.43 82.39 Rapeseed (euro/ton) LIFFE 364.25 2.25 0.62 365 349 Cocoa (pounds/ton) LIFFE 1,844 -5 -0.27 1,865 1,676 Robusta coffee ($/ton) LIFFE 1,777 32 1.83 1,795 1,575 Copper ($/lb.) COMEX 3.1930 -0.0335 -1.04 3.4245 3.1905 Gold ($/troy oz.) COMEX 1242.60 0.10 0.01 1,280.10 1,203.70 Silver ($/troy oz.) COMEX 19.160 0.034 0.18 20.660 18.970 Aluminum($/ton)* LME 1,729.50 -24.00 -1.37 1,813.00 1,729.50 Tin ($/ton)* LME 22,125.00 -25.00 -0.11 22,475.00 21,410.00 Copper ($/ton)* LME 7,116.00 -44.00 -0.61 7,422.00 7,116.00 Lead ($/ton)* LME 2,126.00 -29.00 -1.35 2,242.00 2,119.00 Zinc ($/ton)* LME 1,977.00 -32.50 -1.62 2,090.00 1,977.00 Nickel ($/ton)* LME 13,885 -280 -1.98 14,730 13,425 Crude oil ($/bbl.) NYMEX 97.44 -0.79 -0.80 99.08 91.47 Heating oil ($/gal.) NYMEX 2.9975 -0.0300 -0.99 3.0598 2.8905 RBOBgasoline ($/gal.) NYMEX 2.6409 -0.0334 -1.25 2.8043 2.6033 Natural gas ($/mmBtu) NYMEX 4.924 -0.087 -1.74 5.4860 3.9360 Brent crude ($/bbl.) ICE-EU 105.90 -1.40 -1.30 110.79 104.75 Gas oil ($/ton) ICE-EU 905.25 -13.25 -1.44 943.75 893.75 Sources: SIX Financial Information; WSJ Market Data Group Currencies Londonclose onJan. 31 Per In AMERICAS Per euro In euros U.S. dollar U.S. dollars Argentina peso-a 10.8270 0.0924 8.0195 0.1247 Brazil real 3.2596 0.3068 2.4144 0.4142 Canada dollar 1.5015 0.6660 1.1121 0.8992 Chile peso 751.26 0.001331 556.46 0.001797 Colombia peso 2725.84 0.0003669 2019.01 0.0004953 Ecuador US dollar-f 1.3501 0.7407 1 1 Mexico peso-a 18.0384 0.0554 13.3609 0.0748 Peru sol 3.8079 0.2626 2.8205 0.3546 Uruguay peso-e 29.168 0.0343 21.605 0.0463 U.S. dollar 1.3501 0.7407 1 1 Venezuela bolivar 8.57 0.116644 6.35 0.157480 ASIA-PACIFIC Australia dollar 1.5446 0.6474 1.1440 0.8741 1-mo. forward 1.5475 0.6462 1.1462 0.8724 3-mos. forward 1.5539 0.6435 1.1510 0.8688 6-mos. forward 1.5634 0.6396 1.1580 0.8636 China yuan 8.1809 0.1222 6.0595 0.1650 Hong Kong dollar 10.4827 0.0954 7.7645 0.1288 India rupee 84.6370 0.0118 62.6900 0.0160 Indonesia rupiah 16416 0.0000609 12159 0.0000822 Japan yen 138.08 0.007242 102.28 0.009778 1-mo. forward 138.06 0.007243 102.26 0.009779 3-mos. forward 138.01 0.007246 102.22 0.009782 6-mos. forward 137.93 0.007250 102.16 0.009788 Malaysia ringgit-c 4.5210 0.2212 3.3487 0.2986 NewZealand dollar 1.6692 0.5991 1.2364 0.8088 Pakistan rupee 142.455 0.0070 105.515 0.0095 Philippines peso 61.227 0.0163 45.351 0.0221 Singapore dollar 1.7245 0.5799 1.2773 0.7829 South Korea won 1459.31 0.0006853 1080.90 0.0009252 Taiwan dollar 40.962 0.02441 30.341 0.03296 Thailand baht 44.606 0.02242 33.040 0.03027 Per In EUROPE Per euro In euros U.S. dollar U.S. dollars Euro zone euro 1 1 0.7407 1.3501 1-mo. forward 1.0000 1.0000 0.7407 1.3501 3-mos. forward 1.0000 1.0000 0.7407 1.3502 6-mos. forward 0.9998 1.0002 0.7405 1.3504 Czech Rep. koruna-b 27.548 0.0363 20.404 0.0490 Denmark krone 7.4616 0.1340 5.5267 0.1809 Hungary forint 311.86 0.003207 230.99 0.004329 Norway krone 8.4776 0.1180 6.2793 0.1593 Poland zloty 4.2478 0.2354 3.1463 0.3178 Russia ruble-d 47.466 0.02107 35.158 0.02844 Sweden krona 8.8355 0.1132 6.5444 0.1528 Switzerland franc 1.2220 0.8183 0.9051 1.1048 1-mo. forward 1.2217 0.8185 0.9049 1.1051 3-mos. forward 1.2210 0.8190 0.9044 1.1057 6-mos. forward 1.2197 0.8199 0.9034 1.1069 Turkey lira 3.0544 0.3274 2.2623 0.4420 U.K. pound 0.8208 1.2183 0.6079 1.6449 1-mo. forward 0.8210 1.2181 0.6081 1.6445 3-mos. forward 0.8213 1.2175 0.6084 1.6437 6-mos. forward 0.8219 1.2167 0.6088 1.6426 MIDDLE EAST/AFRICA Bahrain dinar 0.5089 1.9649 0.3770 2.6527 Egypt pound-a 9.3964 0.1064 6.9599 0.1437 Israel shekel 4.7492 0.2106 3.5177 0.2843 Jordan dinar 0.9543 1.0479 0.7069 1.4147 Kuwait dinar 0.3814 2.6219 0.2825 3.5398 Lebanon pound 2029.12 0.0004928 1502.95 0.0006654 Saudi Arabia riyal 5.0637 0.1975 3.7507 0.2666 South Africa rand 15.0569 0.0664 11.1525 0.0897 United Arab dirham 4.9588 0.2017 3.6730 0.2723 a-floating rate b-financial c-government rate c-commercial rate d-Russian Central Bank rate. Source: ICAPPlc. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 7 Western States Escape The East’s Deep Freeze At times in January, Chicago was colder than the South Pole, while flowers bloomed out of season in balmy Juneau, Alaska. Driven by contorted bends of the jet stream, cold snaps and snow kept Northern and Southern states in a deep freeze, while unusually warm weather and record drought gripped the far West. The U.S. has been a country di- vided by temperature extremes, in a winter of record Western highs and bone-chilling Eastern lows, federal climate experts and private meteo- rologists said. A formal federal tally of January’s temperature trends won’t be com- pleted for weeks, but preliminary re- gional data compiled by commercial meteorologists suggest that the East- ern half of the country is experienc- ing one of its 10 coldest winters on record—with thousands of local re- cords for cold already tied or broken. By contrast, California, Alaska and the Western U.S. are having one of the 10 warmest winters, with several cities setting records in January for high temperatures. “We are talking about significant departures from normal,” said mete- orologist Joe D’Aleo, chief forecaster at Weatherbell Analytics LLC, a com- mercial forecasting company based in New York. Weather experts blame it all on a vast pool of warmwater in the North Pacific—up to seven degrees hotter than in most years. Generating a plume of rising hot air, it has pushed the polar jet stream, which steers air across the continent from west to east, further north and then south in a series of kinks like accordion pleats. The same odd continental pattern of air circulation contributed to the cold- est U.S. winters on record in 1977 and 1979, experts said. “The jet stream has configured itself in a way that it is positioned to bring warm air to the West and shots of really cold air to the East,” said Deke Arndt, chief of climate monitoring at the National Climatic Data Center in Asheville, N.C. As a consequence, the Western half of the country has been almost as much above average as the East- ern half has been below average. “If you average the extremes, you miss out on how truly extraordinary the weather this January is,” said Jeff Masters, chief meteorologist at Weather Underground, a commer- cial forecasting service. The month unofficially edged out 1948 as only the 25th coldest U.S. January, based on more than a cen- tury of record-keeping. “The bitter cold we experienced in January was certainly unusual and the coldest we have seen in the 21st century, said Dr. Arndt. “But they were the kinds of temperatures we would routinely see in two out of three winters in the cold decades of the 1970s and 1990s.” Even so, it has been cold enough to drive the penguins indoors at the National Aviary in Pittsburgh, icy enough to freeze over much of the Great Lakes, and snowy enough that airlines in January canceled more than 36,000 flights. By a preliminary count, the month set more than a thousand local records for snowfall. At the same time, it was warm and dry enough in the West that Cal- ifornia’s snowpack is now at its low- est level in 50 years, threatening the state’s water supply. Temperatures in January topped 88 degrees in Long Beach, while Anchorage, Alaska, notched its warmest January day on record this past Monday, with tem- peratures southwest of the city reaching 62 degrees. “It is a study in extremes,” Dr. Masters said. BY ROBERT LEE HOTZ ActorPhilipSeymourHoffmanDeadat46 Award-winning actor Philip Sey- mour Hoffman was found dead of an apparent drug overdose late Sunday morning in his New York City apartment, authorities said. Law-enforcement officials said a hypodermic needle and two glass- ine envelopes containing what is believed to be heroin were found in the apartment in the West Village neighborhood of Manhattan. The 46-year-old actor was found unconscious in the bathroom of his fourth floor apartment in the Pickwick House around 11:15 a.m. by screenwriter David Katz, who called 911, a law-enforcement offi- cial said. He was pronounced dead at the scene. Mr. Hoffman was last seen around 8 p.m. Saturday, the official said. He was supposed to pick up his children Sunday morning and, when he didn’t, Mr. Katz and a friend went to check on him, the official said. The New York Police Depart- ment is investigating, and the Of- fice of the Chief Medical Examiner is working to determine the exact cause of death. The accomplished actor and director won the Acad- emy Award for best actor for his role as famed author Truman Ca- pote in the 2005 film “Capote.” He also had a strong following in New York’s theater scene, starring in plays like 2012’s “Death of a Sales- man” and directing others, like 1999’s “In Arabia, We’d All Be Kings.” He was nominated for a Tony Award three times. Mr. Hoffman’s breakout role, however, was in 1997’s “Boogie Nights.” He also received accolades for his roles in high-profile films such as 1998’s “The Big Lebowski” and 1999’s “Magnolia.” Mr. Hoffman was most recently seen in “The Hunger Games: Catch- ing Fire,” the second installment in the blockbuster “Hunger Games” series from Lions Gate Entertain- ment Corp. He was set to star in two more installments in the fran- chise that are scheduled for re- lease. Outside of the six-story building in the West Village, fan Adam Ze- nko, 40, placed white roses outside the front door. The paralegal, who lives nearby, said his favorite film of Mr. Hoffman’s was “Synecdoche, New York.” “It’s horrible, just horrible,” he said. “I think he’s the greatest ac- tor of his generation.” —Mara Gay, Alison Fox and Erich Schwartzel contributed to this article. BY PERVAIZ SHALLWANI U.S. NEWS When toRaiseRates TopsYellen’sAgenda In three years as second-in-com- mand at the Federal Reserve, Janet Yellen worried continuously about high U.S. unemployment and pushed for policies to bring it down. After she is sworn in as Fed chairwoman Monday a new question will almost immediately crowd her agenda: Why is unemployment falling so fast and what, if anything, should the central bank do about it? The jobless rate was 6.7% in De- cember and the Labor Department will release the January figure on Friday. Fed officials have said since December 2012 they wouldn’t con- sider raising short-term interest rates from near zero until joblessnes fell to at least 6.5%. More recently, they have said they will keep rates low “well past” that point as they weigh other indi- cators the labor market remains weak. This suggests rate increases won’t be coming soon even if job- lessness were to touch 6.5% in Fri- day’s report. Among Ms. Yellen’s most critical decisions is when to start lifting in- terest rates. If she and her col- leagues wait too long, they could fuel high inflation or financial bub- bles; if they move too soon, they could damp a recovery that is just gaining steam. Key to that decision is making sense of the falling unemployment rate. She and other Fed officials worry it masks large pockets of stress still plaguing the labor mar- ket, including millions of people who want work but aren’t looking anymore and therefore are no lon- ger counted as unemployed. “The U.S. labor market is incredi- bly complicated and trying to sum- marize it with one number is hard,” says David Stockton, the former head of the Fed’s research division. “They got themselves into a situa- tion where they are using the unem- ployment rate but they see a consid- erable number of reasons why they believe it is not a sufficient statis- tic.” The fast descent in the jobless rate has caught Fed officials off guard. A year ago they didn’t see it getting to 6.5% until 2015. As re- cently as June, they didn’t see it reaching this point until sometime later this year. A rule of thumb in economics known as Okun’s Law suggests the jobless rate should fall a half per- centage point for every percentage point the economy grows above its long-run trend rate. By that rule of thumb, the unemployment rate shouldn’t have fallen much in an un- usually anemic economic recovery. Instead it is down more than three percentage points from the recent peak. One reason for the drop is an ex- odus of millions of workers from the labor force. In June 2009, when the recovery started, 81 million Ameri- cans said they weren’t in the labor force, which means they weren’t employed or actively looking for work. In December that number hit 92 million. People are leaving the labor force for different reasons— they’re retiring, going back to school, join- ing disability rolls, giving up looking for jobs or doing other things—re- ducing the number of people counted as unemployed. The trend raises hard-to-answer questions for the Fed. Will some of these people come back to work when the economy improves or have they left permanently? Do these shifts mean there is less slack in la- bor markets—workers available to take jobs—than they realized, or is the slack still out there, hidden in these numbers? Ms. Yellen and other Fed officials equate slack with low wages and low inflation. If it is receding more quickly than they thought, rate in- creases might be needed sooner than planned. But they see many signs that the job market is still weak. Nearly eight million people have part-time jobs but want full-time work. Another 2.4 million say they want jobs but aren’t looking. When taking into account these people and other “marginally at- tached” workers, the jobless rate is 13.1%. Behind the numbers are people like Mialien Mack, 40, of Atlanta, Georgia. She was laid off in May from her marketing job in the cor- porate office of a convenience store chain in Atlanta after nearly 11 years with the company. She recently faced the expiration of her $330 per week of unemployment benefits, which has shifted her thinking about her job search. “It’s making me think, should I consider less money?” In her previ- ous jobs she had been making the equivalent of about $25 an hour. Now she is contemplating positions that would pay half that. “Twelve-fifty is still not a livable wage for an adult with a child,” she said. “However, is it a foot in the door?” BY JON HILSENRATH AND VICTORIA MCGRANE Sources: NOAA’s National Climatic Data Center (temperature); Weatherbell Analytics LLC (2014 estimate); staff and news reports (weather facts) Weather Divide Average temperature for January of each year in the contiguous 48 states 40°F 20 25 30 35 ’60 1950 ’70 ’80 ’90 ’00 ’10 2014 estimate: 2.5°F below average 1979: 8.54°F below average 2006: 8.62°F above average Average 1895-2013: 30.63°F January was so cold in some places that: ◆In Chicago, it got colder than the South Pole. ◆ In Minnesota, where temperatures dipped to -42°F, it was colder than Gale Crater on Mars, where the NASA robotic rover Curiosity is stationed. ◆ In Chicago, Anana, the lone polar bear at the Lincoln Park Zoo, had to stay indoors to keep warm. ◆ In Pittsburgh at the National Aviary, the penguins huddled indoors. ◆ All told, more than 36,000 airline flights were canceled, three times as many as the past two Januarys. While others had a warm spell: ◆ In Juneau, Alaska, the flowers were blooming. ◆ And it was so hot in Fresno, Calif., that the China Peak Mountain resort closed ski runs for lack of snow. The Wall Street Journal Philip Seymour Hoffman in January. E u r o p e a n P r e s s p h o t o A g e n c y 22 | Monday, February 3, 2014 THE WALL STREET JOURNAL. Major players & benchmarks Credit derivatives Spreads oncredit derivatives are one way the market rates creditworthiness. Regions that are treading inroughwaters cansee spreads swing toward the maximum—and vice versa. Indexes beloware for five-year swaps. Markit iTraxxIndexes SPREADRANGE, in pct. pts. Mid-spread, since most recent roll Index: series/version in pct. pts. Mid-price Coupon Maximum Minimum Average Europe: 20/1 0.81 100.90% 0.01% 1.04 0.69 0.82 Eur. HighVolatility: 20/1 1.19 99.14 0.01 1.61 1.01 1.24 Europe Crossover: 20/1 3.08 108.27 0.05 4.08 2.75 3.30 Asia ex-JapanIG: 20/1 1.49 97.76 0.01 1.57 1.24 1.37 Japan: 20/1 0.84 100.77 0.01 0.97 0.68 0.82 Note: Data as of January 30 Spreads Spreads on five-year swaps for corporate debt; based on Markit iTraxx indexes. In percentage points 3.00 2.00 1.00 0 –1 t Australia t Japan 2013 Aug. Sept. Oct. Nov. 2014 Dec. Jan. Index roll Source: Markit Group Tracking credit markets & dealmakers Dow Jones Industrial Average P/E: 15 LAST: 15698.85 t149.76, or 0.94% YEAR TO DATE: t877.81, or 5.3% OVER 52 WEEKS s1,689.06, or 12.1% Note: Price-to-earnings ratios are for trailing 12 months 16750 16400 16050 15700 15350 15000 1 8 15 22 29 Nov. 6 13 20 27 Dec. 3 10 17 24 31 Jan. High Close Low 50–day moving average t StoxxEurope 50: Friday's best andworst... Previous close, in STOCKPERFORMANCE Company Country Industry Volume local currency Previous session YTD 52-week Moet Hennessy Louis Vuitt France Clothing &Accessories 3,602,950 132.15 7.88% -0.3% -4.8% BGGrp United Kingdom Integrated Oil &Gas 15,850,938 1,022 1.34 -21.2 -8.8 Financiere Richemont Switzerland Clothing &Accessories 2,174,787 84.15 1.08 -5.2 12.4 British American Tobacco United Kingdom Tobacco 4,703,287 2,916 0.92 -9.9 -11.2 National Grid United Kingdom Multiutilities 7,861,133 789.00 0.90 0.1 14.1 Deutsche Bank Germany Banks 11,660,099 35.89 -2.79% 3.5 -6.8 Royal Dutch Shell A United Kingdom Integrated Oil &Gas 5,227,583 2,104 -2.05 -2.8 -6.1 INGGroep Netherlands Life Insurance 29,738,721 9.84 -1.70 -2.6 32.1 Standard Chartered United Kingdom Banks 8,850,345 1,240 -1.63 -8.8 -26.1 Deutsche Telekom Germany Mobile Telecommunications 18,444,098 12.00 -1.60 -3.5 34.3 ...Andthe rest of Europe's blue chips Latest, in local STOCKPERFORMANCE Company/Country (Industry) Volume currency Latest YTD 52-week Reckitt Benckiser Grp 1,223,371 4,563 0.57% -4.8% 8.6% United Kingdom(Nondurable Household Products) Vodafone Group 100,553,628 226.55 0.40 -4.4 31.6 United Kingdom(Mobile Telecommunications) Banco Bilbao Vizcaya Argn 50,413,299 8.86 0.21 -1.0 23.4 Spain (Banks) Anheuser-Busch InBev 2,259,832 71.05 0.11 -8.0 11.2 Belgium(Brewers) Rio Tinto 3,744,234 3,244 0.09 -4.9 -8.9 United Kingdom(General Mining) BP PLC 22,350,013 478.00 0.02 -2.1 2.4 United Kingdom(Integrated Oil &Gas) Roche Holding Part. Cert. 1,699,201 249.30 ... 0.0 23.8 Switzerland (Pharmaceuticals) UBS 11,557,413 17.99 -0.11 6.3 14.0 Switzerland (Banks) Telefon L.M. Ericsson B 16,177,505 80.00 -0.12 1.9 8.1 Sweden (Telecommunications Equipment) Siemens 4,101,701 93.96 -0.19 -5.4 17.6 Germany (Diversified Industrials) Nestle 5,864,260 65.80 -0.23 0.8 3.0 Switzerland (Food Products) BASF 3,952,135 79.53 -0.25 2.6 4.9 Germany (Commodity Chemicals) ABB 6,611,910 22.62 -0.26 -3.7 15.9 Switzerland (Industrial Machinery) ENI 14,611,538 16.85 -0.30 -3.7 -8.9 Italy (Integrated Oil &Gas) Lloyds Banking Group PLC 102,665,213 83.30 -0.30 5.6 61.2 United Kingdom(Banks) Banco Santander S.A. 59,373,682 6.41 -0.31 -0.5 8.0 Spain (Banks) Glencore Xstrata PLC 27,394,017 322.50 -0.36 3.1 -18.0 United Kingdom(General Mining) AstraZeneca 2,037,593 3,859 -0.37 7.9 26.4 United Kingdom(Pharmaceuticals) L'Air Liquide 1,003,382 93.20 -0.40 -9.3 -1.0 France (Commodity Chemicals) Schneider Electric 2,066,985 59.89 -0.45 -5.5 6.8 France (Electrical Components &Equipment) Latest, in local STOCKPERFORMANCE Company/Country (Industry) Volume currency Latest YTD 52-week SAP 3,165,760 56.66 -0.47% -9.1% -7.0% Germany (Software) HSBC Hldgs 24,961,836 627.00 -0.51 -5.3 -12.5 United Kingdom(Banks) Bayer 2,597,527 97.89 -0.56 -4.0 34.1 Germany (Specialty Chemicals) Daimler 5,457,152 62.13 -0.59 -1.2 43.0 Germany (Automobiles) Novartis AG 6,584,897 71.80 -0.62 0.8 15.8 Switzerland (Pharmaceuticals) Credit Suisse Group AG 5,501,745 27.40 -0.65 0.5 2.9 Switzerland (Banks) Unilever CVA 7,281,339 27.71 -0.68 -5.4 -7.0 Netherlands (Food Products) Telefonica S.A. 20,444,217 11.44 -0.69 -3.3 7.1 Spain (Fixed Line Telecommunications) AXA 9,640,827 19.50 -0.76 -3.5 43.0 France (Full Line Insurance) Sanofi SA 3,941,726 72.80 -0.79 -5.6 1.3 France (Pharmaceuticals) GlaxoSmithKline 7,184,583 1,564 -0.79 -2.9 8.2 United Kingdom(Pharmaceuticals) Unilever 4,309,183 2,339 -0.81 -5.8 -8.9 United Kingdom(Food Products) BHP Billiton 9,407,447 1,796 -0.86 -3.9 -16.8 United Kingdom(General Mining) Tesco 16,322,182 320.35 -0.91 -4.2 -10.1 United Kingdom(Food Retailers &Wholesalers) Allianz SE 1,998,411 123.80 -0.92 -5.0 17.3 Germany (Full Line Insurance) Barclays 49,273,966 272.50 -0.93 0.2 -9.5 United Kingdom(Banks) Zurich Insurance Group 731,923 261.50 -0.95 1.2 -0.1 Switzerland (Full Line Insurance) Diageo 9,346,759 1,801 -1.07 -10.0 -4.1 United Kingdom(Distillers &Vintners) Total 6,182,909 42.34 -1.27 -4.9 6.0 France (Integrated Oil &Gas) BNP Paribas 5,097,672 57.45 -1.42 1.4 24.3 France (Banks) Sources: SIX Financial Information DJIAcomponent stocks Volume, CHANGE Stock Symbol in millions Latest Points Percentage AT&T T 33.9 $33.32 –0.03 –0.09% AmExpress AXP 4.7 85.02 –1.60 –1.85 Boeing BA 9.7 125.26 –1.27 –1.00 Caterpillar CAT 9.1 93.91 0.71 0.76 Chevron CVX 15.3 111.63 –4.82 –4.14 CiscoSys CSCO 41.5 21.91 –0.07 –0.30 CocaCola KO 16.0 37.82 –0.35 –0.92 Disney DIS 7.7 72.61 –0.61 –0.83 DuPont DD 5.6 61.01 –0.53 –0.86 ExxonMobil XOM 16.8 92.16 –1.83 –1.95 GenElec GE 39.8 25.13 –0.37 –1.45 GoldmanSachs GS 3.4 164.12 –1.72 –1.04 HomeDpt HD 10.5 76.85 –0.08 –0.10 Intel INTC 26.9 24.54 –0.20 –0.81 IBM IBM 5.1 176.68 –0.68 –0.38 JPMorgChas JPM 17.9 55.36 –0.64 –1.14 JohnsJohns JNJ 12.0 88.47 –1.03 –1.15 McDonalds MCD 5.9 94.17 0.37 0.39 Merck MRK 14.8 52.97 –0.54 –1.01 Microsoft MSFT 85.6 37.84 0.98 2.66 Nike B NKE 4.2 72.85 –1.09 –1.47 Pfizer PFE 40.6 30.40 –0.42 –1.36 ProctGamb PG 12.8 76.62 –0.25 –0.33 3M MMM 3.6 128.19 0.14 0.11 TravelersCos TRV 4.8 81.28 –1.08 –1.31 UnitedTech UTX 3.4 114.02 –0.66 –0.58 UtdHlthGp UNH 4.0 72.28 –0.52 –0.71 Verizon VZ 17.8 48.02 0.39 0.82 VISAClA V 6.1 215.43 –5.45 –2.47 WalMart WMT 10.4 74.68 –0.07 –0.09 Source: WSJ Market Data Group Credit-default swaps: European companies At itsmost basic, thepricingof credit-default swapsmeasureshowmuchabuyer hastopaytopurchase-and howmuch a seller demands to sell-protection fromdefault on an issuer's debt. The snapshot belowgives a sense whichway the market was moving yesterday. Showing the biggest improvement... CHANGE, in basis points Yesterday Yesterday Five-day 28-day Nielsen 101 –5 –5 –24 Allianz 49 –1 1 5 RabobankNederland 76 –2 5 10 StdCharteredBk 123 –3 5 19 Alliance Leicester 94 –2 4 4 Deutsche Bk 95 –2 5 13 ONOFinII 153 –3 –48 –50 RaiffeisenZentralbank Oesterreich 84 –2 –6 –27 CARLTONComms 138 –3 –3 2 Compass Gp 43 –1 2 1 Andthe most deterioration CHANGE, in basis points Yesterday Yesterday Five-day 28-day CIRSpACIEIndustriali Riunite 258 14 44 –118 Portugal TelecomSGPS 349 18 47 89 Diageo 53 2 5 12 Pearson 64 3 5 13 REPSOL 123 5 22 28 Telefonica 165 6 31 45 Hellenic Telecom 331 13 57 75 Stena Aktiebolag 396 15 45 –4 Portugal TelecomIntl Fin 349 12 44 85 Gecina 102 3 5 5 Source: Markit Group BLUE CHIPS & BONDS WSJ.com >> Follow the markets throughout the day, with updated stock quotes, news and commentary at WSJ.com. Also, receive emails that summarize the day’s trading in Europe and Asia. To sign up, go to WSJ.com/Email. Below, a look at the Dow Jones Stoxx 50, the biggest and best known companies in Europe, including the U.K. Europe, Middle East & Africa: Bank revenues from equity capital markets Behind every IPO, follow-on or convertible equity offering is one or more investment banks. At right, investment banks historical and year-to-date revenues from global equity-capital-market (ECM) deals Source: Dealogic 60% 6 40 4 20 2 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 nEquity capital markets nDebt capital markets (both in billions, left axis) ECM as a percentage of total (right axis) t 6 | Monday, February 3, 2014 THE WALL STREET JOURNAL. U.S. NEWS Delayed Oil Pipeline Clears Major Hurdle WASHINGTON—An Obama ad- ministration analysis of the Key- stone XL pipeline said it probably wouldn’t alter the amount of oil ul- timately removed from Canadian oil sands, boosting the pipeline’s back- ers by suggesting it would have lit- tle impact on climate change. The release of the long-awaited report is one of the last steps before the up-or-down decision by President Barack Obama, who must juggle con- flicting demands from supporters heading into midterm elections. The Keystone XL pipeline, which would carry oil from Canadian oil sands into the U.S. Midwest on the way to Gulf coast refineries, has be- come a potent symbol both for envi- ronmentalists who say it would ac- celerate global warming and for unions and business leaders who see it as a way to stoke North America’s development as an energy-produc- ing superpower. The environmental analysis re- leased Friday by the State Depart- ment, which is responsible for as- sessing the project, weighed in at 11 volumes. It said that “approval or denial of any one crude-oil trans- port project, including the proposed project, is unlikely to significantly impact the rate of extraction in the oil sands.” The finding that the oil would be extracted and delivered anyway— possibly by rail if not pipeline—left environmentalists disappointed. “I will not be satisfied with any analysis that does not accurately document what is really happening on the ground when it comes to the extraction, transport, refining and waste disposal of dirty, filthy, tar- sands oil,” said Sen. Barbara Boxer (D., Calif.), chairman of the Senate environment and public works com- mittee and a White House ally. The report isn’t the last word on the matter. Now begins a final State Department study to determine whether the pipeline project is in the nation’s broader interests. Eight separate agencies have up to three months to weigh in. The report makes no recommen- dations on TransCanada Corp.’s per- mit request, leaving Secretary of State John Kerry and Mr. Obama the space to draw their own conclusions about whether the pipeline should get built. They are free to reject the pipe- line based on this more sweeping analysis, in which the environmental report is but one data point. In the next review, they will take into ac- count a consideration that may af- fect the president’s legacy: He has sought to take a leading global role in the effort to combat climate change. Under the executive order gov- erning the permit review, Mr. Kerry is empowered to make the final call. But presidential aides have said Mr. Obama has told them he will make the final decision on Keystone. Addressing Keystone at his regu- lar press briefing, White House spokesman Jay Carney said the re- port didn’t represent a decision “but rather another step in the process.” Mr. Obama could wait until after the November elections, but he is under pressure from the Canadian government and a handful of pro- Keystone Democratic senators not to delay further. A few Democratic senators who are up for re-election this year have warned that they will push legislation forcing a decision if the review stretches much longer. In a statement Friday, pro-Key- stone Sen. Mary Landrieu (D., La.), said, “This new study underscores what has been said all along about the Keystone XL pipeline: It’s time to build. This single project will in- ject billions of dollars into Louisiana and national economies, and reduce our dependence on oil from hostile countries.” Republicans have also grown im- patient with the lengthy Keystone review process. Citing Mr. Obama’s pledge to use his executive author- ity—his “pen”—to boost the econ- omy, GOP lawmakers have urged him to approve the pipeline now. “Mr. President, no more stalling, no more excuses. Please pick up that pen you’ve been talking so much about and make this happen. Ameri- cans need these jobs,” Senate Re- publican leader Mitch McConnell of Kentucky said Friday. Mr. Carney at the White House said that “there is a process that is in place, and that must be honored.” Keystone has had a tangled his- tory. TransCanada, which operates oil and natural-gas pipelines, first ap- plied for a permit in 2008. In Janu- ary 2012, the Obama administration rejected the application. At the time, Mr. Obama said a deadline that had been imposed by Congress didn’t al- low enough time to determine the project’s environmental impact. TransCanada reapplied in May 2012, after proposing to reroute the line to avoid an environmentally sensitive part of Nebraska, setting in motion the environmental report that was just released. Mr. Obama isn’t the only leader with his legacy at stake. Canadian Prime Minister Stephen Harper, who is struggling in opinion polls, has aligned himself closely with Key- stone. Mr. Harper’s natural-re- sources minister, Joe Oliver, said the report made him “more confident” the project will be approved. “We’re very pleased with the re- lease and being able to move to this next stage of the process. It’s been long in getting here,” said Russ Girling, TransCanada’s chief execu- tive. The pipeline has exposed divi- sions within the Democratic Party that could reverberate in the U.S. midterm elections in November. Labor unions see the project as an engine for job creation. Environ- mentalists view it as a symbol of U.S. dependence on fossil fuels and worry that extraction of the oil from Canadian oil sands will release large amounts of carbon dioxide, exacer- bating global warming. Both groups are pillars of the Democratic politi- cal coalition, which is aiming for a large turnout in November. Dan Weiss of the liberal think tank Center for American Progress said the report released Friday “ig- nores evidence” that Keystone would spark greater production at Canadian oil sands. “It’s like giving up on the inter- diction of cocaine traffic into our country, because drugs are going to get in anyway,” Mr. Weiss said. —Chester Dawson and Alistair MacDonald contributed to this article. By Peter Nicholas, Carol E. Lee and Alicia Mundy CEO Russ Girling of TransCanada, which plans a pipeline to carry Canadian oil into the U.S. Midwest on the way to Gulf B l o o m b e r g N e w s Oil Has Been Flowing Even Without the Key Link Improved prospects for the Key- stone XL pipeline cheered many parts of the North American energy industry, but the project is no longer as crucial to U.S. or Canadian compa- nies as it seemed just two years ago. TransCanada Corp.’s 830,000- barrel-a-day project has been in po- litical limbo for years, but the de- lays haven’t stopped the flow of oil. Many in the energy industry quit banking on the 1,200-mile line ever being built and made arrangements to ship North America’s rising oil output by alternate means, includ- ing shipments by rail. Even without Keystone XL, Cana- dian crude exports to the U.S. rose more than 5% in 2013, to an average 2.6 million barrels a day, according to the latest federal data. If built, Keystone XL would be a potential boon to companies pumping oil in Canada. But Alberta’s oil-sands crude production will more than dou- ble by 2025 to 4.5 million barrels a day, according to the Canadian Asso- ciation of Petroleum Producers, mak- ing Keystone only a partial solution. A pair of proposed new and ex- panded pipelines to Canada’s Pacific coast are being eyed as a way to tap growing Asian demand for oil. Railcars are increasingly carry- ing crude out of remote inland oil fields. Companies shipped 280 mil- lion barrels of oil by rail during the first nine months of 2013, nearly double the volume in 2012 and al- most six times the traffic in 2011, according to the Association of American Railroads. Exxon Mobil Corp., a major pro- ducer in Canada’s oil sands, said Thursday it is building a railway- loading facility in Edmonton, Al- berta, to “enable efficient, cost-ef- fective transportation of heavy crude.” The terminal is expected to be complete by early next year. ExxonMobil Canadian subsidiary Imperial Oil Ltd. has secured nearly 400,000 barrels a day of additional pipeline capacity out of Alberta on proposed lines as well, including Keystone XL. TransCanada has com- mitments from some of the largest operators in the oil sands, including Canadian Natural Resources Ltd., Cenovus Energy Inc., Suncor En- ergy Inc. and ConocoPhillips. “We’ve seen folks asking for addi- tional capacity,” TransCanada Chief Executive Russ Girling said. Keystone XL still matters to re- finers along the Gulf Coast, includ- ing Valero Energy Corp. and Mara- thon Petroleum Corp., which have invested billions of dollars in recent years to turn heavy crude like the kind coming from Canada, which yields a lot of diesel, into fuels for export. While railways have accommo- dated much of the booming new supply, this method of shipping has its risks. Regulators are taking a closer look at railcars after a string of recent accidents, including a fiery crash in Quebec last summer that killed 47 people. Efforts to make tanker cars safer could mean fewer of them will be available in the near term, according to Cowen & Co. ana- lyst Sam Margolin. “Keystone is more important now because rail is starting to meet more regulatory attention,” he said. If built, Keystone XL’s effects are likely to be felt in Latin America. A surge of heavy Canadian crude into the U.S. could crowd out similar types of oil that U.S. refiners import from Venezuela and Mexico. —Ben Lefebvre and Alison Sider contributed to this article. BY CHESTER DAWSON AND DANIEL GILBERT Edmonton Houston Cushing Steele City ALBERTA MONT. N. D. S. D. NEB. KAN. OKLA. ILL. MO. TEXAS SASK. MANITOBA Port Arthur Hardisty Patoka C ANADA ME X I CO UNI T E D STAT E S 250 miles 250 km Decision Time A U.S. study found the Keystone XL project likely wouldn’t affect the amount of oil extracted from Canadian tar sands. Source: TransCanada The Wall Street Journal Extent of the Keystone oil pipeline Constructed Planned Keystone XL pipeline THE WALL STREET JOURNAL. Monday, February 3, 2014 | 23 PERSONAL JOURNAL The Lifestyles of the Rich and Stranded Private Jets as Weather Workarounds; Just Don’t Rent Them During Holidays or Big Sports Events Like thousands of other travel- ers, Debbie Grazioso found herself stranded by bad weather, stuck in a line of 70 people on Jan. 6 in Florida and told by JetBlue Air- ways that she’d have to wait four days for a seat to New York. That meant missing a birth- day party for her 25- year-old twin daughters. Sometimes emer- gency situations require emergency measures. Ms. Grazi- oso and her husband, Glen Vittor, paid $9,000 to hitch a ride with another family on a seven-passen- ger Cessna Citation Excel, landing only hours after their scheduled trip. “It was well worth it. You can never get a birthday back,” she said. Time after time, storm after storm, travelers have been left in the lurch this winter. Long after the weather clears, the impact on airlines and their passengers per- sists. So far this January, U.S. air- lines have canceled more than 36,000 flights—more than after superstorm Sandy in 2012 and three times as many as the last two Januarys. That’s roughly three million inconvenienced passen- gers. With most flights booked full, it can take three, four or even five days to get rebooked. Alternatives are limited—driv- ing or taking a train may take days; other airlines are all booked up. For those few willing to pay the very high price, private jets can provide a smart escape. Terry Cooper, president of Charter Matrix, an online direc- tory and marketplace that lists flights with empty seats and ar- ranges charters, said that during the holiday storms, his requests doubled. “There’s a lot of freedom to corporate jets, but you pay for that freedom,” he said. How much? A small jet with four to six seats can cost $3,000 per hour, brokers say, putting a 2½-hour flight from Florida to New York at around $7,500. Air- port fees and charges to reposi- tion aircraft can raise that consid- erably. Larger jets run $8,000 or more per hour. Magellan Jets, a Quincy, Mass., firm that handles regular custom- ers who buy hours in bulk and one-time on-demand charters, says a midsize Hawker 400XP with seating for up to eight costs about $12,000 for a trip from West Palm Beach, Fla., to Teter- boro, N.J., for its members, and $17,000 for a nonmember on a one-time, one-way charter. Private jets have lots of advan- tages over airlines for getting in the air before and after storms. There are thousands of small air- ports available to them. While big airports often have more equip- ment to keep runways open, schedules can often get discom- bobulated by a lack of gates, a lack of security screeners, baggage handlers or gate agents, or simply the need to thin out airline sched- ules engineered for perfect flying conditions. That rarely impacts secondary airports, allowing pri- vate jets to fly when many com- mercial flights are grounded. And there’s the bonus of not having to stand in line for Trans- portation Security Administration clearance, either. For three couples eager to get home, sharing a plane and paying $4,000 or $5,000 each may be more attractive than being stuck in a hotel away from family or work for most of a week. Ms. Grazioso was grounded when JetBlue had a shortage of pi- lots after longer rest periods were required starting Jan. 1. She tried to find a way to fly to Dallas and then connect to New Jersey, or drive to Jacksonville, Fla., and get a flight home from there. No luck. They looked into Amtrak— maybe flying to Washington, D.C., and catching a train from there. But there were no airline seats to Washington available. She had the American Express platinum mem- bers’ desk working on it, and her own travel agent, who she says usually works miracles. “There was nothing. We checked every airline,” she said. So she began looking into pri- vate jets. One charter company quoted her a price of $22,000— too much, she decided. Her hus- band called Magellan and an agent said a client—three people and three dogs—were flying from West Palm Beach to White Plains, N.Y., with some empty seats. The client told Magellan they didn’t mind sharing and a match was made. “We had mutual friends, it turned out,” Ms. Grazioso said. A rented car was waiting plane-side in White Plains and the drive home to New Jersey took about 90 minutes. Magellan said it flew about 30 to 40 extra flights on Jan. 5 and 6 with people stranded by the ice storm, and had more people wait- ing. “It got to the point we were linking clients up with each other,” said Anthony Tivnan, Ma- gellan’s president. In situations like that, the company charters to one client for one price and lets the passengers decide how to split the cost. The high season for private jets runs from Thanksgiving through the end of March. No week is as busy as Super Bowl week. This year thousands of small-jet flights will descend on airports around the New York region, booking spe- cial takeoff and landing slots with the Federal Aviation Administra- tion because traffic is so heavy. When the game ends, engines start turning with a race to escape quickly and avoid delays. For the Super Bowl, Magellan said a Denver-to-Teterboro flight on a private aircraft starts at about $25,000 round-trip and Se- attle-to-Teterboro starts at around $35,000 round-trip. After slow years through the recession, private-jet firms say business is booming. “The econ- omy is better and airline service is worse,” said Bradley Stewart, chief executive officer of XOJet, a Brisbane, Calif.-based private avia- tion firm. Charter firms have gotten more aggressive about posting “empty legs” available to travelers at deep discounts. Private jet charter firm JetSuite, based in Irvine, Calif., lists its empty leg flights on Face- book, for example, sometimes with prices as low as $500 or $1,000 for the whole airplane. A four-seat Embraer Phenom 100 regularly costs $3,400 an hour for members and $3,900 for nonmem- bers, JetSuite said. While empty-leg pricing can be eye-catching, finding a trip where and when you want to go can be rare. You can set an alert on Char- ter Matrix and get an email when any flights that come close to a particular route open up. With any charter, two safety measures are prudent: Make sure your operator has strong safety ratings from both Wyvern and Ar- gus International Inc., two private aviation safety agencies. Argus in- cludes background checks on pi- lots as well as rating operating companies; Wyvern runs checks on aircraft as well as crew train- ing and experience. With the New Year’s storm, JetSuite flew customers out of the Caribbean into Texas and Florida, then on to New York once condi- tions improved, Chief Executive Alex Wilcox said. XOJet positioned planes just outside the areas expected to be hard-hit by polar vortex storms over the holidays, parking them in places like Greensboro, N.C. They were easily able to pick up pas- sengers in Florida and get them to New York as soon as weather con- ditions improved. XOJet will provide a standby jet for good customers, Mr. Stew- art said. The customers have air- line tickets, but if flights get can- celed and they have to be in Davos or at a board meeting, a plane and crew are waiting. “If they make their airline connection, great. If not, we swing into action,” he said. BY SCOTT MCCARTNEY P h o t o i l l u s t r a t i o n b y M i c k C o u l a s ; p h o t o s : G e t t y I m a g e s a n d A l a m y ( i n s e t ) THE MIDDLE SEAT Hailing an Air Taxi Chartering a private jet is more complicated than buying an airline ticket. n Check for safety ratings. You want an operator with top-level certification from both Wyvern and Argus International. n Ask a friend. Someone you know with a jet card can speed the process up. n Understand the pricing. Is it fixed or dependent on the trip duration? If one-way, is there a charge for flying the plane empty to its next stop? Airport fees? Catering fee? n Ask about sharing. Some brokers will ask clients with available empty seats if they’d be willing to take on extra people to share costs. n Buddy up. See a group of well-to-do people stuck in the same airport line? Chartering as a group spreads the high cost out. Stormafter storm, travelers have been left in the lurch this winter. Long after the weather clears, the impact on airlines and their passengers persists. THE WALL STREET JOURNAL. Monday, February 3, 2014 | 5 Tale of Torture in Activist Disappearance KIEV, Ukraine—Ukrainian protest leader Dmytro Bulatov said he didn’t see much of the faces of the men who kidnapped and beat him and cut off part of his ear last month, be- cause they kept a bag over his head for most of his week in captivity. But the questions they asked, he said, were clear: How much did the U.S. pay him to lead protests against the Ukrainian government? What in- structions did he receive? The tale of brutalities told by Mr. Bulatov from a hospital bed in Kiev are part of a wider narrative threatening to turn Ukraine’s inter- nal struggles into a geopolitical struggle between Washington and Moscow. Opponents of President Viktor Yanukovych’s move toward closer relations with Moscow allege a broad pattern of violence and in- timidation by thugs and uniformed police. Often their captors want to know who is paying them to pro- test—the obvious suspects being the U.S. and Europe, which the Kremlin and authorities here ac- cuse of bankrolling the unrest. The U.S. embassy in Kiev says it has met with politicians and activ- ists of all ideological kinds to moni- tor the continuing crisis. In that re- gard, the ambassador and other officials did meet Mr. Bulatov at the embassy in January, and posted pic- tures of the meeting on the embassy website, it said. But the embassy denies providing any funding to protest groups such as Mr. Bulatov’s that have sprung up during the crisis. The Ukrainian government says its opponents are concocting stories of brutality to galvanize support at home and draw sympathy from the West. Mr. Bulatov, an activist leader who disappeared for a week and then reappeared with an agonizing tale of his absence, is the latest, they say. On the sidelines of a security conference in Munich, Germany, over the weekend, Ukraine’s foreign minister said the story of Mr. Bula- tov, who has been investigated for faking his kidnapping, was “not ab- solutely true.” “Physically this man is in a good condition, the only thing he has is a scratch on one of his cheeks,” Ukrai- nian Foreign Minister Leonid Ko- zhara told Al Jazeera. “So, let’s wait for the investigation that will reveal specific facts.” In an interview from his Kiev hospital bed with The Wall Street Journal, Mr. Bulatov said he was hit over the head by several men who abducted him on Jan. 22 and then took him to an undisclosed location. He said he was then beaten and wa- terboarded by men who, at one point, nailed his hands to a door, slashed him in the face and cut off part of his right ear. His facial wound required 12 stitches. Throughout the ordeal, he said, his interrogators wanted to know more about the inner workings of his AutoMaidan activist group, which has operated as a sort of rapid-reaction force for the Ukraine protest move- ment, rushing activists to points of confrontation and clogging traffic in city thoroughfares. According to Mr. Bulatov, it operated with the help of volunteers and funds he raised through appeals on the Internet. But after his abduction, he said he was interrogated by captors who were convinced his group was a U.S. project. “They asked why I talked with the American ambassador, they considered me an American spy,” said Mr. Bulatov, who before his kid- napping had met, along with other opposition figures, with the U.S. am- bassador in Kiev. “They asked me where the money was that the American ambassador gave me, who gives me orders. They asked if I was a foreign agent.” Mr. Bulatov’s tale bears similari- ties of ordeals told by other opposi- tion activists in Ukraine who say they were abducted and beaten by men in plain clothes who interrogated them about their financial support. The day that Mr. Bulatov was ab- ducted, the battered body of an- other Ukrainian opposition activist was found in a field after he had been abducted from a hospital by a group of men in plain clothes. A man who was taken with him from the same hospital said the two of them were tortured and interro- gated in adjacent rooms by men who asked about who was financing their opposition activities. They were both dropped in the countryside in separate locations, and one was able to limp to a nearby house to contact his wife. The other, beaten more severely, froze to death. On Sunday, the U.S. embassy said a fellow opposition leader had ar- ranged for Mr. Bulatov to be flown to Riga, Latvia, for medical treatment. The abduction of activists from hos- pitals has made life precarious for Mr. Bulatov in Kiev. Authorities have made threats to arrest him for inciting disorder. A group of activists had kept a round- the-clock vigil at his hospital room in Kiev, not allowing a group of po- lice, also at the hospital, to come near him. Police issued a statement saying they were being prevented from properly investigating Mr. Bu- latov’s disappearance. The U.S. embassy in Kiev, alarmed at Mr. Bulatov’s disappearance, posted pictures and a statement of its concern last week. The following day he was released. Mr. Bulatov’s captors put a bag over his head again and drove him for an hour in a car to the Ukraine countryside near a vil- lage where they untied his hands and left him by the road. Mr. Bulatov said he had difficulty seeing because his eyes were so swollen from being beaten. At sev- eral houses in the village, residents shut their curtains to him. “They were scared of me because I looked so bad,” he said. BY ALAN CULLISON Ukrainian protest leader Dmytro Bulatov, here in a Kiev hospital room Saturday, says kidnappers interrogated him over U.S. involvement in financing protests. A l a n C u l l i s o n / T h e W a l l S t r e e t J o u r n a l EUROPE NEWS EU, U.S. Plan Kiev Aid Package came after U.S. Secretary of State John Kerry met with Ukrainian op- position leaders Saturday, as Rus- sia and the West traded barbs over the continuing crisis in Kiev. The meeting took place on the sidelines of an annual Munich Se- curity Conference, dominated Sat- urday by the Ukraine crisis. It was among the highest-profile sit- downs for the opposition leaders since large-scale antigovernment protests started in November after Ukrainian President Viktor Yanuk- ovych walked away from a sweep- ing EU economic and political deal. Mr. Kerry also met with acting Ukraine Foreign Minister Leonid Kozhara, expressing “grave con- cerns” about human-rights viola- tions by authorities. Buoyed by weeks of protests and Mr. Yanukovych’s decision to sack his government last week, the opposition is pressing for early presidential elections. In an interview with The Wall Street Journal, Baroness Ashton distanced herself from that call, al- though she said it was up to Ukraine’s politicians to choose election timings. “It seems to me that what ev- erybody wants is a period of stabil- ity…moving toward elections that will be done freely and fairly. In that period of stability, the econ- omy needs to be OK, and that means everybody needs to think about…what kind of economic sup- port we can give,” she said on the sidelines of the Munich Security Conference. She said there would be “differ- ent stages” of possible support, the first of which would deal with short-term needs. Continued from first page The EU and U.S. are “developing a plan—a Ukrainian Plan, I have suggested they call it—that looks at what do we need to do in differ- ent parts of the economy right now to make things better.” Baroness Ashton said the amount of what should be a “homegrown” assistance package hasn’t yet been decided. But, she added, “the figures won’t be small because there are deficits in the budgets” and other issues that need to be addressed. She said that it was for Ukraine’s new government to iden- tify in detail exactly what it needed help with but that the eventual package might not only be money. “It may be guarantees. It may be the prospect of investment. It may just simply be stability for the currency and so on,” she said. U.S. diplomats have told the op- position also that the U.S. and EU are preparing a package of eco- nomic support to help rescue Ukraine from its economic woes, but it hinges on a peaceful resolu- tion of the crisis through the cre- ation of a technical government. “The message to the opposi- tion…is that through dialogue, you’re starting to get the pieces put in place for a peaceful political solution that gives you the chance to take Ukraine back to the IMF and Europe,” a senior U.S. official said. “Stick with it, and we will keep pressuring the government.” Baroness Ashton, the EU’s top diplomat, has taken on a growing role in Ukraine crisis since Novem- ber, when Mr. Yanukovych walked away from a sweeping EU trade and political deal that was years in the making. The next month the Ukrainian president sealed a $15 billion-loan deal with the Kremlin. Baroness Ashton made a two- day visit to Kiev for long discus- sions with Mr. Yanukovych in De- cember and was in Ukraine again earlier last week, pushing for dia- logue and urging authorities to re- frain from the use of force. She met key opposition leaders again in Munich this weekend. The foreign-policy chief said constitutional reform will be a crit- ical element of the new govern- ment’s tasks—not least to ensure free-and-fair elections. She said she saw no signs that protesters, whom the government has accused of being violent “ex- tremists,” were about to stop pres- suring the government. “I see no reason to think right now that peo- ple are going to say tomorrow, ‘OK, well, we have done that.’ I think they are going to stay,” she said. “I think the reality of any form of vi- olence and intimidation is that it makes people more determined to peacefully protest.” In the lead-up to a key Decem- ber summit in Lithuania where Ukraine was supposed to sign a sweeping EU trade and political deal, Kiev had pressed the EU to give it billions of euros to help it through its economic difficulties. The rescue hinges on a peaceful resolution of the crisis through the creation of a technical government. 24 | Monday, February 3, 2014 THE WALL STREET JOURNAL. BOOKS Elf-Help Tome The fantasy-themed vistas of on- line games such as World of Warcraft are commonly thought of as provid- ing nothing more than a kind of ther- apeutic escapism: a species of elf- help. But if you ask players about what they actually do in role-playing games, and why they do it, the pic- ture is more complicated. People pre- tend to be wizards on the Internet for a sense of community. Indeed, many welcome the fact that such games are structured like boring jobs—with much grinding, repetitive labor required to progress—because at least these virtual jobs are per- fectly fair: Unlike at the office, effort and achievement guarantee advance- ment. Reports one satisfied cus- tomer: “I hate the level of frustrated progress in the real world so I play the game and level up instead.” These are some of the fascinating findings reported by Nick Yee’s “The Proteus Paradox: How Online Games and Virtual Worlds Change Us—And HowThey Don’t.” Mr. Yee, who works as a research scientist for the video- game company Ubisoft, has con- ducted large-scale surveys of players’ opinions and also analyzed, “big data”-style, their recorded virtual ac- tivity. (Game worlds, he notes wryly, provide the perfect digital panopticon of which government surveillance programs can only dream.) The author has even conducted laboratory simulations with virtual reality, whose surprising results supply the book’s title, in honor of the shape-changing sea-god of Greek myth. If you create a virtual world and give certain people attractive avatars, he discovered, they will act more confidently. They will also like another avatar more if their own face has been imperceptibly blended with the other’s. Similar kinds of “face-morphing and doppel- gänger techniques,” Mr. Yee warns, could in the future be used by adver- tisers to turn a virtual environment into what he calls, with chilling po- etry, a “persuasion chamber.” Some cybertheorists have cele- brated online role-playing games as a realm in which prejudice and dem- ocratic dysfunction can be overcome by happy experimentation with gen- der fluidity or social structures. Mr. Yee shows, however, that racism and sexism are as much a problem in on- line games as elsewhere. Indeed, players find themselves just as emo- tionally burdened and stressed by the demands of managing the inter- personal spats and rivalries of an online guild as they would be by managing a group at work—but without the financial compensation. The happier consequence of the fact that people bring themselves, warts and all, into the virtual world is that love can blossom there and lead to successful offline relation- ships. “Our characters met in North Freeport in Everquest. His dark elf cleric was on top of the roofs,” one young woman remembers fondly. If a game is like a boring job, Mr. Yee observes, then the people who meet in one have worked together through adversity, often over months or years, before getting together in per- son. In this way their relationship is more like an office romance than a dubiously scientific online “match.” Refreshingly, while many writers in the field are determined to be re- lentlessly positive, Mr. Yee is critical of the way games fail to improve on reality. With their tens of millions of players, they are “the grandest social experiments that have ever existed,” but their promises, he concludes, are being “subverted” by, among other things, risk-averse design companies content to replicate what has been commercially successful. Such loving disappointment makes him a truer supporter of the medium than its Panglossian cheerleaders. The book ends on a melancholy note, arguing that since the “boom days of World of Warcraft and Sec- ond Life, there has been a strange, stagnant lull in terms of virtual worlds.” Oddly, not mentioned is the mightily popular Minecraft, which can be experienced as a more or less traditional role-playing adventure game or—a fact that has already at- tracted the participation of educa- tors and even U.N. agencies—used as a space for extraordinary efforts in collaborative architecture. People might be getting bored of being a Tolkienesque dwarf or space cap- tain, but that doesn’t mean there are no new roles for them to play. —Mr. Poole is the author of “Who Touched Base in My Thought Shower?” Learning to Cook as the Romans Do Jeannie Marshall’s memoir about cooking food and raising a son in It- aly seems like the sort of work sure to recount another set piece of al fresco tables and graceful aperitifs, while the bambini eat olives and grapes and someone’s grandmother teaches the author how to make pasta—but it doesn’t, or at least that’s not the whole story. “The Lost Art of Feeding Kids” may have a title designed to squeeze the last drop of juice from the “Fast Food Nation” orange, but Ms. Marshall has pro- duced a surprise of a book. Predictably, we meet Ms. Mar- shall and her son, Nico, at an out- door food market, where, predict- ably, he’s eating sections of blood orange given to him by a vendor while she imagines “kale for lunch, prepared the way Carlo, the farmer who grows many of the vegetables we eat, told me to do it one of the first times I bought some—cooked in water until tender, then sautéed for a few minutes in a pan with some ol- ive oil, sliced garlic, and a little salt, and finished off with a squeeze of lemon.” (Carlo isn’t winning any points for originality.) But the au- thor pulls the rug out from under us when she reveals that, even in Italy, “real food” is no longer most chil- dren’s everyday fare. In a mothers’ group in Italy, Ms. Marshall sees the contrast between the English-speaking mothers and the Italians. “When Rocco’s mother took the lid off the container of his lunch, the room filled with a heady smell of savory vegetable and herb soup.” He was excited to see it and ate it with gusto. The American and English ba- bies, all of whom were being intro- duced to single foods because of our anxiety about food allergies, frowned and fussed while their moms tried to push bits of pear into their mouths. “One mother told me she thought our method was strange, that it was as though we were teaching our babies not to like food.” Italian babies eat a meal called a pappa, which consists of brodo (a vegetable broth) with bits of whatever is for dinner whirred into it. It’s drizzled with olive oil and finished with parmesan cheese. It sounds phenomenal, especially when compared with jars of mauve and puce purée. When Nico starts school, the idyll ends. Ms. Marshall realized that “he and his Italian peers were being waved off the traditional path of healthy food and directed toward a new food culture, one far too similar to the one [she] thought [she’d] left behind in North America.” Ms. Marshall finds a dishearten- ing innocence at work in Europe, which calls to her mind the wanton soda-slurping of her own youth in the 1970s. “I saw a woman at the beach pouring Coca-Cola into her baby’s bottle—the baby wasn’t even walking yet.” The birthday parties they attend in Italy are soft-drink- and-potato-chip affairs. In a delight- ful moment of turnaround irony: “The only time we don’t see these things is at birthday parties for American children. In fact, at one late-spring birthday party, the American parents who were hosting it had laid out a bowl of fresh fava beans in their pods with some Pecorino Romano, fresh fruit, their own homemade bread, cheese, ol- ives, water, and juice.” Anyone sitting down to write a book about food and health must consider how to limit the topic. Will the book deal with obesity and star- vation? How to roast pork? Indus- trial farming? Diabetes? Ms. Mar- shall tries to do it all, moving from personal narrative out into the broader world. Her theme is that by removing children everywhere from access to their traditional food- ways—the pappa of the world—we are making a mistake. We are not teaching them how to eat. When Inuit children in Canada were assimilated into residential schools, she notes, “they were given ‘civilized’ and ‘European’ food to eat, mostly refined food and some meat, very little of it fresh.” Distanced from their traditions, the children forgot them. “Before 1940, the Inuit in Canada’s far northern territories didn’t suffer from diabetes. Now it’s a disease borne by 70 percent of the community.” As the author grapples with this big message, her book sometimes loses momentum. She stops to talk about Alice Waters: If there’s anyone left in the English-speaking world who doesn’t know that Alice Waters wants children to eat whole foods, it’s a cinch they aren’t reading this. But Ms. Marshall has done enough legwork that she discovers fresher pastures. In 2009, Ms. Marshall at- tended the World Summit on Food Security in Rome, where talk con- cerned how the world will feed ev- eryone as the population climbs to- ward nine billion. “One delegate pointed out that the estimates of how much food needed to be produced as- sumed that everyone would be eating processed and fast foods.” They’re eating like Americans, in other words—but cliché Americans, not the actual ones Ms. Marshall knows serv- ing homemade bread and fava beans. Perhaps baking bread doesn’t co- incide with the harried reality of cooking for a family. Although com- mercials will tell you that the conve- nience of ripping open a box of mac and cheese for the young one is be- yond compare, the process takes about the same number of steps as boiling some kale, squeezing a lemon and pan-frying a chop. But will your children eat it? No, not if they’ve never been introduced to it. They would if they’d been raised eating pappa, if the flavors were fa- miliar to them. How to make that happen is a much more difficult question than what to buy at the farmer’s market. —Mr. Watman’s next book is “Harvest: Field Notes From a Far- Flung Pursuit of Real Food.” BY STEVEN POOLE BY MAX WATMAN The Proteus Paradox By Nick Yee Yale, 264 pages, £20 The Lost Art of Feeding Kids By Jeannie Marshall Beacon Press, 228 pages, $25.95 C o r b i s I m a g e s W.O.W. An attendee at 2011’s Blizzcon game convention, dressed as a night elf druid. C o r b i s I m a g e s For good or ill, the personas players craft in games can influence how they think of themselves offline as well. Even Italian kids no longer eat the old way. Only the fussy expats serve healthy food at birthday parties. 4 | Monday, February 3, 2014 THE WALL STREET JOURNAL. market lost interest: Persistent deficits even came to be seen as a badge of honor, proof that the Thatcher government’s supply- side reforms had made the U.K. a magnet for foreign funding. In the boom years before the global financial crisis, the current- account deficit remained wide, exceeding 3% of GDP in 2006. With hindsight, this should have rung alarm bells that the economy had become seriously unbalanced: Foreign money was being sucked into the U.K. to fund unsustainable public- and private- sector consumption rather than productive investment. After the crash, it was widely assumed the U.K. economy would be forced to rebalance: Any recovery would have to be led by exports and business investment. Indeed, the government’s 2010 budget forecast a current-account surplus of 0.9% in 2013, driven by a surge in exports. So what should one make of the latest deterioration in the U.K.’s balance of payments? The obvious conclusion is that the U.K. has failed to rebalance. Other data appear to confirm that this is the case. Although the U.K. grew by 0.7% in the fourth quarter of 2013, making it one of the fastest growing major economies, this growth has so far been largely driven by consumer spending, fueled by soaring house prices and funded by a sharp fall in the savings rate. Although surveys show that business confidence is high, investment spending actually fell 5% in the year to the end of September 2013 and the U.K.’s export performance has been woeful, despite a 20% sterling devaluation early in the crisis. In contrast, other European economies such as Germany, Spain and Portugal have seen strong export growth. Indeed, the economy may be even more unbalanced than feared, judging by the most recent data. Back in August, the Bank of England’s Monetary Policy Committee said it wouldn’t raise interest rates until unemployment fell below 7%, something it said it didn’t expect to happen until at least early 2016. It made this forecast on the assumption that growth would be driven by improving productivity. In fact, the unemployment rate fell to 7.1% in December and the 7% threshold may have been reached in January, more than two years earlier than the MPC thought. That suggests that U.K. productivity growth has actually weakened, which may also help explain why real wage growth has been so dire; official statistics last week showed the U.K. has endured the longest and largest fall in 60 years. Without productivity growth, the recovery risks running out of steam as either debt burdens get too high or the BOE is forced to raise interest rates to head off inflationary pressures as the economy starts to run out of spare capacity. Sure, this pessimistic scenario is neither the BOE’s nor the market’s base case. Most forecasters are still betting that business investment will pick up, leading to improved productivity growth so that wages can start rising and a more balanced recovery take hold. BOE Gov. Mark Carney argued last month that the combination of a bigger-than-expected drop in unemployment and the fall in inflation back to its 2% target suggests that the “nonaccelerating inflation rate of unemployment” must be lower than the BOE assumed last August, suggesting current growth is sustainable and justifying continued low interest rates. Similarly Ben Broadbent, a member of the MPC, noted in a recent speech that business investment always tends to lag consumer spending in U.K. recoveries. Some economists also question whether official data are accurately measuring GDP and the current account. Even so, the U.K.’s large current-account deficit can’t be easily ignored. “Economic research shows that large deficits tend to adjust eventually, through some combination of slower growth and currency depreciation,” notes Mr. Wells. “Adjustments tend to be more disruptive if the deficit was fuelled by consumption rather than investment and if they are accompanied by large fiscal deficits. “Unfortunately the U.K. ticks both those boxes.” That doesn’t mean the U.K. is heading for an immediate correction. For now, the market appears willing to give the U.K. the benefit of the doubt, reflecting its safe-haven status and the reassuring presence of a government committed to tackling at least one of the deficits. But amid the excitement of an unexpectedly strong recovery, the current-account deficit is a warning that the U.K.’s economic model may yet require further adjustment. What do Ukraine, Turkey, South Africa, Colombia and the U.K. have in common? The answer is they had the five largest current-account deficits in the world in 2013, according to HSBC forecasts. The first three of those countries, it will be noted, are in the eye of the current emerging- market storm. This has centered on economies with “double deficits”— current-account and fiscal. Their position is similar to that of precrisis Southern Europe, which was forced to make painful adjustments to what are now perceived to be unsustainable economic models under threat of a loss of foreign funding. South Africa and Turkey were both forced to raise rates last week. Yet there is one country that has escaped market punishment despite running double deficits. In the third quarter, the U.K. recorded a current-account deficit of 5.1% of gross domestic product, close to a peacetime record, notes Simon Wells, chief U.K. economist of HSBC. For 2013 as a whole, Mr. Wells forecasts a U.K. current- account deficit of 3.7% and a budget deficit of 4.7% of GDP. The U.K. is one of only eight countries to see its current- account deficit widen since 2008 and its deficit has widened the most. “Put bluntly,” says Mr. Wells, “the U.K.’s current-account deficit is now considerably wider than it was in the mid-2000s when global imbalances were the top concern of many economists.” Should investors be worried? Of course, the U.K. has lived with wide current-account deficits for decades. From the 1940s to 1970s, when the country was operating a fixed exchange-rate system, the U.K. was forced into frequent devaluations and slamming on the policy brakes to keep the balance of payments in check, notes Mr. Wells. From the 1980s onwards, with the exchange rate floating and capital controls abolished, the EUROPE FILE | By Simon Nixon EUROPE NEWS Hungarian Opposition Protests Russia Nuclear Plan BUDAPEST—Hungary’s left-lean- ing opposition rallied Sunday against the government’s surprise decision to have Russia expand a Hungarian nuclear power plant, the first shots fired in its campaign to keep Prime Minister Viktor Orban from winning another term in April. The nuclear deal signed in Janu- ary by Russia’s President Vladimir Putin and Mr. Orban is set to add two 1,000 megawatt reactors to the country’s existing 2,000 MW state- owned nuclear power plant MVM Paksi Atomeromu, with Russia pro- viding a loan for Hungary to cover the construction costs. French, Korean and Japanese companies had been interested in the project before Hungary awarded the deal to Russia’s Rosatom. Running counter the wider trend in Central Europe where most coun- tries seek greater energy indepen- dence from Russia, Hungary said af- ter signing the deal that it is enjoying an improving business re- lationship with its former commu- nist-era overlord. The deal, which parliamentary committees are set to discuss on Monday, has faced criticism from nongovernmental organizations, op- position groupings and environmen- talists, who said the cabinet had failed to consult them before ac- cepting the Russian offer. “I’m not against the Rus- sians…and I have no hard feelings against nuclear power,” Ferenc Gyurcsany, a former Socialist prime minister, said Sunday But he said he wants a conversa- tion about an agreement that he said would affect Hungary for the next half a century. When in power, Mr. Gyurcsany favored cooperation with Russia and signed up for the country to be part of the South Stream gas pipeline project through the Black Sea that bypasses Russia’s traditional transit countries, mostly Ukraine. Prime Minister Orban, despite repeatedly criticizing his socialist predecessors, has said the EU should consider mending fences with Russia. “We must rebuild our relation- ship with Russia on a pragmatic ba- sis to gain access to commodities and energy resources and to incor- porate them fully into the European economy,” Mr. Orban said on Friday. Slightly more than half of Hun- gary’s population considers it neces- sary to expand the nuclear plant, ac- cording to a poll by Nezopont Intezet published Saturday. Speakers at the opposition’s pro- test on Sunday said they weren’t against the expansion, but opposed the way the government prepared and signed the deal. Polls still favor Mr. Orban’s rul- ing Fidesz party, which last month was shown being supported by 29% of voters, against 21%, garnered by the left-leaning opposition parties. BY VERONIKA GULYAS A protester with a modified nuclear sign makes her views known on Saturday. G e t t y I m a g e s How many U.S. dollars one pound buys Current-account balance forecasts as a percentage of GDP U.K. current-account balance as a percentage of GDP The Wall Street Journal $2.2 1.2 1.4 1.6 1.8 2.0 ’13 ’12 ’11 ’10 ’09 ’08 ’07 Paying for the Deficit While the U.K. has run current-account deficits for decades… ...it likely had one of the largest in the world in 2013, a potentially troubling trend for sterling, as large deficits over time can in theory depress a currency. Sources: U.K. Office for National Statistics (U.K. current-account balance); International Monetary Fund (forecasts for current-account balance); WSJ Market Data Group (pound in dollars) 4 –6 –4 –2 0 2 % 1950 ’60 ’70 ’80 ’90 2000 ’10 0 –10 –8 –6 –4 –2 % ’13 ’14 ’15 Colombia South Africa Turkey Ukraine U.K. U.S. Recovery? U.K. Still Lacks Balance THE WALL STREET JOURNAL. Monday, February 3, 2014 | 25 BOOKS Bobbing Boffins At sea, four people are squashed into a 6-foot-square cabin with a 5- foot ceiling. They are surrounded by plants, shells, dead birds, animals, fish and insects waiting to be cata- loged, sketched or painted, and hopefully preserved. The smell is sometimes overpowering. A botanist and an artist share the cabin with two naval officers. None can move about or stand up straight. On deck, there are more plants in pots, and sometimes animals in cages, all get- ting in the way of the crew who are sailing the ship, usually in uncharted waters, thousands of miles from home on the other side of the globe. The voyage lasts several years, and for most of it the two groups— seamen versus naturalists—are ir- reconcilable; plants disappear over- board, animals die mysteriously, glass containers are “accidentally” smashed, and even mutiny is in the air. Character faults on either side are magnified, egos are bruised, and it’s sheer luck if the ship and its pas- sengers get home safely. This is the composite picture that emerges from historian Glyn Williams’s latest dive into the Pacific Ocean. With “Naturalists at Sea,” this chronicler of European voyages of exploration has turned his tele- scope to the scientific travelers, or “experimental gentlemen,” as they were known in Georgian England, who accompanied the great 18th- and 19th-century voyages that mapped the Pacific. The men of sci- ence came from across Europe: Eng- land, Wales, Scotland, Sweden, Den- mark, Prussia, the German statelets, France, Italy, Spain and Russia. The story begins in 1651 with the birth of Englishman William Damp- ier. He was an adventurer, a bucca- neer, maritime gypsy, explorer and successful author. He served, mostly on pirate ships, around the world, from the Caribbean to the waters around Timor and Australia’s barren west coast. Dampier was an acute observer. His “New Voyage Round the World” (1697) was an account of the peoples Dampier met, the landscapes he saw, the vegetation, animals, fish and birds at each landfall. For modern readers his most striking observa- tion may be his discovery of mari- juana in 1688 on the Indonesian is- land of Sumatra. His declaration that he could describe the effect of the narcotic but had never tried it set a precedent for those who have smoked but never inhaled. “It is re- ported of this plant,” he wrote, “that if it is infused in any liquor it will stupefy the brains of any person that drinks thereof; but it operates diversely, according to the constitu- tion of the person. Some it keeps sleepy, some merry, putting them into a laughing fit, and others it makes mad.” “New Voyage” was an important eye into the unknown for explorers and surveyors like James Cook and Matthew Flinders, and botanists such as Joseph Banks, Daniel Solan- der and Johann Forster, who fol- lowed him in the 18th century and, in Flinders’s case, the early 19th cen- tury, when he circumnavigated Aus- tralia. In 1770, Dampier’s description of Australia’s aborigines helped Cook and Banks establish that they had reached the unexplored east coast of Australia after having found and mapped New Zealand. A second volume of “New Voy- age” that listed tides, currents, winds, storms and seasons was a pi- oneering work that Mr. Williams de- scribes as “a classic of the pre-scien- tific era.” Well into the 20th century, he says, it was being used by Brit- ain’s Royal Navy in its standard Ad- miralty Sailing Directions. The first voyage involving pro- fessional scientists was made by the Russians, sponsored by their mod- ernizing czar Peter the Great, who was impressed with the activities of Britain’s and France’s scientific soci- eties. Shortly before Peter died in 1725 he appointed the Danish-born Vitus Bering to lead an expedition to determine the extent of the Asian continent. Sailing north from the Kamchatka Peninsula in Russia’s Far East, Bering reached the strait divid- ing Asia and America that now bears his name. But he did not sight the Alaskan coast. A second voyage in 1740 set sail to observe whatever lands and peoples they came across and to investigate the prospects for trade. It reached America but ended in disaster, shipwreck and the death of Bering. The British, French and Spanish expeditions that came afterward fol- lowed the same pattern. They were voyages of scientific observation and documentation as well as geo- graphic discovery. And until the round-the-world voyage of Darwin’s Beagle in the 1830s, the dominant theme of each journey seems to have been the conflict of interest be- tween the scientists on board and the ship’s captain and crew. This was clearly the case in the French voyages at the time of the Revolu- tion and into the Napoleonic era. Of- ficers were generally from the aris- tocracy. The scientists and naturalists were largely republicans, and the crews came from Brest, a radical Jacobin stronghold. It was a mixture primed for chaos and dis- trust, and accounts of these battles are a humorous entertainment in an otherwise scholarly book. When Charles Darwin joined the Beagle and its supportive captain, Robert Fitzroy, in 1831, the “descrip- tive sciences”—based on collecting, drawing and measuring species dur- ing short bursts ashore—were being challenged by a new generation of naturalists led by Alexander von Humboldt, the Prussian geographer. He complained that the 18th-century expeditions never went beyond the coast and had done little to “reveal the history of the earth.” Unlike his predecessors who ar- gued and failed to win more time ashore, Darwin, an admirer of Hum- boldt, made long journeys into the South American interior. He was on land for three-fifths of his five-year voyage around the world. For Darwin, the Beagle voyage was the most important in his life. For readers of this book it is the fi- nal chapter in an extraordinary and entertaining catalog of maritime and scientific endeavor. —Mr. Fathers is co-author, with Andrew Higgins, of “Tiananmen: The Rape of Peking.” Mind Your Manners How to Be a Brit By George Mikes (1984) George Mikes, a Hungarian jour- nalist, was sent to London in 1938 to report for the Budapest newspaper Reggel. Expecting to stay for a few weeks, he never left. Though he be- came a British citizen, Mikes took great pleasure in reporting the pecu- liarities of his adopted home, and “How to Be a Brit” brings together three of his books on this subject. Mikes is a master of the laconic yet slippery put-down: “The trouble with tea is that originally it was quite a good drink”; “An Englishman, even if he is alone, forms an orderly queue of one.” Occasionally he is more acer- bic: “The English have no soul; they have the understatement instead.” His most cherished pronouncement is probably: “Continental people have sex life; the English have hot-water bottles.” Reflecting on this observa- tion in the 1970s, he noted that the English had lately made some prog- ress and now possessed electric blan- kets. I prefer his parodic take on the sadly bygone British aversion to the breathless superlatives of advertis- ing: “Try your luck on Bumpex fruit juice. Most people detest it. You may be an exception.” The Pursuit of Love By Nancy Mitford (1945) Is it acceptable for a picture of your home to adorn your writing pa- per? This is just the sort of question that Emily Post-ish arbiters of eti- quette like to contemplate. Nancy Mitford provides no explicit answer in this mercilessly funny novel, but Uncle Matthew, an eccentric peer based on her own father, has to be shielded from discovering that the playful, cultivated Lord Merlin prac- tices this vice. In the world of Mit- ford’s novels (of which “The Pursuit of Love” is the best), no individual’s foibles escape ridicule, frivolity trumps seriousness, sinners get the better of saints, and the solution to life’s imbroglios is always something puerile. Her own manner is that of a gifted child, likely at any moment to puncture cozy domesticity with some spiky insight. Her prose often has a creamy fluency, but lurking within the froth there is a sharp fin of cruelty. Cecilia By Fanny Burney (1782) Fanny Burney is celebrated mainly for her first novel, “Evelina”— and even that deserves to be better known. She followed it in 1782 with the far more ambitious “Cecilia,” an attempt to depict the entire social fabric of contemporary Britain. Bur- ney skillfully evokes a greedy world full of risk-takers and poseurs, rang- ing from the frugal Mr. Briggs, whose snuff-colored suit makes it hard to see how dirty he is, to the cynical Mr. Monckton, dismayed by the longevity of his rich wife. At the heart of the story is Cecilia Beverley, an heiress who can keep her fortune only if her husband agrees to take her surname. Such details of nomenclature are par- amount in a society obsessed with the tangled relationship between class, rank, money and identity. To- ward the end of the novel a character who is in effect Cecilia’s therapist ob- serves: “If to pride and prejudice you owe your miseries, so wonderfully is good and evil balanced, that to pride and prejudice you will also owe their termination.” No prizes for guessing which later author found inspiration in Burney’s long yet utterly absorb- ing novel. Cold Cream By Ferdinand Mount (2008) The first time I devoured “Cold Cream” I could scarcely stop smiling, and the same proved true on a sec- ond reading. This apparently relaxed yet finely crafted memoir narrates the bumbling, genial progress of a minor English aristocrat—from vaguely bohemian beginnings, through Eton and Oxford, to a career in newspapers and a role as speech- writer for Margaret Thatcher. Mount mingles with the sort of people who can say that “anyone who takes a bus after the age of thirty is a failure” (a remark often erroneously attributed to Mrs. Thatcher) or that “everyone lives in Oakley Street once in their lives” (a reference to a tiny pocket of London’s Chelsea where houses to- day cost £5 million). Yet he is an out- siderish sort of insider, expert in the nuances of polite society and at the same time amused by them. There are passages in “Cold Cream” that call to mind P.G. Wodehouse or Eve- lyn Waugh, but Mount has his own engaging and worldly-wise style. Don’t By Oliver Bell Bunce (1883) This curious volume, subtitled “A Manual of Mistakes and Impropri- eties More or Less Prevalent in Con- duct and Speech,” is the one book on my list that is directly concerned with manners. I came across it while researching a history of arguments about English usage (“The Language Wars”) and delighted in Bunce’s mix- ture of tetchy pedantry and self- awareness. Of the man himself I know little: He was an American, a pub- lisher and a journalist who also dab- bled in writing plays—one of them performed specifically for the benefit of the Shirt Sewers’ Union. Only “Don’t,” which appeared in 1883, made much of an impression on the world. Bunce’s character is discernible on every page. Some of the guidance is sensible, if perhaps unnecessary—in a crowd, one shouldn’t carry a cane horizontally. Some is vague: “Don’t be over-civil.” Some is hard to comply with: “Don’t eat onions or garlic, unless you are dining alone and intend to remain alone some hours thereafter.” And some is just plain weird: “Don’t play the concertina to excess.” Bunce’s mission to stamp out mistakes and improprieties is, of course, a failure. Telling people what not to do is a surefire way of getting them to do it. But “Don’t” is one of those rare books that charm the reader by accident. —Mr. Hitchings is an author, most recently of “Sorry! The English and Their Manners” (Farrar, Straus and Giroux, 2013). BY MICHAEL FATHERS BY HENRY HITCHINGS Naturalists at Sea By Glyn Williams Yale, 336 pages, £25 MR. HITCHINGS’S latest book is ‘Sorry! The English and Their Manners.’ G e t t y I m a g e s ‘Experimental gentlemen’ joined some of the great 18th- and 19th-century voyages of exploration to collect exotic flora and fauna. [ Five Best ] THE WALL STREET JOURNAL. Monday, February 3, 2014 | 3 NEWS Thai Protests Disrupt National Election BANGKOK—Thailand’s national elections were marred by violence over the weekend as gunshots and explosions rang out and protesters blocked voting stations in the capi- tal, leading to an inconclusive poll that has done little to resolve a deep political stalemate. Voting was disrupted in 11% of electoral districts, making it impos- sible to tally final results, said Supa- chai Somcharoen, chairman of the country’s Election Commission. The question for Thailand now is whether Prime Minister Yingluck Shinawatra’s government will be able to hold by-elections in areas where people were unable to vote, or whether her opponents have bought themselves enough to time to force her from office through po- tential legal challenges. Clashes between political rivals marred the voting in parts of Bang- kok and in southern Thailand, where opposition to Ms. Yingluck runs deep and antigovernment protesters vowed to prevent the ballot from going ahead. The standoff turned violent on the eve of the vote when a gunbattle between rival factions erupted on the streets of the capital, injuring seven people. More police and army troops were deployed to help the election go smoothly. Scores of security per- sonnel were stationed in Ms. Ying- luck’s neighborhood in northern Bangkok, where she cast her vote. “I want to urge people to come out to vote to protect democracy,” she told reporters. Later, she said that she was relieved there was no further violence. Tensions ran high in some parts of Bangkok, though there was no re- peat of the previous day’s gunbattle that set the city on edge. Demonstrators blockaded a num- ber of polling centers and prevented the distribution of ballot sheets, in- cluding in the Din Daeng neighbor- hood, where clashes between pro- testers and police in December resulted in two deaths. In the morning, a group of resi- dents marched toward the protest- ers demanding their right to vote, but were repelled by activists, some of whom threw water bottles and other objects. “I want to vote. I want to exer- cise the rights that belong to all Thai people,” said 63-year-old Narong Meephon. “A half-baked de- mocracy is still better than nothing at all.” Sunday’s elections were among the most contentious this pivotal Southeast Asian country has seen. For weeks, demonstrators led by former deputy Prime Minister Suthep Thaugsuban had campaigned to stop the vote. They want Ms. Yingluck, 46, to step down and allow an unelected interim government to take over and push through reforms to check the influence of populist leaders, es- pecially the man many people be- lieve controls power in Thailand, Ms. Yingluck’s elder brother Thaksin Shinawatra, who was ousted in a military coup in 2006. The opposition Democrat Party boycotted the vote and joined the protesters in an effort to reduce voter turnout and undermine the le- gitimacy of the poll, which has also illustrated deep geographical divi- sions in the country. In central Bangkok thousands of people turned out to celebrate what they viewed as the failure of the elections and another success in their campaign to force Ms. Ying- luck from power. Many danced, clapped and blew whistles as pop groups blasted out hits such as the theme from the “Hawaii Five-O” television show. But while the election was dis- rupted, it isn’t over yet. Pongthep Thepkanchana, a minister in Ms. Yingluck’s office, said he had asked the country’s independent Election Commission to set a new date for polls in areas where residents were unable to vote Sunday. Somchai Pagapasvivat, an inde- pendent commentator and scholar, said the government would push hard to complete voting until a new parliament can be formed; Thai laws require 95% of seats to be filled while at the moment the election can fill 94% at most. “Elections are the only means to give Ms. Yingluck legitimacy,” Mr. Somchai said, adding that also means that antigovernment protest- ers would likely try to continue blocking tactics. “The deteriorating economy and the public will put pressure on the government to con- sider some kind of reform or com- promise.” Meanwhile, legal challenges to Ms. Yingluck’s political survival are piling up. Thailand’s anticorruption agency is fast-tracking an impeach- ment case against her for allegedly ignoring massive losses to the state relating to a multibillion-dollar rice subsidy. More than 300 members of her Pheu Thai Party also face im- peachment trials for allegedly vio- lating parliamentary rules when pushing for an abortive amnesty bill that would have enabled Mr. Thak- sin to return to Thailand after flee- ing the country in 2008 to escape a corruption conviction he says was politically motivated. —Wilawan Watcharasakwet, Warangkana Chomchuen and Nopparat Chaichalearmmongkol contributed to this article. BY JAMES HOOKWAY Thai Prime Minister Yingluck Shinawatra prepares to cast her ballot at a polling station in Bangkok on Sunday, A s s o c i a t e d P r e s s Dating in Korea Sometimes Transcends the Divide SEOUL—North Korean women often risk their lives to defect to the South, crossing the heavily guarded Chinese border on foot before be- ginning a lengthy resettlement pro- cess. Then comes the loneliness. When Na Soo-yeon arrived in Seoul in 2008 after fleeing North Korea, she found herself alone in an unfamiliar society where she knew no one. To ease her solitude, she sought a husband from South Korea who could provide companionship and help her adjust to life in the South. “I just wanted a good guy who was financially stable and could guide me through life in South Ko- rea. Everything is so different here,” said Ms. Na, 48 years old. Like many North Korean women who have defected to South Korea, she turned to a marriage agency. Pairing couples for marriage is a sizable business in South Korea, and several companies focus exclusively on matching North Korean women with South Korean men. Demand for these services is born of some unique demographics: a majority of the more than 26,000 North Korean refugees who have settled in South Korea are women, while large numbers of South Ko- rean men who live in rural areas and work blue-collar jobs fail to find South Korean wives. The flow of North Korean refu- gees has fallen sharply in the past two years following a border crack- down by dictator Kim Jong Un, data from South Korea’s Unification Min- istry show. New arrivals of North Koreans into South Korea totaled 1,516 last year, less than half as many as in 2011. Women from North Korea still account for around three of every four defectors arriving in the South. The skew reflects the fact that it is easier for women to go unnoticed for days in North Korea, where most men must report regularly at their workplace. The company that paired Ms. Na with her husband is run by Hong Se- ung-woo, who says one of his com- pany’s goals is to help North Korean women settle happily in the South. “For the North Koreans who come here, their main goal is to make South Korea their home. To do that, they need to build a network that can support them,” says Mr. Hong, who himself married a woman from North Korea. Mr. Hong has operated his company, Namnam Buknyeo, since 2006 and says the firm has orchestrated 450 marriages in that time. Women can register for Namnam Buknyeo’s services free, while men have to pay a fee of 3 million won (about $2,800) for introductory meetings with a maximum of five women over the course of one year. The company screens all of its male clients, and men who are unem- ployed, already married or disabled aren’t eligible. Some South Korean men seek North Korean wives instead of those from elsewhere in Asia because of shared language and customs. Ko- rean conventional wisdom also has it that the most handsome Korean men hail from the South and the prettiest women from the North. The name “Namnam Buknyeo” is an abbreviation of the Korean expres- sion for “Southern man, northern woman.” Mr. Hong met his wife, Ju Jeong- ok, when she signed up for his com- pany’s services shortly after settling in South Korea in 2012. He says that on their first date, he knew right away that he wanted to marry her. “I was considering several women at the time, but she was really pretty, and seemed so kind and genuine that I was sure I would ask her to marry me,” said Mr. Hong. Lim Soon-hee, a researcher at the Korea Institute for National Uni- fication, says that a lack of familiar- ity between South Korean men and North Korean women can lead to misunderstandings that cause prob- lems during marriage. “North Korean women see South Korean men on TV dramas and imagine that their husbands will be romantic and take care of them, while South Korean men think that North Korean women are obedient. Once these fantasies are broken, both parties can end up disap- pointed and hurt,” says Ms. Lim. Na Hyang-sook, 36, who arrived in South Korea in 2008 and found her husband through an agency in March, said seeking a partner through a company was helpful as it clarified both parties’ intentions at the outset. “I think going through the agency was better than just meeting someone randomly, because it meant we could begin with similar expectations,” said Na Hyang-sook. Critics say the companies exploit the North Korean women in the name of profit. Lee Young-seok, di- rector of external affairs for Citi- zens’ Alliance for North Korean Hu- man Rights, says marriage agencies emphasize the government-allotted benefits that North Koreans are privy to when pitching their compa- nies’ services to South Korean men. Mr. Hong of Namnam Buknyeo denies ever presenting the benefits received by North Korean women as incentives for his South Korean cli- ents. “Those companies market North Korean women like they were commercial goods. It is dehumaniz- ing. They tell men that the North Korean women are a good option because they already have a house and because their families are in North Korea so they won’t be bur- dened by having to take care of them,” said Mr. Lee. When North Korean refugees ar- rive in South Korea, after a lengthy interrogation and resettlement pro- cess, they are provided by the South Korean government with several thousand dollars to start their lives, along with money for housing and vocational training. BY STEVEN BOROWIEC Hong Seung-woo met his wife, Ju Jeong-ok, through his own agency. M a t t D o u m a f o r T h e W a l l S t r e e t J o u r n a l 26 | Monday, February 3, 2014 THE WALL STREET JOURNAL. HEARD ON THE FIELD SPORT Soccer’s Window of Discontent Liverpool and Juventus Fall Victim to Europe’s Winter Transfer Maelstrom On Friday evening, Ian Ayre found himself in his own personal episode of “24”—minus the terror- ists and torture but with the same drama, uncertainty and ticking clock. Ayre, the managing director of Liverpool, was at the Grand Hotel Ukraine in Dnipropetrovsk trying to sign Yevgen Konoplyanka, the local soccer club’s star attacking mid- fielder. He had agreed to personal terms with the player and his father, who also acts as his agent. Now it was a question of sealing the transfer con- tract with his club, FC Dnipro and, crucially, getting it done before the January transfer window—one of two periods of the year when Eu- rope’s clubs are free to buy and sell players—slammed shut at 1 a.m. lo- cal time (11 p.m. back in England). If no deal was completed by that witching hour, Konoplyanka would remain at Dnipro and Ayre would make the long trip back to Liverpool empty-handed. To help expedite matters, Ayre had flown Liverpool’s club doctor, Zafer Iqbal, to Dnipropetrovsk so that he could conduct a medical ex- amination of the player ahead of the deadline. What happened next depends on who you choose to believe. According to reports in Liver- pool, FC Dnipro’s billionaire owner Ihor Kolomoyskyi simply refused to sign the paperwork. An equally plausible explanation, offered in Ukraine, is that Konoplyanka’s price ballooned at the last minute, some- thing that would not surprise an Economics 101 class. Having already invested time, ef- fort and money to sign the player and with only hours to go, it wouldn’t be a surprise if he sud- denly became more expensive than Liverpool thought. Either way, the transfer wasn’t concluded. Ayre and Iqbal flew home without their man. Konoplyanka’s move—at a re- ported $25 million—would not have been the biggest of the transfer win- dow, but it epitomizes the risks and pitfalls of what can be a frenzied period at the end of the winter mar- ket. In Liverpool’s case, there was in- creased pressure to act as the club had missed out on another target, Egyptian winger Mohammed Salah, when rival Chelsea put in a higher offer. Throw in the ticking clock, a Liverpool delegation holed away in subfreezing Dnipropetrovsk and the usual don’t-blink-first tension of a negotiation and you begin to see how different January deals can be from those in the summer. What also makes January tricky is the glare of the cameras and pub- lic attention. This was best exempli- fied by the aborted swap deal that would have seen Inter Milan’s Co- lombian midfielder Fredy Guarín join Juventus in exchange for Mon- tenegrin forward Guarín plus a re- ported fee of about $2 million. In this case, both players had agreed to terms with their new clubs and Vučinić had even under- gone a medical with Inter. Then, on Jan. 21, Inter owner Erick Thohir, is- sued a statement on the club’s web- site explaining that he’d decided “not to continue negotiations” be- cause he felt that an agreement would not be possible it did not “of- fer a clear financial or technical benefit to the club.” Juventus managing director Beppe Marotta responded with withering criticism. He said he had never seen anything like it, accused Inter of “a lack of seriousness” and said Inter’s club statement con- tained “false information.” Again, we may never know, but odds are the Vučinić-Guarín talks were not helped by the fact that they were held in the center of Mi- lan, with TV cameras and a battal- ion of journalists following club offi- cials around from hotels to restaurants to Inter’s headquarters, all with round-the-clock coverage on Italy’s three rival sports networks. Inevitably, this attracted fans— lots of them. Several hundred Inter supporters, some carrying flags and banners, picketed outside wherever Inter and Juventus officials were meeting, expressing their anger at the deal. Meanwhile, representatives of Inter’s hard-core Ultras supporters issued a statement describing the potential deal as “the last straw” in a veiled threat to Thohir, who had only acquired the club a few months earlier. You can’t help but wonder whether this mass mobilization of media and supporters would have occurred if this deal had been planned in the summer, when both Milan and Turin are virtual ghost towns and the media often turns its gaze in other directions. Ideally, in terms of “best prac- tices,” a club would do its negotiat- ing before the window opens and simply formalize the transfers once the rules allow it. That way, every- body benefits. The buying club is under less pressure to conclude the deal and gets almost an extra full month with the new signing on board. The selling club has more time to find a suitable replacement. But there are practical reasons why this does not always happen, not least the simple logistics of a bunch of worldly men—and they are almost always men—trying to get the best possible price for them- selves, whether they’re buying, sell- ing or representing the players. So the alternative is to enter the rough waters of the final days of the winter transfer market. Where some buying clubs are so desperate for quick fixes, they will overpay, espe- cially since less talent is available. And where others find themselves in a goldfish bowl of public scru- tiny—they make rash decisions. It takes nerves of steel to con- clude transfers in that kind of envi- ronment. And, as may well be the case with Konoplyanka and the Guarín-Vučinić trade, sometimes the right thing to do is simply to pull the plug and walk away. BY GABRIELE MARCOTTI Liverpool came away empty-handed after almost landing Dnipropetrovsk’s Yevgen Konoplyanka, left, seen here playing for Ukraine against France on Nov. 15. A g e n c e F r a n c e - P r e s s e / G e t t y I m a g e s It takes nerves of steel to conclude transfers in that kind of environment. Vettel’s F1 Domination A Switch-Off for Fans Formula One’s global television audience fell by 50 million to 450 million viewers in 2013 due to a non-competitive end to the drivers’ championship and a switch from the national broadcasters in China and France, according to its annual global media report. Last year, Red Bull’s Sebastian Vettel won his fourth consecutive F1 title and wrapped up the cham- pionship three races before the end of the season. And even in his home country of Germany, the au- dience fell 8.7%. (The number of people there who watched at least 15 non-consecutive minutes of the sport dropped to 31.3 million.) Brazil, which is F1’s biggest sin- gle viewing market, also suffered as the audience dropped from 85.6 million to 77.2 million. In the report, F1 Chief Executive Bernie Ecclestone puts the drops down to “the less-than-competitive nature of the final few rounds” but it wasn’t the only hurdle. The report also shows that China lost 29.8 million viewers— more than any other country—due to a change from state broadcaster CCTV to a network of 13 regional partners. The report said this was done “to ensure that Formula 1 coverage of every race and qualify- ing session is shown live” and the change is expected to reverse the downward viewing trend in future. This is less likely to happen in France where coverage switched last year from national broadcaster TF1 to subscription service Canal+. It led to viewing figures falling by 16 million to 10.2 million and it is part of F1’s strategy to increasingly move away from free-to-air television. Pay-TV stations are often pre- pared to pay more for sports rights than their free-to-air rivals as they drive subscriber numbers. In 2012 F1 began a new deal which splits U.K. coverage between subscription service Sky Sports and the free-to- air BBC. Although the audience fell in the first year, it got a 1.7% boost in 2013 with 29.1 million viewers. A similar trend was seen in Italy where viewing figures rose by 2.9% following its switch to a mix of subscription and free-to-air broad- casting in 2013. Gains were also made in the U.S. following the return of its home Grand Prix in 2012 after a five-year hiatus. Coverage in the U.S. switched from Fox and the Speed Channel to NBC Sports in 2013 fueling a rise of 1.7 million viewers to 11.4 million. —Christian Sylt HEARD ON THE PITCH Getty Images Sebastian Vettel tests his new Red Bull car in Jerez on Jan. 28. 2 | Monday, February 3, 2014 AM IM UK SW FR IT SP TK BR PL IS AE GR THE WALL STREET JOURNAL. PAGE TWO Friday’s jobs report could very well show the U.S. unemployment rate fell again in January—this time perhaps in part because federal jobless benefits have ended. A drop related to the expiration of the program would likely reflect two shifts. Some number of jobless may have stopped looking for work and therefore aren’t counted as unemployed. Others may have taken jobs they would have turned down if benefits had continued. Several recent research papers suggest the first shift—people dropping out of the labor force— could be the more significant of the two. Both factors could provide fodder for policy makers debating whether to extend the program. Of course, the unemployment rate could also fall because more people find jobs, independent of the effect of federal jobless benefits ending. Nearly 1.4 million people lost payments when the federal benefits expired on Dec. 28. Launched in the middle of the recession, the program paid on average $300 a week—for up to 47 weeks—to jobless Americans who had exhausted the roughly 26 weeks of aid most states provide. The Labor Department estimates there are an additional 3.6 million people who would have qualified for the program this year once exhausting their state benefits. Senate Democrats plan to bring up a bill as early as this week to extend the program for three months; its prospects for becoming law are uncertain. Even if the bill passes the Senate, many House Republicans are deeply skeptical of the program. Many economists say the end of the federal benefits program will drive down the unemployment rate in coming months. The rate was 6.7% in December, and the figure for January will be released Friday. The average prediction of economists surveyed by The Wall Street Journal last month was that the unemployment rate would fall to 6.4% by June if the benefits program wasn’t extended, compared with 6.6% if it was. Some job seekers will give up the search when they run out of benefits, research suggests. To get state jobless benefits—and federal benefits when they were in effect—recipients have to keep applying for jobs. Some who believe they face long odds finding a job may figure it is still worth the effort if they are receiving benefits, said University of California at Berkeley economist Jesse Rothstein, who has studied the issue. “But if there’s no benefits attached to it, then they just drop out,” he said. Others will find a job, perhaps because they are more willing to take one that pays less than they wanted. Kristen Kippel-Gonzalez of San Diego said she started off looking for positions that matched her skills and former $55,000 salary when she lost her job in May. The longer she went without work, the more she lowered her sights, and when she lost her jobless benefits at the end of December, “my whole mind-set shifted to ‘I guess I need to do anything to put food on my table,’ ” said the single mother of two. To be sure, others who have lost benefits will continue to look for work until they find something that matches their skill set or wage requirements, and they will continue to be counted in the unemployment rate. It isn’t good for the economy if throngs of engineers take jobs as janitors just because they need a paycheck, said Dean Baker, co- director of the Center for Economic and Policy Research, a left-leaning Washington think tank. “Part of the story of unemployment insurance benefits is that we want to give people a chance to find a job that actually uses their skills,” he said. On the other hand, Mr. Baker said, it’s likely some of the long- term unemployed can’t find work because there is no demand for their skills. When such people take a less desirable job, it may be unfortunate for them but it isn’t a negative for the economy, he said. The federal program’s expiration may take time to show up in jobs data, especially if job seekers hope are betting that Congress will restore the benefits, said BNP Paribas economist Bricklin Dwyer. He said it took three to four months to see movement in North Carolina after extended benefits were cut off in the state in July because its unemployment insurance program failed to meet federal guidelines. The Tar Heel state’s unemployment rate plummeted from 8.9% in July to 6.9% in December, the steepest drop of any state in that period and faster than the national rate. Some people found work: Employment in the state increased 1.28% since July, compared with just 0.21% nationally. But plenty of others stopped looking, sending the state’s labor force participation rate—the share of adults holding or seeking jobs—down 0.8 percentage point to 61.2% in December, from 62% in July. The national participation rate fell 0.6 percentage point in that period to 62.8%. Economists caution it is tough to extrapolate from one state’s experience to the entire U.S. labor market, but many see it as a test case of what might happen more broadly. Whether the impact of the national program’s end shows up in Friday’s figures or later, it could muddy the already opaque waters of the U.S. labor market. The Dark Cloud Behind A Falling Jobless Rate [ The Outlook ] BY VICTORIA MCGRANE Source: U.S. Labor Department The Wall Street Journal Muddled Picture The jobless rate has been trending down in the U.S., but this is partly because of the falling labor force participation rate. In North Carolina, federal jobless benefits ended in July 2013. Unemployment rate Labor force participation rate 68 60 62 64 66 % ’07 ’08 ’09 ’10 ’11 ’12 ’13 U.S. 12 0 3 6 9 % ’07 ’08 ’09 ’10 ’11 ’12 ’13 North Carolina North Carolina U.S. 62.8% 61.2% 6.7% 6.9% July i i i Business & Finance n Microsoft’s Satya Nadella is on the brink of being chosen to pilot the tech giant as it seeks to regain ground after years of waning influence. 15 n Samsung Electronics’ effort to roll out its own smartphone operating system is faltering as some major wireless carriers withdraw their support. 15 n Buoyed by strong credit ratings and rising deposits, Asian banks have become big- ger global players. 15 n Three of Spain’s largest banks have stronger balance sheets in an improving domes- tic economy but are still pay- ing dearly for the country’s real estate bust. 19 n Etihad is conducting the fi- nal phase of due diligence re- lated to the potential pur- chase of a stake in Alitalia, with the Abu Dhabi airline setting a deadline of 30 days to complete a deal. 16 n Buyout specialist KKR is set to open its first office in Spain, as it specialist seeks to build on its billion-euro stake in the country. 16 i i i World-Wide n The six powers negotiating a nuclear deal with Iran will take the time needed even if that means going beyond the six-month objective, the EU’s foreign-policy chief said. 9 n Hungary’s left-leaning op- position rallied against the government’s surprise decision to have Russia expand a Hun- garian nuclear power plant. 4 nA panel looking at changes to Myanmar’s constitution says most people who weighed in don’t want to alter the clause that prevents Aung San Suu Kyi from assuming the presidency. 8 n Afghanistan’s presidential campaign kicked off, as the leading contenders wooed crowds and insurgents assassi- nated two campaigners. 9 n Australia approved plans to dump vast amounts of mud and rock into oceans surround- ing the Great Barrier Reef, pav- ing the way for developers to expand a coal port. 8 n At least 15 people died after being caught in a flow of su- perheated ash and gases on In- donesia’s Mount Sinabung. 8 What’s News— SUBSCRIBE TODAY Advertising Sales worldwide through Dow Jones International. 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[email protected] WEB service.wsje.com CALL +44 (0) 20 3426 1313 VISIT wsjeuropesubs.com/wsje Some job seekers will give up when benefits run out, research suggests. RESORT • SPA • DRIVEN EXPERIENCES RESORT • SPA • DRIVEN EXPERIENCES 855-520-3378 gatewaycanyons.com “A magnifcent location for uniquely-inspiring luxury retreats.” Forbes Travel Guide THE WALL STREET JOURNAL. Monday, February 3, 2014 | 27 OFF THE WALL How to Stitch Together a Quilting Empire Short Cuts, YouTube Make Jenny Doan a Star; Speedy Methods Put a Bee in Some Purists’ Bonnets ‘How many of you were saying: NO, No…don’t do that!’” said Mo- nique Atkinson, a 53-year-old quilter from Quebec. “I thought it was just hilarious!” In 2009, Al Doan and his fam- ily decided Missouri Star could be a serious business. They noticed that his mother’s video fans would want to use the precise fabric she showed in a tutorial. So they began stocking up on those fabrics to sell. “One day, we got eight sales in one day,” Mr. Doan recalled. “We were so excited.” Almost five years later, Mis- souri Star sells an average of 1,000 orders a day. Mr. Doan won’t divulge the company’s reve- nue, but noted the business in- vested $750,000 last year to up- grade its buildings, and now employs 80 workers. Along the way, Hamilton has become a tourism destination for the quilting crowd. Most days, 50 to 100 visitors arrive to meet Mrs. Doan and members of her family in their 5,000-square-foot main shop. City Administrator Dale Wal- lace says the tourism is great, and that maybe the town just needs to patch up its array of amenities. “For example, we really need to find something for the men to do,” he said of the husbands who sometimes come in tow with their quilting spouses. “Maybe we’ll put in a gun shop.” For now, Hamilton Hardware, once the location of the 500th de- partment store in Mr. Penney’s re- tail chain, serves as a way station for bored spouses. “The quilters don’t come in, but their husbands do,” said owner Eddie Ernat. “We have some pretty neat conversa- tions.” BY JIM CARLTON Hamilton, Mo. Online >> Watch clips from Jenny’s quilting videos at WSJ.com/OffTheWall. Jenny Doan, Missouri Star Quilting Co. star of YouTube tutorials on quilting, draws as many as a million viewers. J i m C a r l t o n / T h e W a l l S t r e e t J o u r n a l town 105 kilometers northeast of Kansas City, Mo., with their seven children. “We literally picked a place in the middle of the U.S.,” she says. Her husband landed a job as a machinist for a local newspaper, but by 2008 his shop had been cut from 25 people to five. “It wasn’t a question of if I lost my job, but when,” says Mr. Doan, 60. Concerned for their parents’ future, two of their grown chil- dren, Al Doan and Sarah Gal- braith, that year took out a $36,000 loan to buy their mother a professional quilting machine. “We were thinking if we didn’t do something, Mom is living in our basement when she gets old,” says Mr. Doan, 31. To accommodate the 3.7-meter-long ma- chine, the younger Mr. Doan and his sister spent $24,000 buying a former antique store for their mother to work in. Not long after she got it up and running, Mrs. Doan says, her family noticed quilting searches were a hot topic on the Internet. “Al said, ‘Mom, we need to do tutorials,’ ” she recalled. “I said, ‘Sure. What’s a tutorial?’ ” Their first, shot in her clut- tered shop in February 2009, didn’t go well. Mrs. Doan tripped on an electrical cord and broke her leg. She still managed to gri- mace through the video. “She was so awkward,” her son says. Subsequent efforts were bet- ter. Mrs. Doan turned on the charm, sometimes hamming it up. She started an “Iron Quilter” competition, mimicking the Food Network’s “Iron Chef” cooking contest, with two of her daugh- ters squaring off in samurai-style bandannas. About 500 people sent in pictures of entries. In the precise craft of sewing, Mrs. Doan isn’t always the most polished instructor, but that just seems to add to her appeal. “One time, she was making a quilt block but she almost cut it wrong…and she laughed and said, T his tiny farm town used to be known as the home of James Cash Penney Jr., founder of the namesake depart- ment store chain. These days, it is better known in some circles as the home of Jenny Doan. Those would be quilting cir- cles. Over the past few years, Mrs. Doan, 57 years old, has become a veritable superstar of the craft. Her YouTube tutorials on how to make quilts have drawn as many as a million viewers, some from as far away as South Africa. Her family’s Missouri Star Quilt Co. gets as many as 30,000 orders a month for pre-cut patches and other quilting sup- plies. The 5-year-old company has become the second-largest em- ployer in this town of 1,800, its operations covering a patchwork of formerly vacant downtown buildings that include a “sleep and sew” retreat hotel. Fans stop Mrs. Doan for autographs. “I can barely go to Wal-Mart without someone recognizing me,” she says. The key to Mrs. Doan’s popu- larity: she appeals to “instant gratification” quilters. “I don’t teach people how to be the best quilter,” she says. “I teach them how to do it the easiest.” Instead of the weeks or months often required to com- plete a quilt, Mrs. Doan’s method teaches how to make one in as lit- tle as a day—by using a variety of pre-cut fabric patches a quilter otherwise would have to painstak- ingly snip out and stitch to- gether. She also supplies the materials to do so. “I’ll show you something that makes it look like you worked really hard,” she says. That simpler pro- cess was the appeal for Carmen Leticia Attie, a psychotherapist from Mexico City, who learned to quilt in 2010 by watching Mrs. Doan’s videos. She also found Mrs. Doan’s breezy style less intimidat- ing than that of other quilting tu- tors. “She makes you feel as if it is not only possible, but easy.” Some quilters reject the short- cuts, saying it takes away from the history of the craft. “Tradi- tional quilting is the historical way to do it,” said Linda Court- ney, a shopkeeper from Stewarts- ville, Mo., who learned quilting from her mother. Bonnie Browning, executive show director of the American Quilter’s Society, said interest in quilting has been on the rise, es- pecially people wanting to learn via the Internet. One reason Mrs. Doan is so successful, she said, is she was one of the first quilters to start making online tutorials. Today, there are several, teaching various approaches. “You know what, there’s a place for everyone in the quilter’s world,” said Mrs. Browning, whose group is based in Paducah, Ky. Among America’s estimated 21 million-plus quilters, Mrs. Doan is a relative newbie. She didn’t take up the hobby until 1997, shortly after she and her husband, Ron, left California to move to this WATCH NOW DAVOS 2014: TWO FREE WEBCASTS FROM THE WALL STREET JOURNAL AND FINANCIAL NEWS The Wall Street Journal and Financial News invite you to join two insightful discussions from The World Economic Forum 2014, The Reshaping of the World: Consequences for Society, Politics and Business. DAVOS OUTLOOK: JANUARY 22, 11AM GMT Join the top editors of WSJ and FN as they discuss the topics that will drive the 2014 global agenda in Davos and beyond. DAVOS DOWNLOAD: JANUARY 27, 11AM GMT Conclude Davos with our editors as they debate the key issues that dominated the forum. REGISTER ONCE FOR THESE TWO FREE WEBCASTS: WSJ.COM/DAVOSWEBCASTS VOL. XXXII NO. 2 MONDAY, FEBRUARY 3, 2014 The Rich and Stranded PERSONAL JOURNAL 23 DJIA 15698.85 g 0.94% Nasdaq 4103.88 g 0.47% Stoxx Eur 600 322.52 g 0.25% FTSE 100 6510.44 g 0.43% DAX 9306.48 g 0.71% CAC 40 4165.72 g 0.34% Euro 1.3501 g 0.36% Pound 1.6449 g 0.23% EUROPE EDITION WSJ.com $1.75 (C/V) - KES 250 - NAI 375 - £1.70 Investors Brace Themselves for Bumpy Ride A choppy start to 2014 un- derscores the need to play de- fense, say market veterans. Many portfolio managers are shifting away from the kinds of investments that did exceptionally well in 2013 but are vulnerable to large swings. For some, that means paring back on U.S. small- company stocks in favor of shares of large companies with growing dividends. Oth- ers are focusing on shorter- term bonds based on expecta- tions that rising economic output will lead to higher in- terest rates. The S&P 500 index gained 30% last year, amid an im- proving U.S. economy and ex- ceptionally loose Federal Re- serve policy. Even more remarkable to many observers was that declines in the stock market were generally short and shallow. Accordingly, many investors entered 2014 expecting a slower advance marked by rocky stretches—a forecast that has been borne out by a 5% decline in the Dow Jones Industrial Average since the beginning of the year. After last year’s big rally in stocks, the market this year might gain “8% to 10%, but it’s going to be a hard 8% to 10%,” says Robert Smith, chief investment officer at Sage Advisory Services, which manages $10 billion out of Austin, Texas. “Investors are going to have to be really careful.” Tumult in emerging mar- kets has been the catalyst for the recent bout of indigestion, along with the Fed’s steps to pare back stimulus known as quantitative easing. When the central bank was pumping $85 billion a month into financial markets last year through purchases of bonds, extremely low interest rates—and expectations they would stay low—gave inves- tors more confidence about taking on riskier investments. But the Fed has set plans to trim its monthly purchases to $65 billion and has sig- naled that it expects further cuts in 2014. Many investors say the pullback is reducing Please turn to page 20 By TomLauricella, Kaitlyn Kiernan and Katy Burne In ‘frontier markets,’ gains continue........................................ 18 Angry Thais who were unable to cast votes in Sunday’s national election waved ballot papers in protest outside a Bangkok polling station. Opposition activists disrupted polling in 11% of Thailand’s electoral districts, making it impossible to gain a final tally. Article on page 3 Fury as Thais Miss Voting Opportunity in Election Chaos Getty Images U.S. Widens Probe Into Libya Deals The Justice Department has joined a widening investi- gation of banks, private-eq- uity firms and hedge funds that may have violated anti- bribery laws in their dealings with Libya’s government-run investment fund, people fa- miliar with the matter said. In recent months, the Jus- tice Department has stepped up its involvement in a joint probe with the Securities and Exchange Commission that began in 2011 and initially homed in on Goldman Sachs Group Inc. Prosecutors could file criminal charges against some or all of the firms this year, people familiar with the matter said. The Justice De- partment’s involvement hasn’t been reported previously. Federal investigators are examining private-equity firm Blackstone Group LP and hedge-fund operator Och-Ziff Capital Management Group LLC, along with Goldman Sachs, Credit Suisse Group AG, J.P. Morgan Chase & Co. and Société Générale SA, these people said. Spokesmen for the Justice Department and the SEC declined to com- ment. Authorities are examining investment deals made during and after the financial crisis, these people said. In the years leading up to Libya’s 2011 rev- olution, Western firms—en- couraged by the U.S. govern- ment—raced to attract investment money from the North African nation, which was benefiting from oil sales and recently had opened to foreign investment. Investigators are trying to determine whether the firms violated the Foreign Corrupt Practices Act, the people said. The 1977 law prohibits U.S. companies and companies listed on U.S. stock exchanges from paying bribes to foreign officials. U.S. authorities con- sider employees of state- owned investment funds, such as the Libyan Investment Au- thority, to be foreign officials. In most FCPA cases, the U.S. leans heavily on compa- nies to investigate themselves and turn over documents and other evidence of corrupt payments, but seldom do prosecutors have access to the paper trail overseas. The toppling of the Libyan govern- ment in 2011 provided an op- portunity for the new regime to dig into the conduct of for- mer Libyan leader Moammar Please turn to page 18 By Joe Palazzolo, Michael Rothfeld and Justin Baer EUand U.S. Plan Kiev Aid Package MUNICH—The European Union and the U.S. are work- ing on a plan for significant short-term financial assis- tance for protest-torn Ukraine, EU foreign-policy chief Catherine Ashton said Sunday. U.S. officials said the pre- liminary discussions under way with the EU call for the two to provide economic support in tandem to a tran- sitional Ukrainian govern- ment as it works with the In- ternational Monetary Fund. While the U.S.-EU aid package would be linked to significant economic and po- litical reforms, it wouldn't be conditioned to Ukraine first signing a long term Interna- tional Monetary Fund deal, Baroness Ashton said. Previ- ous offers of one-off Euro- pean aid have had that con- dition attached. Baroness Ashton, who is due to travel to Kiev again in the next 48 hours, said the aim of the package would be to help Ukraine get through a transition period during which a broad-based interim government could drive through key political and economic reforms and pre- pare the ground for presi- dential elections, currently due next year. News of the proposed aid Please turn to page 5 BY LAURENCE NORMAN AND ADAM ENTOUS Inside Among Janet Yellen’s critical decisions after taking over the reins of the Fed is when to start lifting interest rates. U.S. News....................7 The U.K.’s deep current-account deficit is worrisome despite the recovery. It could warn of trickier days to come, writes Simon Nixon. Europe File.......................................................... 4 Heard on the Street: The EU’s bonus quandary..........…28 A tortured protest leader describes his ordeal ............... 5 28 | Monday, February 3, 2014 THE WALL STREET JOURNAL. HEARDON THE STREET Email:
[email protected] FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard No Blues On Banks’ Bonuses Set a rule for bankers and they will eventually find a way around it. Set a rule about their pay and they will redouble their efforts. That is what the European Union is discovering with its plans to cap bankers’ bonuses. The politicians want to keep bonuses down to less than twice a bank employee’s an- nual salary. That, they sug- gest, would help soften the aggressive risk-taking culture at banks that can ultimately contribute to dangerous fi- nancial instability. But Goldman Sachs Group—who else?—has come up with a plan to ensure its European workers don’t miss out. Goldman’s plan looks simi- lar to those suggested by other banks to get around the bonus cap. The idea is to pay staff allowances based on their role in the bank. Special- ists in pay said the allowances could be adjusted monthly, thus keeping the variable as- pect of bonuses. But they could be treated as fixed pay for regulatory purposes, eas- ing the effect of the cap. The image of bankers queuing for their monthly al- lowances like children getting their pocket money may cause some chortling. But the idea seems to have some sense, too. For example, if a bank has a bad year or quarter, it would prove easier for it to adjust costs by reducing monthly allowances than by reducing salaries. But the tussle over bo- nuses may be becoming less relevant anyway. The reality facing banks is that their in- dustry is going to be structur- ally less profitable, whether through requirements to hold more capital or the increased commoditization of their products. Investors, meanwhile, are looking for greater reward in terms of higher dividend pay- outs. All these pressures suggest compensation levels will have to moderate over time. This trend already may be in place. Early data from five banks in London—Goldman, Citigroup, Morgan Stanley, Credit Suisse Group and Bank of America—show over- all compensation for bankers rose 7% last year, according to benchmarking website Emoulment.com. But pay for top managing directors has fallen 7%, while the ratio of their bonuses to salary has dropped to 123% from 140%. It is hardly time to get the violins out. But bankers will have to face up to new reali- ties, whether the EU demands it or not. —Andrew Peaple Red Alert on Russia Premature A case of mistaken iden- tity? Russia hasn’t escaped the recent emerging-market tur- moil. The ruble has been a poor performer, falling some 7% against the dollar this year. And with investors won- dering whether the turmoil in countries such as Turkey could lead to wider systemic problems, Russia presents a potential cause for concern, both because of its size and turbulent history. But Russia in some ways doesn’t match the profile of countries in the market cross hairs. The focus on countries like Turkey has been due to their large economic imbal- ances: big current-account and budget deficits, coupled with unorthodox monetary policy. These have looked vul- nerable in light of the Federal Reserve’s decision to taper its bond purchases, causing in- vestors to pull back from mar- kets that have been buoyed by global liquidity. Russia has come a long way since 1998, however, when its default led to the im- plosion of U.S.-based hedge fund Long Term Capital Man- agement, which reverberated through Wall Street. Russia ran a current-account surplus of 1.5% of gross domestic product in 2013 and a budget deficit of just 0.5% of GDP. Reserves are solid at $497 billion. And the country hasn’t been a magnet for hot-money inflows. From mid-2009 to the end of 2012, when emerging markets were a favorite desti- nation for investors, portfolio inflows were just 1% of GDP, according to Morgan Stanley, versus 10% of GDP for Turkey. Not that Russia is without issues. Two loom large: its rel- atively lackluster economic prospects and unfortunately timed push to liberalize its foreign-exchange system. The current-account sur- plus has shrunk and may yet turn into a deficit. Growth has slowed since the global finan- cial crisis and was just 1.5% in 2013. Despite that, inflation is proving tricky to bring down to target. Some Russian officials warn the country faces stagfla- tion. Russia remains reliant on oil and gas revenues and it still hasn’t done enough to attract investment that might help di- versify its economy. Russia also is unlucky in that it has chosen now to in- crease exchange-rate flexibil- ity, with the aim of moving to a floating-rate system by 2015. In the long term, this is likely to be a positive development. But changes to the relatively complex system, which cou- ples a moving currency band with interventions at preset thresholds, may be adding to the pressure on the ruble and increasing volatility. The slide in the ruble is a double-edged sword. Depreci- ation will increase the local- currency value of oil revenue, helping the budget. Yet oil and other commodities dominate exports. Increased demand for other exports due to a weaker currency won’t be enough to make a big difference. Moreover, if the ruble con- tinues to fall steeply, it could cause tensions in a country that has seen repeated painful currency crises. In 1998, when Russia defaulted, the ruble lost 70% of its value against the dollar; in 2008-2009, it lost 55% against the dollar, ac- cording to RBS. The move this year in the Russian central bank’s ruble band against the euro and dol- lar is the fastest since 2009 and may evoke memories of those previous devaluations for the population, notes RBS. A big threat to the ruble could yet lie in a surge in demand by Russians for foreign currency. Russia’s central bank, like many emerging-market cen- tral banks, has a tricky task. Slow growth means it is un- likely to want to raise rates, but currency weakness could prove inflationary. One option is for the central bank to pause in its progress toward a free-floating ruble. If the pres- sure increases, that might be a handy safety valve. Investors mindful of Rus- sia’s importance to emerging markets are right to keep a sharp eye on its currency. They shouldn’t assume, though, that it is destined to repeat the problems of the past. —Richard Barley Amazon Isn’t Just for Christmas At Amazon.com, it is all about the top line. Making profits has long taken a back seat at the e-com- merce company to the goal of dominating as large a share as possible of overall consumer spending. And investors have been willing to give Amazon a pass, providing it keeps push- ing into new businesses and increasing revenue. So Wall Street was surprised when Amazon reported late Thurs- day that the rate of revenue growth for the all-important fourth quarter had slowed. In- vestors sent Amazon’s shares down more than 9% Friday. The alarm may be unwar- ranted. Amazon’s revenue rose 20% year over year to $25.6 billion in the quarter. That compares with 23% growth in the third quarter, 22% in the second and 21% in the first. Yet a look back at the fourth quarter of 2012 shows a simi- lar deceleration. Sales that quarter rose 22% compared with 27% in the third quarter of 2012. What is going on with Am- azon’s fourth-quarter sales? One explanation is that the company’s Prime subscribers and the sizable percentage of revenue they drive may be changing the seasonality of Amazon’s business. Carlos Kirjner, an analyst with Sanford C. Bernstein, esti- mates more than half of items shipped by Amazon go to sub- scribers who pay for the $79- a-year membership that comes with free two-day shipping. And because they tend to spend more in categories such as consumables—paper towels and batteries, for example— their spending patterns may be less seasonal than non- Prime users. Another, less sig- nificant, factor may be the less seasonal revenue stream from the Prime fee itself. This amounts to $2.5 billion to $3 billion a year, Mr. Kirjner esti- mates. Commerce Department fig- ures seem to back up the sea- sonality argument. Sales at nonstore retailers, a category driven by changes in online sales, were up 9.1% in the fourth quarter from a year ear- lier. That was actually a bit better than 2012’s fourth-quar- ter gain of 8.8%. But it also counted as the slimmest quarterly gain of last year. In the third quarter, non- store sales rose 11%. The problem: Investors may have seen that as a pre- lude to blowout online holiday sales, rather than recognizing it as a shift in online shopping patterns. Granted, more aggressive discounting and promotions from other retailers around the holiday season also may be affecting Amazon’s fourth- quarter results. But among competitors, the usual sus- pects don’t seem to have bene- fited much. Wal-Mart Stores warned Friday that U.S. comparable- store sales fell slightly during the quarter. Best Buy, Sears Holdings and Family Dollar Stores also have reported weak holiday sales. Any effects of the Prime program on sales patterns also could diminish if Amazon de- cides to raise its price by $20 to $40 a year, as it is consider- ing, and people decide to quit. But the effect of attrition on sales might be partially offset by higher revenue from fees. The fourth quarter will probably always be Amazon’s biggest. But Amazon watchers hoping to predict the com- pany’s performance may have to adjust their expectations. —Miriam Gottfried Tisn’t the Season Amazon’s fourth-quarter revenue as a percentage of annual revenue The Wall Street Journal Source: FactSet 40 32 34 36 38 % ’10 2009 ’11 ’12 ’13 Mercedes Gets Polish in China Mercedes-Benz may be one of the world’s most recogniz- able car brands, but it has had trouble getting noticed in China. Now, Mercedes is mov- ing to change that. Much will depend on how the German brand’s China partner makes use of new capi- tal. China’s state-owned BAIC Motor plans later this year to raise about $2 billion in a Hong Kong share sale, accord- ing to The Wall Street Journal. Daimler, which owns the Mer- cedes brand, manufactures and markets luxury cars through a joint venture with BAIC and owns 12% of the Chinese auto company. Daimler has much to repair in China. Until recently, it was selling cars through two distri- bution networks that competed against each other. Its after- sales service scored poorly in surveys by J.D. Power, while analysts say the cars were too richly priced and then had to be heavily discounted. On top of it all, Mercedes is often viewed as an old person’s car, unlike the more fashionable BMW or Audi, says Macqua- rie’s Janet Lewis. Mercedes sales were essen- tially flat in 2012 and increased only half as fast as rivals’ in 2013, otherwise a blockbuster year for Chinese autos. Its share of the luxury market slumped to 15.5% in 2013 from 20.3% in 2011, as Audi and BMW tightened their grip, ac- cording to LMC Automotive. To change its stuffy image, Mercedes is set to launch 13 new or refurbished models in the next two years, including a sedan and a compact SUV that should attract younger con- sumers. BAIC’s IPO also will help. The Chinese car maker will use the share-sale proceeds to shore up its balance sheet, says a person familiar with the mat- ter. This may help BAIC put more money into the Daimler joint venture. That means lo- calizing more production to bring down costs and boost Mercedes’s China margins, which are about half those of BMW. The good thing about com- ing from behind is that there is upside for Daimler investors. China’s contribution to Daim- ler’s overall revenue was just 9.4% in 2012. BMW generated double that. Even getting halfway to its competitors’ exposure to China will give Daimler investors a better ride. —Abheek Bhattacharya Source: ICAP The Wall Street Journal Ruble’s Retreat Performance against the U.S. dollar 0 –25 –20 –15 –10 –5 % 2013 ’14 Turkish lira Russian ruble Kremlin in Red Square, Moscow R e u t e r s With a current-account surplus and solid reserves, Russia doesn’t match the profile of countries in the market’s cross hairs.