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Omars Tale: Growing Up in a War IN DEPTH 10-11

EUROPE EDITION VOL. XXXI NO. 234 $1.75 (C/V) - KES 250 - NAI 375 - 1.70

TUESDAY - WEDNESDAY, DECEMBER 31, 2013 - JANUARY 1, 2014 WSJ.com

China Faces
Work to Trim
Local Debt
BY BOB DAVIS
AND DINNY MCMAHON
BEIJINGChinese Presi-
dent Xi Jinping, who on Mon-
day became head of the com-
mittee overseeing Chinas
economic overhaul, must
quickly figure out how to
keep Chinas burgeoning local
government debt from tank-
ing the worlds second-largest
economy.
The announcement of Mr.
Xis new job, which is the lat-
est sign that the president is
taking over control of eco-
nomic policy from Chinas No.
2 official, came as the Na-
tional Audit Office said debt
and guarantees issued by lo-
cal governments rocketed
67% to 17.9 trillion yuan
($2.95 trillion) by midyear
2013. It was 10.7 trillion yuan
in the last tally at the end of
2010.
The audit tracked the re-
sults of greater spending on
everything from swank gov-
ernment offices and multilane
highways to city parks. The
spree was on all local levels,
from provinces to Chinas
33,000 townships.
Chinas world-beating re-
cord of about 10% annual
growth for the past three de-
cades is based in large part
on local governments spend-
ing heavily on such building
projects.
But since the global finan-
cial crisis of 2008, that con-
struction has depended more
and more on heavy borrowing
and often resulted in dead-
end projects that have a
tough time paying their bills,
economists say. Nearly half of
the debt comes due by the
end of 2014. Standard Char-
tered economist Stephen
Green says there is a better-
than-50% chance that a local-
government bond will default
in 2014. That would be a first
for China, where government
officials often step in to order
financial institutions to help
troubled borrowers.
It is hard to gauge what
the effect of a bond default
would be: On the one hand, it
could have the effect of rais-
ing awareness of the risks and
accomplish the tamp-down in
lending that other govern-
ment moves have failed to
fully bring about. But signs of
tightening liquidity in China
have tended to frighten mar-
kets in unpredictable ways
and any resulting panic could
be hard for Beijing policy
Please turn to page 8
The year Chairman Mao met
the smartphone.......................... 8
Reuters
Sharks smell blood in Chinas
waters........................................... 20 Investigators on Monday survey the wreckage from a second suicide attack in the Russian city of
Volgograd within two days, this time of a crowded trolley bus that left at least 14 people dead.

Obamas Test: Bargain Inside

With or Confront GOP
[ Capital Journal. ]
BY GERALD F. SEIB
President Barack Obama
exits 2013 in the weakest
political position of his
presidency and now faces a
basic strategic choice: Does
he recover
by trying to
work with
Republicans
in Congress
or by
confronting them heading
into 2014s midterm
elections?
By almost any measure,
2013 was, as Democratic
pollster Peter Hart put it, a
terribly ragged year for the
president, who saw his
approval ratings plunge and
his agenda stall. One
glimmer of light emerged at
years end, when the parties
agreed on a deal for a two-
year budget agreement.
That now leaves the
White House uncertain
whether Washington is
entering a new phase in
which the president can
successfully compromise
with Congress to move at
least part of his agendaor
whether continuing partisan
divides mean hes better off
striking out on his own
while stressing election-year
differences with Republicans
on issues such as a higher
minimum wage and
Please turn to page 7
Twin Bombings in Russia
Raise Fears Over Olympics
BY LUKAS I. ALPERT
AND GREGORY L. WHITE
MOSCOWA suicide
Double ace: Tennis star bomber struck in the south-
Rafael Nadal reveals west Russian city of Volgo-
his poker skills grad on Monday, killing at
Sport ................... 26 least 14 people in the citys
second terrorist attack in less
than 24 hours and stoking se-
Monte dei Paschis curity fears in the country
denouement weeks ahead of the Winter
Heard ................... 28 Olympics.
Russian President Vladimir
Putin ordered security to be
tightened around the country
Notice to Readers after the second attack, which
WSJ.com will publish comes less than six weeks be-
throughout the New Year fore the Games are set to
holiday. The Wall Street start in the Black Sea resort
Journal print edition wont of Sochi. The repeated bomb-
be published on Jan. 1. ings, and risk of additional vi-
olence, threaten to tarnish an
event on which Mr. Putin has
staked his personal pride and
spent $50 billion to stage.
Russias hosting of the
Games has already weathered
heavy criticism abroad be-
cause of the recent passage of
a controversial law banning
gay propaganda, which has
led to calls for a boycott
among gay-rights groups.
A top rebel leader in the
countys restive North Cauca-
sus region has called for at-
tacks in the run-up to the
event, and the repeated tar-
geting of Volgogradwhich is
situated about 680 kilometers
from the Olympic siteap-
pears aimed at raising anxiety
before the Games, which Rus-
sia has poured significant re-
sources into protecting. Ex-
tensive security requirements
and other logistical challenges
have made Sochi less of a
draw for foreign visitors than
previous Olympics.
The twin attacksfirst at
the citys central train station
and, on Monday, aboard a
crowded trolley buswere
the deadliest in the country in
nearly three years. Though
there was no immediate claim
of responsibility, authorities
said initial indications sug-
gested the blasts were the
work of Islamist terrorists
from the volatile North Cau-
Please turn to page 4
Volgograd is shaken by
suicide blasts...............................4
Opinion: Still vulnerable after
14 years of Putin.....................12
2 | Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 AM IM UK SW FR IT SP TK BR PL IS AE GR THE WALL STREET JOURNAL.

PAGE TWO

Whats News
i i i
Business & Finance
n Latvia will become the 18th
country to adopt the euro, even
though less than half the popula-
tion in the Baltic nation is fully
supportive of the Jan. 1 switch to
Europes single currency. 5

n Home prices have zipped back

into record territory in a handful
of U.S. cities, a milestone that
comes seven years after the hous-
ing bust ravaged the market and
the broader economy. 6

n China halted imports of a sea

creature called a geoduck from
the U.S. West Coast over alleged
contamination, though the U.S.
disagrees with the ban. 7

n Two of the best-performing

emerging-market bond funds
made an especially unconven-
tional bet: buying Argentine
municipal debt. 15

n Tokyo stocks closed at their

highest level in six years, capping
a stellar performance for the
benchmark Nikkei Stock Average,
which rose 57% in 2013, its largest
gain since 1972. 15

n Many small U.S. businesses ex-

pect 2014 to be a breakout year,
one that finally puts the worst of
the downturn behind them. 15
Reuters

n Carlsberg will pay $250 million

to expand its reach in Chinas beer
market amid stagnant conditions
in its core European operation. 16
n Online car-service companies
plan to challenge a new French
regulation that slows how quickly
they can pick up passengers, esca-
lating a battle over apps that are
upending the taxi business. 17
n An Indian government panel
approved investments by Voda-
fone and Tesco valued at more
than $1.5 billion. 17
n Cooper terminated its $2.2 bil-
lion sale to Apollo of India, an ad-
mission of defeat in a deal be-
BE A BEAR FOR GOOD LUCK: Dancers from Romanias northeast perform the bear dance, a ritual for good fortune in the New Year, during a parade in the village
of Comneti on Monday. In pre-Christian rural traditions, revelers would tour from house to house in villages while singing and dancing to ward off evil.
tween the tire makers that began n Chesapeake Energy sold pieces Greeces residence, an attack that rescue passengers on a ship
crumbling almost immediately of its empire in recent years to both nations condemned. 5 trapped in Antarctic ice. 9
after it was struck in June. 17 avoid a cash crunch, but some of
those deals saddled it with costs n Michael Schumacher remained n Congolese troops repelled a
n Sanofi said it would appeal the that now are becoming clear. 22 in a critical condition after the series of attacks in the capital,
FDAs rejection of its Lemtrada seven-time Formula One champion killing at least 40 gunmen in what
MS drug after the U.S. regulator i i i sustained serious head injuries in appeared to be an unsuccessful
expressed concern over side ef- World-Wide a skiing accident. 5 uprising by supporters of a former
fects and clinical-trial design. 18 presidential candidate. 9
n The U.S. has gained a little- n U.S. officials selected six loca-
n Hong Kong and China will sign known ally in its bid to win cru- tions to run sites to help eventu- n The group charged with over-
a deal soon by which mutual cial Arab support for curbing ally integrate commercial drone seeing the dismantling of Syria's
funds can be sold to retail inves- Irans nuclear program: Oman. 3 aircraft into the aviation system. 6 chemicals-arms program is set to
tors in either market, potentially miss Tuesday's deadline for re-
allowing billions of dollars of n Unidentified gunmen fired on n Snow showers and poor visibil- moving the most dangerous weap-
cross-border investments. 21 the German ambassador to ity were hampering attempts to ons from the country. 9

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THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 3

NEWS

Oman Backs U.S. on Iran Nuclear Pact

BY JAY SOLOMON

Washington has gained a little- Supporter in the Gulf | Some efforts by Oman to aid U.S. diplomacy with Iran
known ally in its bid to win crucial
Arab support for curbing Irans nu-
clear program: Oman, a small king-
dom that is expanding its role on
the Middle Easts diplomatic stage.
After playing a behind-the-
scenes role in the Obama adminis-
trations diplomatic overture to
Iran, the Sultan of Oman and his
royal court are working to help sell
the deal to skeptical Arab govern-
ments, said U.S., Iranian and Arab
officials. The Obama administration
is pressing to gain the support of its
key Mideast allies, particularly
Saudi Arabia and Israel, for its Iran
diplomacy, but the administration is
facing strong resistance. Omans Sultan Qaboos with Secretary of State John Kerry in Muscat in May and, bottom left, with Irans President Rouhani in Tehran in August.
Senior U.S. officials have lauded
Omans support in the effort. U.S. S September 2011 Oman helps the return of
and Iranian officials said Oman has three American hikers jailed on espionage
become a key promoter of talks charges in Iran (photo, right).
with Tehran, an initiative that is S December John Kerry secretly meets Sultan
emerging as the signature foreign- Qaboos and calls for Omani role in promoting
policy move of President Barack direct U.S.-Iran talks.
Obamas second term. S July 2012 State Department and White House
Novembers interim agreement ofcials meet senior Iranian diplomats in Muscat.
between world powers and Tehran
S December U.K. returns Iranian diplomat

Associated Press (top); Reuters (2)

seeks to curb the most advanced el-
ements of Irans nuclear program in
exchange for an easing of Western
sanctions. Saudi Arabia, the United
Arab Emirates and some other Gulf
states have attacked the U.S. out-
reach to Iran and doubt it will do
enough to deny Tehran a nuclear
weapon. They have pressed for ad-
ditional steps to isolate Tehran.
New details of Omans efforts
point to a central role for the quiet
kingdom, which has long been an
anomaly among the largely Sunni
monarchies in the Persian Gulf be-
cause of its warm ties to Tehran.
Omans ancient capital of Muscat
has served as a setting for meetings
that have advanced the global di-
plomacy leading to Novembers
deal, U.S. and Iranian diplomats
said.
Little understood is the extent to
which Omans monarch, Sultan Qa-
boos bin Said al Said, and his
courts ministers and economic offi-
cials have personally steered the
U.S.-Iranian rapprochement.
Oman has publicly backed Wash-
ingtons campaign of rapproche-
ment with Tehran and views the nu-
clear accord as providing a rare
opportunity to lessen tensions be-
tween Sunni monarchies and Iran,
said Arab and Iranian officials.
Responding to an American re-
quest, the 73-year-old Sultan Qa-
boos has hosted secret meetings be-
tween senior American and Iranian
officials over the past two years in
Muscat, said these officials.
We believe we are in a histori-
cal phase around the world that re-
quires work to achieve peace and
stability, Omans minister for for-
eign affairs, Yousif Bin Alawi, told
Arab and Western defense officials
in Bahrain in December. Based on
that, we can achieve sustainable de-
velopment and progress.
The Persian Gulf countrys role
has evolved beyond the nuclear file
as it positions itself as a salesman
for the Iran diplomacy, its interests
spurred by regional geopolitics and
economic self-interest.
The sultanate has long sought to
build a pipeline bringing Iranian gas
to Oman, but the project has been
blocked by American sanctions on
Tehran. Such a project could pro-
ceed if Washington eases its finan-
cial pressure, and Oman could bene-
fit from expanded trade between
the West and Iran.
In December, Mideast watchers
were stunned in Bahrain when
Omani officials vigorously opposed
a Saudi drive to further consolidate
the defenses of the six Sunni mon-
archies in the Persian Gulfwho
wanted by U.S. to Iran via Oman.
S March 2013 Deputy Secretary of State William
Burns meets Iranian counterpart in Muscat.
S April U.S. returns an Iranian scientist to Iran
via Oman.
S December Oman resists Saudi initiative to
further unify the defense of the Sunni states in
the Persian Gulf against Iran.
make up a body called the Gulf Co- nian scientist, Mojtaba Atarodi, who
operation Councilin part, to bet- was arrested in Los Angeles on
ter contain Iran. The Omani officials charges he was purchasing equip-
countered that the countries ment for Tehrans nuclear program.
shouldnt seek to further militarize Irans government had pressed
the region. Washington for Mr. Atarodis return
It was the talk of the confer- for months, said Iranian and Arab
ence, said Emile Hokayem of the officials.
International Institute for Strategic Oman has tried to play a posi-
Studies, which organized the event, tive role and to bridge differences
known as the Manama Dialogue. It between the two sides, Irans am-
showed Omans willingness to as- bassador to France, Ali Ahani, said
sert an autonomous regional policy, in December in Monaco.
even if it conflicts with its bigger Omans posture in the talks in
neighbor. many ways represents an out-
Meanwhile, the sultan empow- growth of its long-rooted ties to
ered one of his top economic advis- Tehran. The late Iranian ruler, Shah
ers, Salem ben Nasser al Ismaily, to Mohammad Reza Pahlavi, sent
broker the exchanges of Iranians troops and attack helicopters to
and Americans captured in their op- Oman in the 1970s to help Sultan
posing governments dragnets, said Qaboos put down a tribal revolt
officials from those countries. against his rule. Oman was the sole
Mr. Ismaily, head of the Omani Persian Gulf state to remain neutral
investment board, facilitated the re- during Irans 1980-88 war with Iraq,
turn beginning in late 2010 of three with the rest providing financial
American hikers detained by Iranian support to Iraqi strongman Saddam
security forces on charges they Hussein.
were spies. In April, the business- Tehran and Washington have
man, philanthropist and author also used Oman to relay messages after
helped broker the return of an Ira- diplomatic relations broke down
following the 1979 Islamic revolu-
tion in Tehran. Aides to Sultan Qa-
boos said the British-educated mon-
arch views himself as a mediator
between competing sides in the
Middle Easts conflicts. He hosted
then-Israeli Prime Minister Yitzhak
Rabin in 1994 in a bid to forge eco-
nomic and diplomatic ties.
He is an idealist in that to a sig-
nificant extent his policy-making is
driven by ethical considerations,
said a senior Arab diplomat who
has worked closely with Sultan Qa-
boos.
The Obama administration
heightened Omans role as an inter-
mediary in late 2011, in part be-
cause of the help it provided in
bringing home the three American
hikers, said senior U.S. officials.
Many Arab governments have
vented at the Obama administration
for pursuing secret talks with Iran,
and suggested that Washington and
Muscat operated behind their backs.
Were very disappointedthat
they went cheating on us with the
Iranians, said a senior Arab diplo-
mat.

Israel Is Set to Free 26 More Palestinian Prisoners

BY JOSHUA MITNICK
TEL AVIVIsrael was set to re-
lease 26 Palestinian prisoners early
Tuesday, but bickering over an Is-
raeli proposal to annex parts of the
West Bank and plans for new Jewish
settlements there clouded prospects
for peace talks.
The release of the prisoners,
most of whom were convicted of
murder before the 1993 Oslo Ac-
cords, would occur days before U.S.
Secretary of State John Kerry is
scheduled to arrive in the region for
another round of diplomacy.
Mr. Kerrys latest visit has
spurred speculation among analysts
that he would offer a compromise
proposal for the outline of a peace
deal in an effort to spur talks that
have shown little signs of progress
ahead of a late-April deadline.
Everyone is frustrated by the
negotiations. The time has come for
a bridging proposal, said Gershon
Baskin, an Israeli peace activist and
political analyst, who says that such
a move would focus the talks. Ev-
eryone believes the Americans are
about to put a proposal on the table
thats going to be disliked by Israe-
lis and Palestinians.
As with prior releases, the pris-
oners were planned to be welcomed
as heroes at a celebration at the
headquarters of the Palestinian Au-
thority by President Mahmoud Ab-
bas.
In Jerusalem, Israeli Prime Min-
ister Benjamin Netanyahu has faced
street protesters who have shouted,
Bibi, shame on you, and a court
appeal by families of victims to nul-
lify the release.
Speaking to members of his par-
liament faction on Monday, Mr. Ne-
tanyahu said his government made a
commitment to negotiating a peace
deal with the Palestinians. Leaders
are tested on their ability to imple-
ment decisions, as difficult as they
may be. We were not elected to take
easy decisions.
The planned release would be the
third of four moves to free a total of
104 Palestinians, which Israel prom-
ised when negotiations started in
July. In return, Palestinians pledged
not to stir up diplomatic pressure
throughout the nine-month talks.
An Israeli ministerial committee
voted on Sunday to sponsor legisla-
tion to annex the Jordan Valley, a re-
gion many Israelis believe must
never be relinquished to avoid bor-
der infiltration by militants.
That prompted Palestinian nego-
tiator Saeb Erekat to say that the
move effectively destroys prospects
for peace and that the Palestinian
Authority should seek statehood rec-
ognition from the international com-
munity. Mr. Abbas, however, has said
he will remain in the talks through
the April deadline in order to secure
the release of all 104 prisoners.
Justice Minister Tzipi Livni, a
lead negotiator for Israel and dovish
cabinet member, also criticized
hard-line coalition members for the
move and appealed for a full cabinet
vote on the law. An official in the
prime ministers office said the bill
is frozen until Mr. Netanyahu de-
cides to bring it before the cabinet.
Israeli officials have also said
they plan to announce new building
tenders in the West Bank, to ease
criticism from hard-liners about the
prisoner release, sparking more Pal-
estinian complaints. Israeli officials
counter that the real obstacle to a
deal is a refusal by the Palestinians
to recognize Israel as a Jewish state.
4| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Russian police on Monday check a drivers documents in Sochi, where the Winter Games will take place, after the attacks.
Double Russian Bombings
Raise Fears Over Olympics
Continued from first page
casus region.
This is about embarrassing the
Russian government and creating a
state of insecurity, said Matthew
Clements, a Russian defense and se-
curity expert at IHS Country Risk.
The chances of a successful attack
at one of the Olympic venues are
slim, but attacks in the region
around it still have the desired psy-
chological effect.
Normally stoic Russians reacted
uneasily in the wake of the second
attack. Russian Railways announced
it was increasing security checks at
stations around the country during
the busiest travel days of the year
ahead of the long New Years holi-
day. In St. Petersburg, city officials
canceled a New Years Eve fireworks
display because of security con-
cerns, and authorities briefly closed
Red Square and at least one Moscow
metro station following reports of
suspicious packages.
Russia is deploying tens of thou-
sands of police and security forces
to protect the Winter Games. The
countrys Olympic Committee Chair-
man Alexander Zhukov told Russian
news agencies that there was no
need to increase security measures
surrounding the Games since all
necessary steps have already been
taken.
No other Olympic Games has
ever been held so close to an area of
conflict, and the attacks raised
questions yet again about whether
Sochi was a problematic choice for
such a high-profile international
event.
On Monday, Russian antiterrorist
forces said they had killed three
militants in the Kabardino-Balkaria
Republic just 320 kilometers east of
Sochi, whom they suspected of plot-
ting a New Years attack. On Friday,
a car bomb outside a police station
killed three people in the southern
Russian city of Pyatigorsk, which is
about 275 kilometers from Sochi.
It was a risky proposition to put
the Games so close to an area where
there is an established network of
insurgents, Mr. Clements said. The
threat of terrorism has existed with
other Games, but the fact that Sochi
is taking place very close to an area
of long-running conflict sets it
apart.
The Obama administration,
which expressed condemnation of
the attack and condolences for the
relatives of the victims, offered ad-
ditional support to Russia for secu-
rity around the Olympic Games. We
would welcome the opportunity for
closer cooperation for the safety of
the athletes, spectators, and other
participants, National Security
Council spokeswoman Caitlin
Hayden said.
International Olympic Committee
President Thomas Bach called the
bombings a despicable attack and have struggled to suppress militant
said he had written to Mr. Putin to
express our confidence in the Rus-
sian authorities to deliver safe and
secure Games in Sochi.
I am certain that everything
will be done to ensure the security
of the athletes and all the partici-
pants of the Olympic Games, he
said.
Tour operators said the attacks
would likely sap further demand for
tickets to the Games in Sochi, which
has already proved a hard sell with
foreign visitors because of its re-
mote location and lack of higher-
end lodging. Organizers have said
they expect the majority of fans to
come from within Russia.
Vladimir Markin, a spokesman
for Russias Investigative Commit-
tee, said Monday mornings attack
appeared to be the work of a male
suicide bomber who was believed to
have carried an explosive device
packed with shrapnel and the equiv-
alent of about 4 kilograms of TNT.
The rush-hour blast blew the roof
off the blue-and-white trolley bus
and shattered the windows of a five-
story building opposite the scene.
There were conflicting reports
on the death toll, with the Investiga-
tive Committee and the Health Min-
istry saying 14 were killed and the
Emergency Situations Ministry say-
ing 15 had died. Twenty-eight peo-
ple were wounded by the blast, the
Investigative Committee said.
Mr. Markin said the device used
EUROPE NEWS
Reuters
was of similar design to the one det-
onated by a suicide bomber in the
portico of Volgograds main railway
station on Sunday, killing 17 people
and wounding 45. That has
prompted investigators to believe
the attacks were organized by the
same people.
The twin attacks were the dead-
liest Russia has seen since a suicide
attack in the arrival hall of Mos-
cows Domodedovo International
Airport killed 37 people in January
2011. Ten months earlier, twin sui-
cide bombings aboard packed trains
in Moscows metro system killed 40
people.
While Russias security forces
groups in the Caucasus region, Is-
lamic terrorism has faded in the
Russian heartland in recent years.
Earlier in 2013, however, rebel
leader Doku Umarov called for at-
tacks against civilian targets in the
run-up to the Sochi Games. Volgo-
grad was previously targeted in late
October, when a female suicide
bomber from the Dagestan region of
the Caucasus killed seven people on
a bus near a university.
A terrorist attack there is an at-
tack in the heart of Russia. To at-
tack there is much more resonant
than in the Caucasus and it is easier
to hit than Moscow, said Vadim
Mukhanov, a senior researcher at
the Center on the Caucasus and Re-
gional Security at the Moscow State
Institute of International Relations.
Volgograda city of about one
million inhabitantsis Russias clos-
est major metropolis to the North
Caucasus. It is also a key transit
center connecting the south of the
countryincluding the Caucasus re-
gionwith the rest of Russia. After
Mondays attack, city authorities
mobilized cadets from a local police
academy and announced plans to
bring in Cossack patrols to help
maintain security.
Volgogradpreviously known as
Stalingradalso is symbolic because
of its importance to Russias past as
the site of a historic World War II
battle in which Nazi Germanys ad-
vance into Russia was turned back.
Volgograd Shaken
By Suicide Blasts
BY GREGORY L. WHITE
MOSCOWNervous residents of
Volgograd avoided public transpor-
tation and faced closed stores and
malls as the southwest Russian city
mourned the 31 people killed in two
suicide bombings Sunday and early
Monday.
People are panicked, said Alex-
ander Koblikov, regional coordina-
tor for the Union of Volunteers of
Russia. A lot of stores and malls
are closedthere are patrols in the
streets.
The twin attacks were the worst
in years in the city of one million,
which last suffered a major terrorist
act in 2004 when a plane from Mos-
cow was blown up en route by a sui-
cide bomber, killing all 43 aboard.
The latest blasts seemed to
shake Russians usually stoic re-
sponses to terrorist attacks, which
have become an unwelcome fixture
of life in this country over the past
two decades because of a persistent
Islamist insurgency in the volatile
North Caucasus region.
We all came to work in shock
today. Wed barely had a chance to
get over yesterdays attack, and
there was another today, said Olga,
a saleswoman at the Begemot toy
store in downtown Volgograd who
declined to give her last name. Ev-
eryone is very scared, she said,
struggling to control her tears.
Several major stores were closed
for technical reasons, officials
said, while city officials canceled
planned celebrations for New Years
Eve, which for many Russians is the
most popular winter holiday. Au-
thorities also asked residents to re-
frain from using fireworks in the
coming days for fear of sowing
panic, local media reported.
Sunday afternoon, a suicide at-
tacker killed 17 at the citys main
train station, detonating his bomb
at the security checkpoint as visi-
tors prepared to meet the train
from Moscow. Early Monday morn-
ing, another suicide bomber struck
a crowded trolley bus near one of
the citys main farmers markets,
killing at least 14 people. Dozens
more were wounded, and the most
Visitors lit candles and placed flowers Monday in memory of the victims at the
site of the first explosion Sunday near the main train station in Volgograd.
THE WALL STREET JOURNAL.
seriously injured were airlifted to
hospitals in Moscow.
President Vladimir Putin ordered
security tightened across the coun-
try and especially in Volgograd. Lo-
cal officials called up cadets from a
local police academy as well as ci-
vilians to join patrols. They also or-
dered the creation of special Cos-
sack patrols, a common feature in
some other southern Russian re-
gions, to boost security. Residents
reported traffic delays as police
checked cars.
Stanislav Anischenko, editor of
Gorodskiye Vesti, a local newspaper,
said he had been asked to take off
his jacket at a security checkpoint
in a store near his office. People on
the streets look sullen, worried, not
the way they usually do, he said.
People here are usually more good-
natured.
After the latest attacks,
analysts said that
terrorists appeared to
have been targeting the
city for several months.
After the latest attacks, analysts
said that terrorists appeared to
have been targeting the city for sev-
eral months. Over the summer, an
explosion damaged a police post
outside the city, while in October a
suicide bomber killed seven people
on a bus near Volgograd State Uni-
versity.
They must have a network,
said Alexei Malashenko, an analyst
at the Moscow Carnegie Center.
This is a slap in the face to the au-
thorities, to Putin personally.
Volgograds history adds to its
resonance as a target. For many, it
symbolizes Russias victory in World
War II because it was in the city,
then known as Stalingrad, that So-
viet troops turned the tide of Nazi
invasion.
Nonna Fomenko
and Olga Padorina
contributed to this article.
Reuters
THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 5

EUROPE NEWS

Latvia Joins Euro Zone, Warily

BY JURIS KAA
AthensHome
Of German
AND CHARLES DUXBURY

RIGA, LatviaNearly a decade

Ambassador
after joining the European Union,
Latvia adopts the euro as its cur-
rency Wednesday, marking another
Is Attacked
big move out of the shadow of its BY STELIOS BOURAS
large neighbor Russia.
The nation of two million has ATHENSUnidentified gunmen
been divided over the currency opened fire on the German ambassa-
change, with less than half the popu- dor to Greeces residence early Mon-
lation fully supporting giving up day, police said, an attack Athens
their lats, according to recent polls. and Berlin quickly condemned, with
But the government argues the pub- both governments saying the inci-
lic effectively accepted the switch dent wouldnt undermine ties be-
when it voted to join the EU in a tween the two countries.
2003 referendum. The attack caused no injuries and
Latvia and its Baltic neighbors only minor property damage, but
are pursuing further economic inte- comes amid lingering anti-German
gration with the West as other for- sentiment in Greece, just days be-
mer Soviet republics such as Ukraine fore the Southern European country
Agence France-Presse/Getty Images

struggle with their identity. takes on the rotating European

In 2004, Latvia, Estonia and Lith- Union presidency.
uania all joined the EU and the Police said gunmen sprayed the
North Atlantic Treaty Organization. residence of Ambassador Wolfgang
Estonia started using the euro in Dold with dozens of bullets from
2011 and Lithuania is seeking entry two Kalashnikov semiautomatic ri-
to the currency bloc in 2015. fles at around 3:30 a.m. local time.
Adoption of the euro comes at a Several bullets hit the homes metal
turbulent point in Latvia. Prime A woman picks up a pack of euro coins near Riga in December. As of Jan. 1, the euro becomes legal tender in Latvia. gate, they added.
Minister Valdis Dombrovskis re- Greek authorities cordoned off
signed last month after a store col- friendly rhetoric, cyberattacks and steadying the economy after an as- adopting the euro but sees it as nec- the busy street where the residence
lapse in the capital Riga killed 54 military exercises on its border. set-price bubble burst in 2008, trig- essary. is located, in a suburb north of Ath-
people, leaving the nation in-be- Some Latvians say the move to gering a 25% contraction in eco- We are now more closely inte- ens, detaining six people in connec-
tween governments at the dawn of a the euro damages public trust in nomic output over two years. grated with Europe, Mr. Andrejevs tion with the incident. Police said
new economic era. government and could trigger infla- His austere mix of tax increases says. When something changes on they were examining some 60 bullet
Even though he is leaving office, tion by allowing dishonest rounding- and spending cuts enabled the coun- the German market we feel it quickly casings they collected from the area.
Mr. Dombrovskis will pull the first up of prices in euros. try to meet the euro zones entry re- here. No one has claimed responsibility
euro bank notes from an automatic Biruta Kregera, an animal-feed quirements, which include low public Built on the site of an old Soviet for the shooting.
cash machine Wednesday morning. seller in Iecava, a town south of debt and a moderate inflation rate. collective farm, the company has Unknown assailants fired shots
The euro and the lat will circulate in Riga, says older people in particular A November survey by pollster grown to employ 35 workers and at the outer area of the residency,
tandem until Jan. 15. are worried. The older people dont TNS found 45% of Latvians are in fa- now uses modern machinery to make said a police official. The antiter-
The euro will be Latvias fourth understand why there is one price, vor of the euro and believe it will pallets to sell to European compa- rorism squad has taken over the in-
currency in just over two decades. then another, she says. They all benefit the economy by attracting nies. Mr. Andrejevs says he doesnt vestigation.
Under Soviet rule the country had believe we are cheating them. foreign investment and lowering sell to Russia because the market With Greeces economy stum-
the ruble. After independence in However, supporters say the euro borrowing costs. The poll allowed there is more unpredictable. bling through its sixth year of reces-
1991, it issued Latvian rubles nick- will better insulate an economy that for a range of responses on the euro Still, he worries the change to sion, many Greeks blame Germany
named repshi for the central bank suffered in Europes sovereign-debt including likely positive and very the euro will prompt his workers to as the architect and enforcer of the
chief at the time, Einars Repse, be- crisis, which almost sank the euro positive. ask for pay increases he cant afford, tough austerity measures tied to the
fore moving to lats in 1993. but has calmed significantly. Figures from another polling just because they are earning euros. countrys 240 billion ($330 billion)
Latvias pursuit of close ties to Half the sales of our cooperative company, SKDS, showed that in De- He says peers in neighboring Estonia bailout.
the West has been a consistent for- are in euros, says Egils Druvins, a cember just over 8% of Latvians warned him of this. However, relations have im-
eign-policy priority since it regained cucumber farmer in Iecava. We fully support adoption of the euro, But he doesnt question Latvias proved over the past year-and-a-
independence. The reason is sim- then have to change the euro to lats, while 16.5 % generally favored the policy of orienting itself toward Eu- half, as Greeces government has
ple, says Rasma Karklins, a law- which is a loss for us, and we wont euro, for a total of just under 25%. rope. The outgoing prime minister pushed ahead with overhauls in ex-
maker with the governing Unity have to do that anymore. Andrejs Andrejevs, who runs a has been an advocate for this policy change for that bailout, while Ger-
Party. Latvia has continued to be a Mr. Dombrovskis, in office since wood-products factory close to the and a new government, expected to man Chancellor Angela Merkel has
primary target for Russian soft and 2009, laid the groundwork for Latvia town of Zilupe near the Russian bor- be named in the coming weeks, will voiced her support for Greek Prime
not-so-soft power, including un- to become the 18th euro member, der, says he has his doubts about likely maintain it. Minister Antonis Samaras.

Schumacher in Critical Condition After Skiing Fall

BY GRALDINE AMIEL an induced medical coma after tests privacy of us and our friends and
showed he was suffering from bi- thank them for their support.
PARISMichael Schumacher re- lateral scattered hemorrhagic le- The news triggered a massive
mained in critical condition Mon- sions, Dr. Payen said. Comas can outflow of reactions and comments
day after the seven-time Formula be induced to help alleviate pres- on social-media platforms.
One race-car champion sustained sure in the skull. Like millions of Germans, the
serious head injuries in a skiing ac- Dr. Payen said it was too early chancellor and members of the gov-
cident in the French Alps, doctors to say whether Mr. Schumacher ernment were extremely aghast
at a local hospital said. would recover from his injuries when they heard about Michael
Mr. Schumacher, 44, was skiing and, if so, how long that would Schumachers serious ski accident,
off-piste near the luxury resort of take. He said a second round of sur- Chancellor Angela Merkels spokes-
Mribel on Sunday when he fell and gery had been ruled out for the man, Steffen Seibert, told report-
hit his head on a rock. He was time being, and that Mr. Schu- ers. We hope with Michael Schu-
Agence France-Presse/Getty Images

taken by helicopter to a hospital in machers condition was being con- macher and his family that he can
the nearby town of Motiers, be- stantly monitored. overcome the injuries and recover.
fore being transferred to a larger The retired German racing We wish his wife, his children, his
hospital in Grenoble as the extent driver was wearing a helmet when relatives in these difficult hours
of his injuries became clear. the skiing accident occurred. He fell strength and unity.
He was in a critical condition on his own and the accident didnt Everyone at Ferrari has been in
last night and remains in a critical involve anyone else, said police. a state of anxietyThat includes the
condition at this stage, Professor The manager of the Mribel re- president, Luca di Montezemolo,
Jean-Francois Payen said during a sort told French TV and radio that Michael Schumacher hit his head on a rock in a skiing fall in France on Sunday. who through the Scuderia team
news conference at the hospital. The Mr. Schumacher was conscious principal Stefano Domenicali is in
medic used a technical French ex- when he was being treated by a lo- turned with Mercedes in 2010. He erything possible to help Michael, constant contact with the family
pression indicating that Mr. Schu- cal medical team before being left the sport for good at the end of Mr. Schumachers family said in a and those close to the German
macher is in a life-threatening situa- flown to the Motiers hospital. the 2012 season. statement. We like to also thank champion, Italian F1 team Ferrari
tion. That is to say hes in intensive Mr. Schumacher won an un- The racers family, including his the people from all around the said in a statement. Mr. Mon-
care and his condition is deemed matched seven world titles and 91 wife, Corinna, were at his side, the world who have expressed their tezemolo has offered his encour-
very serious, Dr. Payen said. Grands Prix during his 17-year ca- Grenoble hospital doctors said. sympathy and sent their best wishes agement and support at this very
Doctors operated on Mr. Schu- reer with the Benetton and Ferrari We would like to thank the for Michaels recovery. We would difficult time, with the hope that
macher on Sunday and put him in teams. He retired in 2006 but re- medical team who we know do ev- like to ask the media to respect the better news will come soon.
6| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Home Prices Back at Peaks inSomeAreas
Recovery Remains Uneven as Cities Spared in Bust Soar, but Many Others Struggle; We Had No Bubble Here
BY NICK TIMIRAOS
Home prices have zipped back
into record territory in a handful of
American cities, a milestone that
comes seven years after the housing
bust ravaged the market and the
broader economy.
Values are up more than 13%
from their 2007 high in Oklahoma
City and by more than 6% in the
Denver metro area. Prices are back
to all-time highs in 10 of the na-
tions 50 largest metropolitan areas,
according to a Wall Street Journal
analysis of price data from Zillow,
an online real-estate information
service. Prices are within 5% of their
previous peak in San Jose, Calif.;
Nashville, Tenn.; and Dallas.
Prices nationally remain below
the highs of the past decade, and
many of the cities that have seen
the biggest gains largely escaped a
boom and bust.
Home prices in some parts of the
country that did experience a bust
have benefited from low supplies of
homes for sale and historically low
interest rates that have boosted
pricesand sparked concerns that
prices could again be overvalued.
The figures arent adjusted for
inflation, but experts say they un-
derscore the uneven nature of the
U.S. housing recovery.
The main story in a lot of these
places is that they didnt have much
of a housing recession. Its much
easier to be back at peak levels
when you didnt have a big boom
and bust, said Stan Humphries,
chief economist at Zillow.
But in those areas that did expe-
rience a downturn, he added, Im
surprised that we are back to peak
levels so quickly.
Brian Long of Colorado was sur-
prised, too. At the top of the hous-
ing bubble in 2006, Mr. Long paid
$667,500 for a five-bedroom home
in Lafayette, Colo., which is about
30 kilometers northwest of Denver.
Prices then fell 12% through 2011.
This summer, he sold the home for
$710,000.
The opportunity came up, so we
ran with it, said the 49-year-old
Mr. Long, who runs a company that
collects and sells market research.
The 10 metro areas enjoying a
full-scale rebound are based on fig-
ures for the entire region. The Wall
Street Journal also analyzed Zillow
price data individually in more than
Officials Authorize Testing of Commercial Drones
BY ANDY PASZTOR
Aviation officials on Monday se-
lected a handful of universities and
state agencies to operate sites for
drone testing, in a step toward
eventually integrating commercial
unmanned aircraft into the U.S. avi-
ation system.
Under the six operators chosen
by the Federal Aviation Administra-
tion, research will be conducted by
industry experts and academics on
the safe operation of drones, or un-
manned aerial vehicles, across a
broad array of geographical areas,
climates and types of airspace. The
work is expected to target every-
thing from federal certification of
the safety of commercial drones to
verifying a generation of new,
lower-cost sensors designed to
avoid midair collisions.
THE WALL STREET JOURNAL.
U.S. NEWS
4,400 cities and towns in the coun- considering recent sales and ap-
Metropolitan Divisions
trys largest metro areas. Nearly 10% praisals to determine the median
of municipalities have seen prices value of all homes for a given area.
reach new highs in 2013 when com- Some well-off communities in
pared with their previous peak, and coastal California, Boston and Wash-
prices are within 5% of their previ- BAY AREA 10%
Area peak, pre-2008 ington, D.C., which saw modest price
0
ous highs in 300 more. Afuent Silicon Valley has fared well, San Jose declines during the bust, are re-
These cities are largely excep- while values in more distant suburbs 10 San bounding quickly and reaching new
Francisco
tions, and prices in many parts of hit hard by foreclosures 20 highs because of supply shortages
the U.S. are still well below their remain depressed. 30 and better-than-average job growth.
peak. In some 1,500 cities, values 2004 10 Prices in Palo Alto, for example,
are still at least 25% lower than have jumped nearly 19% in the year
their previous highs. Nationally, val-
PITTSBURGH METRO 10%
ending in October and stood nearly
0
ues fell 23.8% between 2007 and Pittsburgh had little home price boom 40% above their 2007 peak, one of
2011 before rebounding 9.9% after and bust, and much of the metro area 10 the largest gains in the survey.
hitting bottom in late 2011; they are has recovered from any 20 What youre looking at, for the
now 16.3% below the high of the last 2008 declines. 30 most part, are high-end neighbor-
decade, according to Zillow. 2004 10 hoods that never saw the same de-
The Zillow data also reveal the gree of inflation in the first place,
extreme variationeven within a
OKLAHOMA CITY METRO 10%
said Christopher Thornberg, a hous-
0
particular metropolitan areaof the It mostly escaped the housing ing economist with Beacon Econom-
housing boom, bust and recovery. downturn, as population and job 10 ics in Los Angeles.
Prices are up 40% from their prior growth have fueled steady gains. 20 Some economists worry that
highs in Palo Alto, Calif., which is 30 home buyers along the coasts could
just 80 kilometers from San Pablo, a 2004 10 again be looking at homes as invest-
working-class suburb north of Oak- ments rather than as places to live.
land. Values there are still 54% be-
DENVER METRO 10%
To the extent that gains arent
0
low their peak. The region was among the rst where supported by rising rents or in-
While 38% of all Bay Area ZIP prices fell, but low supplies of homes 10 comes, you start to go, Geez, did
Codes are back above their prior for sale in many areas have helped 20 people get a little too excited?
peaks, prices in another 18% are push prices to new highs. 30 said Thomas Lawler, an independent
more than 25% below their previous 2004 10 housing economist in Leesburg, Va.
highs, according to the Zillow data. Source: Zillow Home Value Index reecting the median home value estimate The Wall Street Journal It is unclear how much longer
To find some of the nations buyers will continue to bid prices
steadiest housing markets, head to higher. Buyers often tell Mia Simon,
the Great Plains and Texas, which a real-estate agent with Redfin in
have enjoyed strong job and popula- Silicon Valley, that they are going to
tion growth tied to the oil, mineral sit out the market. They say, This
and gas industries. is crazy. This cant continue, she
We had no bubble here, so there said. The rest are like, Why didnt
was really no reason for prices to I buy in 2010 or 2011? A separate
drop, said Keith Taggart, a real-es- concern is that low interest rates
tate agent in Mustang, Okla., and have distorted prices. Most home-
president of the Oklahoma City owners who need a mortgage shop
Metro Association of Realtors. for a home based on their monthly
Nearly 2,000 people relocate to the payment. The Federal Reserves pol-
Matthew Staver for The Wall Street Journal
area every month, creating demand icies have kept mortgage rates near
for homes, he said. At the same all-time lows. While those rates
time, theres plenty of land to de- have helped make homes extremely
velop, so prices dont rise in any affordable, homes could look much
outrageous way, Mr. Taggart said. less affordable once mortgage rates
In August, Gwen Thompson and rise, especially if prices have
her husband sold for $92,000 the zoomed higher.
three-bedroom home in Mustang What youve got is something
that they paid $65,000 for in 1995. other than a sensible market-decid-
People keep moving here, and ing price. Youve got it goosed by
that really helped hold value, said Brian Long, at his new home this month in Boulder, Colo., recently sold a house the terms of finance, which are ex-
Ms. Thompson, a 45-year-old execu- in nearby Lafayette for more than he paid at the housing bubbles peak in 2006. traordinary, said Robert Albertson,
tive assistant at a local bank. She chief strategist at Sandler ONeill +
and her husband broke ground last ous high, according to the Journal The Zillow data compared prices Partners, an investment-banking
month on a $245,000 home that is analysis. Values in more than 60% of in October with the previous de- firm in New York. Prices shouldnt
being built one town over. ZIP Codes in five other metro ar- cades peak price, which for most be up this high, this quickly. Its a
Nearly every ZIP Code in Okla- easTulsa, Okla.; Buffalo, N.Y.; cities was reached between 2005 big, flapping yellow flag saying
homa Citys metro area is at a re- Rochester, N.Y.; Austin and Denver and 2007. The company uses a pro- were back in territory that we
cord high or within 5% of the previ- have reached new highs. prietary model to estimate values, should not be in.
The FAA, however, stopped short University. The first site is expected for drones, were among those was to choose varied sites that will
of committing itself to a specific to begin operating within six passed over by the FAA. provide a great platform to con-
timetable for permitting widespread months. Would-be users and manufactur- duct research across the country.
use of unmanned commercial air- States and universities hope that ers of commercial drones will be Mr. Huerta also stressed that the
craft across U.S. skies. by moving to the forefront of this able to negotiate their own test re- FAA intends to pursue a staged in-
Currently, law-enforcement agen- type of research, their efforts will gimes with site operators, which tegration of unmanned aircraft into
cies, universities and some environ- create new jobs, generate additional arent receiving any FAA funds. Data the nations airspace, based largely
mental organizations are allowed to collected from the sites will be used on the research results from the test
fly remotely piloted aircraft in to help shape the FAAs ultimate in- sites. Agency officials will see
clearly delineated corridors or The data collected will dustrywide rules and operational where the research takes us, he
swaths of U.S. airspace. The FAA has procedures, including how to inte- said, without elaborating.
been facing escalating industry and
help shape eventual grate drones with planned upgrades Congress previously called on
congressional pressure to move industrywide rules. of air-traffic control networks the FAA to finalize a plan for wide-
more quickly to open up additional Selecting the test sites, where ranging uses of unmanned aircraft
airspace. research is expected to continue in U.S. airspace by 2015, though
The winning applicants were the through at least 2017, was mandated many experts now believe that such
commerce department of North Da- interest from drone manufacturers by federal legislation and has been authorization wont come until 2020
kota; the state of Nevada; a public and provide a big shot in the arm to closely monitored by industry offi- or later. Routine flights by tens of
airport some 250 miles north of local economies. cials eager to push ahead with such thousands of government and com-
New York City; the University of Researchers from California, technology. FAA chief Michael mercial drones arent expected until
Alaska; Texas A&M University in which submitted two independent Huerta told reporters the agency re- at least 2025, based on industry
Corpus Christi; and a partnership proposals and where much of the ceived some two dozen proposals analysis and previous comments by
between Virginia Tech and Rutgers early developmental work was done overall, emphasizing that the goal Mr. Huerta and other FAA officials.
 THE WALL STREET JOURNAL.
Seattle Times/Associated Press
Workers at Taylor Shellfish Farms in Shelton, Wash., handle geoduck, which are considered a delicacy in China.
U.S. and China at Odds
Over Prized Giant Clams
BY JESSE NEWMAN
This normally is peak season for
divers like Joe Williams, who search
the chilly waters of the Pacific North-
west for giant clams called geoducks
that are a delicacy in China.
But Mr. Williams and fellow clam
harvesters are now scrounging to re-
place their usual winter haul of hun-
dreds or thousands of dollars a day,
after China in December halted im-
ports of geoducks and other shell-
fish from the U.S. West Coast be-
cause of alleged contamination.
Its the first time Ive heard of
anything like this, said Mr. Wil-
liams, who has been plumbing the
depths of Washingtons Puget
Sound for nine years. Some guys
are crabbing. Im harvesting sea ur-
chins and sea cucumbers now, but
theyre nowhere near as lucrative
as geoduck.
Chinese officials said they acted
after inspections of U.S. shipments
of geoduck (pronounced gooey-
duck) found traces of arsenic and
paralytic shellfish poisoning, a toxin
that can cause serious illness or
death in humans. U.S. officials in
charge of approving shellfish for ex-
port say their records show the
shipments in question were safe for
human consumption. They are seek-
ing more information from China.
Meanwhile, divers from Northern
California to Alaska lost their main
livelihood just as the holidays hit,
while geoduck farms that grow the
creatures in captivity are cutting
back employee hours. The industry
had grown in recent years amid ex-
ploding demand from China, where
eating geoduck is said to bring viril-
ity and prosperity.
U.S. geoduck exports hit $68
million in 2012, up from $21 million
in 2004, according to data from the
National Oceanic and Atmospheric
Administration. Roughly 90% of the
clams from Washington, by far the
biggest producer, go to China, said
Ron Steckler, a North American
buyer for Chang International, a
Chinese seafood company. The
fleshy clams, which resemble an el-
ephants trunk protruding from a
shell, can live to about 150 years
and reach 20 pounds, although on
Rising Tide
U.S. geoduck exports
10 million pounds
8
6 and revenue. The Food and Drug Ad-
4 more information about their test-
2
0 State investigators have tracked
2003 05 07 09 11 the geoduck shipment that China
Source: NOAA data compiled by
Northern Economics
The Wall Street Journal
average they are smaller. Dug from
the seabed at depths of up to 70
feet, the clams are flown live to
China, eaten raw, fried or sauted.
Demand and prices skyrocket
around the Lunar New Year, which
falls on Jan. 31 in 2014, with top-
quality geoduck fetching up to $150
a pound at retail in Beijing.
Among those hit by the ban is a
group of Indian tribes in Puget
Sound whose waters are home to
some of the worlds largest geoduck
colonies. Washingtons tribes by law
are entitled to half the states catch.
Its really bad, said Tony Fors-
man, general manager of Suquamish
Seafoods Enterprise, a tribe-owned
company that processes $6 million to
$8 million of geoduck a year.
Twenty-five divers are out of work.
We laid off 90% of our plant work-
ersThats a lot of families that
arent getting an income.
Mr. Williams, a member of the
Swinomish Indian Tribe and a father
of five, said he could be out $60,000
this season if trade remains closed.
Ill do whatever I can to keep food
on the table, he said.
Taylor Shellfish Farms, one of
Washingtons largest geoduck pro-
ducers, has cut hours for employees
and may have to let some go, said
spokesman Bill Dewey. He fears U.S.
officials will return to work in Janu-
U.S. NEWS
ary just in time for Chinese officials
to begin their holiday season. We
desperately want to see this get re-
solved before then, he said.
A bipartisan group of lawmakers
from the Pacific Northwest urged
federal agencies on Dec. 20 to nego-
tiate a quick resolution with China,
expressing concern over lost jobs
ministration and NOAA say they are
pressing Chinas government for
ing. Ultimately, China will decide
when and whether to lift the suspen-
sion, said NOAA Fisheries spokes- nomic growth and employment
woman Lt. Fionna Matheson.
omy has fallen 10 points to 39%.
flagged for high levels of paralytic
shellfish poisoning, or PSP, to Ketchi-
kan, Alaska. The shipment China
cited for arsenic came from Poverty
Bay in Puget Sound. Alaskas Depart-
ment of Environmental Conservation
said in an email its records indicate
that the geoduck shipment in ques-
tion contained nothing near the
[PSP] levels that China reported.
Alaskan fishermen have yet to
feel the effects of the ban because
bad weather and high PSP levels
prevented divers from harvesting
geoduck in December, said Phil Do-
herty, executive director of the
Southeast Alaska Regional Dive
Fisheries Association. Divers on the
West Coast test geoducks weekly for
PSP. If levels are too high, fisheries
arent supposed to open. quashed complaints by the partys
Washington state officials say
levels of inorganic arsenic are typi-
cally very low in shellfish. While
there is no state or federal safety
standard for arsenic in shellfish, the
levels China reported are more than
10 times higher than the Washington
state health departments last test of
the waters near Poverty Bay found
in 2007, officials said.
Chinas General Administration
of Quality Supervision, Inspection
and Quarantine declined to say how
long the suspension might last. The
agency is asking the American side
to investigate and report the result
to us as soon as possible, the state-
ment said.
Lilian Lin
contributed to this article.
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 7
ObamasTest:Bargain
WithorConfrontGOP
Continued from first page
extended unemployment benefits.
For most of 2013, after the burst
of optimism brought on by his re-
election and second inaugural, Mr.
Obama was unable to move key
parts of his legislative agenda such
as new controls on gun sales. Mean-
time, his seeming indecision on
whether to actively engage in
Syrias civil war has hurt his image
as a leader as that conflict festers
and Syrian President Bashar al-As-
sad remains in power.
Worst of all for the White House,
of course, was the disastrous rollout
of the Affordable Care Act, and the
deep blow to the presidents per-
sonal credibility from the publics
realization that his declaration that
Americans could keep their health-
insurance plans when the law kicks
in wasnt turning out to be entirely
true. Now, the Affordable Care Act
hovers over everything, says Mike
McCurry, former White House press
secretary under Bill Clinton.
The toll can be seen in the arc of
public opinion in Wall Street Jour-
nal/NBC news polling through 2013.
Mr. Obamas job approval has fallen
to 43% from 52% at the start of the
year, leaving him not far above
where George W. Bush stood at the
same point in his difficult second
term. The percentage of Americans
who give him high marks for achiev-
ing his goals has plummeted 16 per-
centage points, to just 28%.
Perhaps worst for Mr. Obama,
the share of Americans who give
him good marks for being honest
and straightforward has dropped 10
points to 37%.
As a result, Mr. Obama, at years
end, doesnt seem to be getting
credit even for the economys im-
provement. Even as the stock mar-
ket reaches record highs and eco-
notch up, Americans approval of
Mr. Obamas handling of the econ-
mine whether Republicans can take
Mr. Obamas main consolation is
that Republicans continue to fare
even worse in public estimation. In-
deed, his political high point in 2013
came when congressional Republi-
cans shot themselves in the foot by
allowing the government to shut
down in October in a dispute about
funding the presidents health law, a Republican President Ronald Rea-
development that gave Mr. Obama a
temporary boost and sent Republi-
cans fortunes plummeting.
Republican leaders were so
singed by the experience that they
moved swiftly this month to strike
the compromise budget plan that
will keep the government open and
funded through next year. Then,
House Speaker John Boehner, a Re-
publican from Ohio, forcefully
argument that steps are needed to
tea-party wing that the new deal
didnt cut spending sufficiently.
The emergence of a large bloc of
House Republicans who voted in fa-
vor of that compromise has created
the possibility that Mr. Obama may
be able to work out at least a few
deals on other issues to get his
agenda moving. The jurys still out
on whether or not the budget agree-
ment was a one-off or a sign of
things to come, says Rep. Chris Van
Hollen of Maryland, the top House
Budget Committee Democrat.
The early test of that question,
Rep. Van Hollen says, is whether Re-
publican leaders are willing to break
with tea-party forces and work out
a compromise to raise the nations
debt ceiling, due to be hit around
the beginning of March. House Re-
publican leaders, including Budget
Committee Chairman Paul Ryan,
have said they would expect some
budgetary concession in return for a
higher debt ceiling, but it isnt clear
whether that is designed to set up
confrontation or negotiation. If
there is a new phase of cooperation,
Mr. Van Hollen says, that might
open the door to deals on increased
spending on infrastructure, corpo-
rate tax reform and, crucially, an
overhaul of immigration laws.
That possibility brings Mr.
Obama to his key strategic choice:
Does he focus on trying to craft
such compromises with congressio-
nal Republicans? Or are he and his
fellow Democrats better off if he
strikes out on his own with execu-
tive actions to implement his poli-
cies, while attacking the GOP for
failing to cooperate?
Whether more deals are possible
with congressional Republicans is
perhaps the question when it
comes to predicting how 2014 will
play out, says a senior White House
official. Our approach will be to
test as much as possible for princi-
pled compromise where Republicans
are willing, but also to push ahead
with nonlegislative solutions where
Congress stonewalls.
Some observers wonder whether
the presidents recent decision to
hire former White House chief of
staff John Podesta, a champion of
muscular use of executive action to
pursue core Democratic goals, sug-
gests he is preparing for more con-
frontations with congressional Re-
publicans. In a 2010 statement while
running the Center for American
Progress, a think tank, Mr. Podesta
wrote that the ability of the presi-
dent to enact policies on his own
should not be underestimated.
The question will be complicated
by electoral calculations. Midterm
elections in November will deter-
advantage of Mr. Obamas woes to
capture the Senate as well as keep
control of the House, and leaders of
both parties will be under pressure
to demonize the other party.
That means Mr. Obama is really
in a box here, says Kenneth Duber-
stein, White House chief of staff for
gan. He has an opportunity to move
to the center to take advantage of
the new willingness of Mr. Boehner
to defy the tea party in the House,
he says, but some Democrats will in-
stead want him to emphasize more
liberal policies to excite the Demo-
cratic base before the election.
One area Mr. Obama is sure to
emphasize, starting with his State of
the Union address on Jan. 28, is his
reduce the level of income inequal-
ity in the U.S. Mr. Hart, the Demo-
cratic pollster, argues that inequal-
ity is one subject where Mr. Obama
can bring the passion back to his
administration.
Still, the biggest question for Mr.
Obama may well be the relationship
between Republican leaders and tea-
party activists, an issue that isnt
in his hands, says Neera Tanden,
president of the liberal Center for
American Progress.
One issue that is in his hands is
how the health law plays out. The
question of whether its a huge di-
saster in the elections of 2014 or a
modest benefit (to Democrats) de-
pends on whether its working by
November, says Ms. Tanden.
8| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
CHINAS WORLD | By Andrew Browne
The Year Mao Met the Smartphone
BEIJINGElsewhere in the
world, people wake up and check
the weather forecast. In China,
they now open a smartphone app
to find out how bad the air is.
That, in itself, represents a big
advance in the past year, as the
government bowed
to public pressure
to increase
transparency about
the true extent of
air pollution
choking Beijing and
other cities and to
take steps to clean it up.
It was a banner year for the
intersection of government
accountability and technology in
other ways, too.
Smartphone cameras wielded
by digital vigilantes became the
scourge of officials trying to sneak
around a campaign against
government extravagance launched
by President Xi Jinping, who took
European Pressphoto Agency
over as head of state in March.
Yet heres the contradiction at
work in China: In a year when
technology in the hands of citizens
pointed at a new future, the
political climate was decidedly
retro. The figure who cast the
longest shadow was a historical
one: Mao Zedong.
His presence was felt
everywhereon TV news
broadcasts, in schools and colleges,
in government offices and
Communist Party gatherings.
Mr. Xi, more than any of his
recent predecessors, has borrowed
the harsh political control methods
of the Great Helmsman and used
them as tools to battle corruption
within the party and consolidate
his power.
Chinas younger generation
those not even born when Mao
died in 1976saw Maoism in
action with a mass-line political
campaign aimed at purifying the
Chinas Leader Faces Work to Trim Swelling Local Debt
Continued from first page
makers to control.
Reining in local-government
projects has been tricky for Beijing.
China is dotted with vacant or un-
derutilized housing developments,
industrial parks, business districts
and even entire cities, the product
of overambitious plans by local gov-
ernments.
In the short term, the construc-
tion of empty buildings helped
boost output. But longer term,
many of those projects have become
a financial burden, soaking up
money to repay lenders and leaving
many local governments short of
funds for social spending, which in
turn creates the potential for local
unrest.
Mr. Xi is heading what is called
the leading group for overall re-
form, which will take a key role in
pushing reforms outlined in Novem-
ber by top Communist Party lead-
ers.
The swelling debt problem pres-
ents Mr. Xi with a menu of bad
choices, say economists. He can es-
sentially try to muddle through and
avoid a bust by providing somewhat
more central government funds and
using regulation and backroom or-
ders to banks to tighten restrictions
on loans. But that would make local
governments more dependent on
A Beijing vendor shows a souvenir with an image of Xi Jinping, left, and the late Mao Zedong.
partys ranks, including televised
self-criticism sessions for senior-
level cadres.
The most prominent target of
the anticorruption campaign in
2013 was Bo Xilai, a princeling
rival of Mr. Xi, who was jailed for
life in September. His trial,
ironically, highlighted the way
authorities are acceding to public
pressure for greater openness: The
court issued edited transcripts of
the proceedings on Chinas
Twitter-like Weibo service.
Mao is one of historys great
survivors. More than three decades
ago, the guardians of his legacy
A Local Problem
Local government liabilities as a
percentage of GDP
CHINA U.S.
(End 2012) (End of
Sept. 2013)
31% 18%
Sources: National Audit Ofce, St. Louis Fed,
WSJ reporting
The Wall Street Journal
loans from trust companies, leasing
firms and informal lendersso-
called shadow bankerswhich
charge higher interest rates than
banks. As a result, debt levels could
rise further.
Or he could attack the problem
aggressively by raising taxes, selling
off assets and allowing some de-
faults as a way to warn financial
firms or local governments of the
risks involved.
Currently, economists say, lend-
ers believe the central government
will always step in to forestall de-
fault, which encourages further
risky lending. But allowing a default
WORLD NEWS
engineered his improbable
transition to the new era of
markets in China. They did this by
decreeing that China was now a
socialist market economy.
In other words, there was no
contradiction between the
doctrines of Mao, to whom
markets were anathema, and the
capitalist forms that China was
then embracing.
But the march of technology
has made ideological acrobatics of
that kind harder to pull off.
A big unanswered question that
the past 12 months has posed is
whether Mr. Xi can repurpose
could backfire if other lenders get
spooked and demand higher inter-
est rates for new loans or bonds.
The risk is that costs suddenly
go up for a lot of these local-gov-
ernment vehicles and more go
broke, says Mr. Green.
Cornell University China expert
Eswar Prasad says that while
China has enough resources to pre-
vent the local-government debt
problem from turning into a full-
blown debt crisis, the rapid growth
in Chinas debt poses significant
risks for the stability of Chinas fi-
nancial system.
Chinas local government debt
relative to economic output has bal-
looned. At the end of 2012, borrow-
ing equaled about 31% of Chinas
gross domestic product, up from
26.6% in 2010. In the U.S., state and
local debt was about 18% of GDP at
the end of September, according to
the St. Louis Federal Reserve Bank.
As of June 2013, Chinas local
governments were liable for 10.12
trillion yuan worth of bank loans,
accounting for about 56.6% of local
governments total debt. That is
well down from the almost 80%
share at the end of 2010 when local
governments owed 8.47 trillion
yuan to the banks.
Instead, loans from shadow
bankers have become a more impor-
Maoism in the mobile age. Or, put
another way: Is Mao-style
socialism compatible with
smartphones?
The market-research firm
Canalys calculates there are now
353 million smartphones in China,
versus 139 million in the U.S., and
that number will reach almost half
a billion by 2015some 40% of
Chinas entire population.
One of the biggest business
stories of the year in China was
Apple Inc.s announcement in
December that it planned to start
offering its latest iPhones on the
China Mobile network, the worlds
tant source of finance, accounting
for 11% of new lending. Such lending
wasnt specifically counted in the
2010 audit. Loans from such shadow
banking sources typically carry
higher interest rates than those
from banks, often in excess of 10%.
Shadow lenders usually hold less
capital against potential default
Changing Mix
Chinese local government liabilities,
in trillions of yuan
Bank loans
End of June 2013 10.1
End 2010 8.5
Bonds
1.8
0.8
Shadow banks
2.0
N/A
Loans from individuals and other rms
0.8
1.0
Other
3.1
0.4
Total
17.9
10.7
Note: The 2010 audit was not as comprehensive
as 2013.
Source: National Audit Ofce
The Wall Street Journal
THE WALL STREET JOURNAL.
largest with more than 700 million
subscribers. Apple shares jumped
on the news.
Mr. Xi appears to firmly believe
that the fate of the Communist
Party is tied up with the
preservation of Maos legacy.
His bottom line, in other words,
is that the mobile age will have to
accommodate itself to Mao, not
the other way around. As a
consequence, the biggest political
battles of the year were fought out
in the digital arena.
A crackdown on the Internet,
ostensibly in the name of
combating rumor-mongering,
effectively shut down social and
political debate on Weibo.
Among the most prominent
casualties were online opinion
leaders, including public
intellectuals and billionaire
entrepreneurs.
An abiding image of 2013 was
that of Charles Xue, a white-
bearded venture capitalist with
more than 12 million followers on
Weibo, paraded in front of TV
cameras after his arrest on charges
of soliciting prostitutes. Mr. Xue
hasnt commented on those
charges, but admitted on TV to
having been sloppy about checking
information he spread online.
Freedom of speech cannot
overrule the law, he said.
Mr. Xi and the entire Politburo
Standing Committee rounded out
the year by lining up at Maos vast
mausoleum on Tiananmen Square
last week to pay their respects on
the 120th anniversary of his birth,
bowing deeply three times.
And yet, Mr. Xi also appears
aware of the dangers of letting the
new Maoism go too far. Media
coverage of Maos birthday
memorials was muted, in line with
Mr. Xis instructions to make the
activities solemn, simple and
pragmatic.
while making more risky loans than
banks, giving them less of a cushion
if the local governments arent able
to pay their bills.
Bond issuance by local govern-
ments has also increased, account-
ing for 10.3% of local government li-
abilities at the end of June, up from
7.1% at the end of 2010.
Overall, Chinas domestic debt,
including local governments, state-
owned enterprises, real-estate de-
velopers and individuals has bal-
looned to 216% of GDP this year
from 128% in 2008 and could climb
to 271% by 2017 if not corrected, ac-
cording to Fitch Ratings. Econo-
mists note similar credit run-ups in
countries in Europe, Asia and Latin
America have ended in crashes, al-
though few predict an imminent cri-
sis in China.
Beijing has said that controlling
local debt is a priority for 2014.
Mr. Xi has made austerity an im-
portant part of his reform agenda.
Earlier in 2013, Beijing warned local
governments against building
overly elaborate offices that some-
times copy famous buildings from
overseas, like the U.S. Congress.
People in China often scoff that new
government buildings in their town
have more rooms than employees.
Richard Silk and Grace Zhu
contributed to this article.
 THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 9

WORLD NEWS

Weather Impedes
Antarctic Rescue
BY ROSS KELLY
SYDNEYSnow showers, strong
winds and poor visibility are ham-
pering attempts to rescue dozens of
researchers, holidaymakers and
crew on a ship trapped in Antarctic
ice for almost a week.
Australias maritime authority
said the Aurora Australis, a vessel
designed to break through thick
blocks of ice, had come close to the
MV Akademik Shokalskiy, a Russian
ship that remains stranded after
two earlier rescue attempts by other
icebreakers failed.
The latest attempt to reach the
passengers and crew was aborted
after harsh weather forced the Aus-
tralian rescue vessel back into open
waters having come within 10 nauti-
cal miles (11.5 miles) of the dis-
tressed ship, the authority said late
Monday.
The icebreaker vessel is cur-
the Australian search-and-rescue
zone of Antarctica, putting the Aus-
tralian maritime body in charge of
the rescue operation.
The Chinese rescue vessel, Snow
Dragon, earlier came within 7 miles
of the stranded ship, but turned
back after it became clear the ice
was too thick to penetrate. The
French attempt couldnt get closer
than that.
It is likely that a helicopter on
the Chinese ship would be used to
winch passengers out if the Austra-
lian ship failed to get through the
ice, a spokeswoman for the mari-
time authority said. In its latest up-
date, the maritime body said it was
too dangerous to attempt a helicop-
ter rescue at this time.
The research team on board, led
by Professor Chris Turney from the
University of New South Wales, set
out Dec. 8 on a mission to update
scientific records on Antarctica

Reuters
rently some 18 nautical miles away made around a century ago by
from its target. Douglas Mawson, an Australian ex-
These weather conditions have plorer. Pack ice, solid sheets of ice Congolese forces secure a street outside the television station that was taken over by gunmen Monday.

Gunmen Launch Series

resulted in poor visibility and made
it difficult and unsafe for the Aurora
Australis to continue todays at-
tempt to assist, the Australian
Maritime Safety Authority said in a
up to several meters thick, is a ma-
jor hazard for vessels navigating the
harsh Antarctic climate, where tem-
peratures can fall to below 100 de-
grees Fahrenheit.

statement. Further rescue efforts
may be made, it said.
The Russian ship, carrying 74
people and chartered by a team of
scientists, first sent out a distress
call on Christmas Day after getting
stuck in ice about 1,500 nautical
miles south of Hobart, the capital of
Australias Tasmania state.
French and Chinese icebreakers
have already failed to reach the pas-
sengers, who are believed to have
several weeks of essential supplies
left. The Russian ship is trapped in
Reuters
In 1985, the Nella Dan, an Aus-
tralian research vessel, was trapped
for 48 days in the Antarctic. A year
later, the Southern Quest, carrying a
British expedition, was crushed by
ice and sank. In 2010 icebreakers
had to be used to free almost 1,000
people whose ferry was among doz-
ens of vessels trapped by ice in the
Baltic Sea off the coast of Sweden.
The remoteness of Antarctica
means it can take aircraft longer to
reach people in distress than to fly
a jet from New York to London.
Of Attacks in Congo
BY NICHOLAS BARIYO
Congolese troops repelled a se-
ries of coordinated attacks in the
capital Monday, killing at least 40
gunmen in what appeared to be an
unsuccessful uprising by supporters
of former presidential candidate Jo-
seph Mukungubila.
In the latest flashpoint in the
mineral-rich, restive African nation,
more than 70 gunmen launched si-
multaneous attacks on the countrys
main airport, the headquarters of
the army, and the offices of the na-
tional television station, Informa-
tion Minister Lambert Mende said.
The attackers initially took con-
trol of the national television sta-
tion after overpowering police
guards and barricading themselves
inside the building, with about a
dozen hostages, aid officials and
witnesses said.
Before the army took control of
the broadcaster, the gunmen said in
a statement that they had come to
from the slavery of the Rwandan.
Reinforcements from the Repub-
lican Guards helped the military re-
gain control of the television station
after more than an hour of fighting,
Mr. Mende said.
A few hours after repelling the
attack in Kinshasa, Congolese troops
clashed with scores of Mr. Mukun-
gubilas supporters in the countrys
second-largest city of Lubumbashi.
Mr. Mende said about a dozen at-
tackers were arrested in connection
with the clashes in the two cities.
Attacks at the airport and the
military headquarters were also
beaten off, restoring uneasy calm in
Kinshasa, the capital. The govern-
ment didnt say how many casual-
ties the army suffered in the
clashes.
The army is in control, the at-
tackers are in disarray, Mr. Mende
said. Investigators are now trying to
ascertain whether there are links
between the attackers and Mr. Mu-
kungubila, he added.
2006 elections against Mr. Kabila
but managed less than 1% of the
vote. He has since accused Mr.
Kabila of undermining the interests
of the country in exchange for fa-
vors from foreign governments.
The vast African country is home
to the worlds largest reserves of co-
balt, as well as tantalum, a gray-
blue metal used in the manufacture
of smartphones and personal com-
puters, but it has been plagued by
violent insurgencies since the late
1990s.
A 21,000-strong United Nations
peacekeeping mission helped the
Congolese army defeat in November
a 20-month rebellion orchestrated
by the M23 rebels. Mr. Mukungubila
has criticized the government for
signing a peace deal and accused
Mr. Kabila of bowing to Rwandan
interests.
U.N. investigators have repeat-
edly accused Rwanda and Uganda of
backing the M23 rebellion, a charge
denied by the two countries.

liberate the Congolese people from Mr. Mukungubila couldnt be A U.N. military spokesman in
President Joseph Kabila and that reached to comment. Congo couldnt be reached to com-
The MV Akademik Shokalskiy is pictured stranded in ice on Sunday. Mukungubila has come to free you Mr. Mukungubila fought the ment.

Syrian Chemical-Arms Deadline Is Set to Be Missed

BY LAURENCE NORMAN
The group charged with oversee-
ing the dismantling of Syrias chem-
icals-arms program is set to miss
Tuesdays deadline for removing the
most dangerous weapons from the
country because of volatile security
conditions and various logistical
challenges.
The Organization for the Prohibi-
tion of Chemical Weapons and the
United Nations said over the week-
end that the year-end deadline for
removing the most dangerous arms,
which include mustard gas, sarin
and VX, likely wouldnt be met. An
OPCW spokesman confirmed that
remained the case on Monday.
The OPCW said the delay, which
was widely expected, was due to a
range of factors not least the con-
tinuing volatility in overall security
conditions, which have constrained
planned movements. The OPCW
said bad weather and the logistical
challenges of lining up safe trans-
port of the weapons had contributed
to the delay.
No new deadline has been set to
carry out and complete the work,
the OPCW spokesman said. The situ-
ation will be reassessed at a meet-
ing of the OPCWs executive board
Jan. 8. The same day, OPCW-U.N.
Special Coordinator Sigrid Kaag will
provide an update to the U.N. Secu-
rity Council on the work.
Under the OPCW-approved plan, posed to be loaded onto a U.S. ship
the most dangerous category of and destroyed at sea.
Syrias chemical weapons were to be The OPCW still hopes less-lethal
transported to the port of Latakia, weapons, which make up more than
half of Syrias chemical arsenal, will
be destroyed on the territories of
No new deadline has been willing countries by private compa-
nies.
set. The situation will be On Saturday, the spokesman for
reassessed at a meeting U.N. Secretary-General Ban Ki-moon
said there would be a limited de-
of the OPCWs executive lay in the transport of the most
board Jan. 8. dangerous weapons out of Syria.
However Mr. Bans spokesman
said the joint OPCW-U.N. mission
would continue working inten-
where they would be shipped on sively with the Syrian government
commercial vessels provided by to begin safe and secure removal
OPCW members. They are then sup- and transportation operations as
soon as possible.
The OPCWs campaign in Syria
was set out in a U.S.-Russian agree-
ment following an Aug. 21 chemical
attack near Damascus that the U.S.
said killed more than 1,400 people.
Under the plan, the OPCW must
oversee the destruction of Syrias
chemical-weapons stockpile, esti-
mated at roughly 1,000 tons, within
the first half of 2014.
The OPCW met its Nov. 1 dead-
line for destroying critical chemical-
weapons-production equipment,
which the Netherlands-based orga-
nization said means Syria cant pro-
duce new weapons.
Naftali Bendavid
contributed to this article.
10| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
On the Run From War,
SyriasYouths Grow Up Fast
BY FARNAZ FASSIHI
Beirut
B
ack home in Syria, Omar al-Kurdi was
always the good kid. He got top
grades. He helped his disabled father
manage a small shop selling cigarettes and
snacks. He hung laundry for his mother.
Now, as a refugee in Lebanon, Omar is
again the good kid, this time as the familys
breadwinner, working 14 hours a day in a
vegetable shop. His salary of $15 a day pays
for rent and food.
At the beginning, I got tired of the re-
sponsibilities, he said, walking to work
shortly after dawn on a cool fall morning.
I was comfortable in Syria. Here I have to
worry all the time. But Im used to it now,
what choice do I have?
As he does every day, Omar woke up
quietly while the sky was still dark and his
parents and six siblings, ages 2 to 18, slept
in a cluster of thin mattresses spread on
the floor of the familys one-room apart-
ment. The three youngest children share a
spot on their mothers single mattress.
Omar tiptoed to a small storage room
and flicked on a light. He sifted though the
bottom shelf of a cupboard that held his
wardrobe: three T-shirts, a sweater, two
pairs of socks and two pairs of pants. He
dressed and combed his hair.
In the kitchen, Omar found a cup of rich-
scented Arabic coffee left on the counter by
his mother, who awoke for morning prayer.
The scrawny 17-year-old boy had no time or
budget for breakfast.
A pickup truck delivering the days pro-
duce waited for Omar at the curb near the
vegetable shop. He climbed up and began
unloading. His skinny arms lifted boxes of
eggplants and bananas. He dragged heavy
sacks of potatoes and onions, sliding them
off the truck to the pavement.
Omar sorted through the shops stock of
herbs and vegetables. His fingers expertly
separated out the rotten pieces. He took
out the trash, swept the floor and, in less
than an hour, opened the shop, ready for
business. Omar is a hard worker and more
important he is very polite, said Joseph
Nakhle, the shop owner. Thats the reason
Ive kept him around.
Omar didnt say that in Syria his grades
were good enough for a shot at college, or
that when he finished ninth gradehis last
formal schoolingpursuing a degree in
physical therapy seemed a plausible goal.
His fathers legs were partially paralyzed
from a childhood disease, and Omar became
interested in physical therapy on trips to
his fathers doctor.
But circumstance, Omar said, took him
from Syria to the vegetable shop in Beiruts
working-class neighborhood of Borj
Hamoud. Before the war, I was a happy
kid, he said, hanging a bunch of bananas
on a hook.
Omar aimed to look cheerful but tough.
He liked projecting a demeanor that sug-
gested he was game for hard work without
complaint. Toughness, he thought, ensured
job security in a labor market filled with
desperate Syrian refugees, adults and chil-
dren. Syrians stopped by the vegetable
shop every day to ask for work; nearly all
of them, Omars boss said, boys younger
than 17. I already have one Syrian, Mr.
Nakhle would say, pointing to Omar. Go
someplace else.
Since he started working at the shop a
year ago, Omar determined that Mr. Nakhle,
a burly middle-aged Christian, had no toler-
ance for anxiety or weakness, either physi-
cal or mental.
IN DEPTH
Omar also learned that the ladies in the
predominately Armenian Christian neigh-
borhood, who occasionally tipped Omar a
few cents for carrying their grocery bags
home, had tired of the woes of Syrian refu-
gees.
So Omar smiled often, greeted custom-
ers politely and only spoke to answer ques-
tions. Occasionally, a customer asked about
his family, and he gave the same short re-
ply: Hamdullelah, Thank you, God.
Privately, Omars optimism was waning.
He was often hungry and tired. He worked
six days a week from 7 a.m. to 9:30 p.m.,
and a half day on Sundays, earning about
$400 a month. He got an hour for lunch,
which he usually spent at home, resting.
Omar wasnt allowed to sit at work. The
Road to Refuge | The al-Kurdi familys path from their home in Syria to Beirut
Mediterranean
Sea
Beirut
Omar arrived on his own
5 November 2012; family came
at the end of February 2013
LEBANON
10 miles
10 km
Source: interviews with the family
shops single chair was behind the cash reg-
ister.
Omar worried about making ends meet.
Winter was coming and his family needed
blankets and a carpet for the bare tile floor.
My salary comes from this hand and goes
out the other, he said.
Eid al-Adha, one of the Islamic calendars
major holidays, was in October, and Omars
mother, Raghda al-Kurdi, searched the
pocket of her dress for a sweet to give her
three youngest kids.
The 38-year-old mother pulled out a
stick of chewing gum that she divided into
three pieces and placed on the tiny open
palms of Nour and Saad, the 5-year-old
twins, and 2-year-old Majed.
Chew it slowly for the sweet taste to
last longer, she said in a soft voice.
The homes only decoration in 2013 was
a strip of bright pink tinsel taped to the
bottom of a TV the family had salvaged. Ms.
al-Kurdi found the tinsel on the sidewalk,
perhaps dropped from a holiday shopping
bag. The children played with a blue plastic
ball on the floor. When an Arabic music
video aired on TV, Majed stood and swayed
his arms. Everyone laughed.
Its a good thing he is too young to have
memories of home. He is not sad like the
rest of us, said Omars father, Abdel Nasser
al-Kurdi. The 42-year-old man sat on the
sofa, his crutches next to him. He suffers
from diabetes and high blood pressure and
is often too tired to leave the house.
At first, Lebanon was a welcome escape
for Omars parents. Then, in a role reversal,
they became dependent on their son. Mr. al-
Kurdi has had to adjust to sharing authority
with Omar.
Omar was the one who asked 10-year-old
Hamoudi, the only sibling in school, about
his studies; he interrogated his 14-year-old
brother Ahmad about looking for work and
checked on his 18-year-old sister, Khadija.
Ms. al-Kurdi, long accustomed to relying
on her husband, now takes the list of family
needs directly to Omar.
We werent poor in Syria. I could pro-
vide for my family. We arent used to this,
said Mr. al-Kurdi, a former shopkeeper, tears
in his eyes.
I never saw him cry so much in 20 years
SYRIA
Ain Tarma
Stayed August to Adra
September 2012 November 2012
to February 2013
4
D A M ASCUS
Aqraba 3 have a car. There are no taxis or buses
Hometown:
Stayed September
Kfar Batna
to October 2012
Left early
August 2012
The Wall Street Journal
of marriage, she said, handing him a tissue.
When the couple married, Mr. al-Kurdi
vowed to care for his family despite his dis-
ability. They had a two-bedroom apartment
in the small town of Kfar Batna, in the al-
Ghouta district around Damascus. It had a
big kitchen and a bathroom with a shower.
Farms and olive groves surrounded their
building.
Mr. al-Kurdi had managed a stall in a
market next door. Like most working-class
Syrian families, they relied on social serv-
ices from the government, including free
health care and education, as well as dis-
counted food and fuel.
Back home, the parents said, their chil-
dren had colorful toys and books. Their
clothes filled closets and were organized by
season. If Mr. al-Kurdi made extra money at
his shop, he would take his family to the
souks of Damascus for kebabs.
Omar grew up thinking life was simple as
long as you didnt get involved in politics.
His grandfather, father and uncles had an-
chored their lives to hard work, moderate
religious beliefs and strong family values.
Omar saved three weekends worth of
tips, about $9, to celebrate the holiday with
a haircut. He walked quickly to the barber-
shop, avoiding a glance at store windows
filled with things he wished he could buy.
The barber, a talkative Syrian, cracked
jokes and treated Omar to a free shave. We
Syrians have to look out for each other, the
barber said as he applied shaving cream to
THE WALL STREET JOURNAL.
Omars smooth, childlike face.
Nobody looks out for us here, Omar
said from the barbers chair. The Lebanese
want to make money from us. Our landlord
wants to raise the rent. My boss throws
vegetables away but doesnt give me a bag
of cucumbers.
Back home, in the summer of 2012,
Omars parents worried constantly their
children would be killed by shrapnel or
snipers. They feared that Omar would be
recruited by rebels or drafted by the army.
Please dont talk to the fighters. Keep
your head down, Ms. al-Kurdi would tell
her son when he left the house.
Dont worry, I dont want to touch a
gun, Omar would reply.
At first, the family watched peaceful
protests from their balcony and supported
the revolution. Like most Sunnis, they saw
President Bashar al-Assad as an oppressor
and thought Syria would be better without
him.
But slowly, violent conflict engulfed the
country, and fear replaced hope. The family
saw rebel groups form, then divide and dis-
integrate. Islamist and foreign fighters ar-
rived and recruited boys as young as 12
years old.
The family lived in the restive suburbs
around Damascus, and their town turned
into a battleground. Schools closed when
local roads and alleys became too danger-
ous to walk. Mr. al-Kurdi closed his stall.
Most state-funded services were suspended.
During one round of shelling, Nour, then
3 years old, screamed for 15 minutes. Her
twin brother silently curled up in a corner.
We have to leave, Ms. al-Kurdi told her
husband that night.
How will we leave? he said. We dont
here.
Omar volunteered that he had a friend
with a pickup: He could give us a ride to
Ain Tarma.
Ms. al-Kurdi took only a diaper bag.
They were the last people to leave their
building. At every stop on the familys jour-
ney, Omar found work as a peddler, busboy
and cleaner. They traveled to the towns of
Ain Tarma, Aqraba and Adra. The war fol-
lowed them.
After three months, Omars father asked
him, Do you want to go to Beirut and look
for a job? We can follow you once you are
settled.
If you think I should go, Omar said, I
will go.
He boarded a minibus with $10, a small
plastic bag with an extra set of pants, a
shirt, socks, and the address of a cousin
working in Borj Hamoud. Eight hours later,
he showed up at his cousins room, which
he shared with three other Syrian workers.
They let him sleep on a blanket in a cor-
ner and shared their one meal of the day
mostly vegetables. He could repay them
when he got a job.
For three weeks, Omar searched. I went
from shop to shop asking for work. Some-
times theyd make fun of me and say you
are too young to work, said Omar, whose
small size makes him look several years
younger.
He finally got a job at a scrap metal
plant, where he worked 10 hours a day for
two months, earning $6 a day. When Omar
found the job at the vegetable shop, he bor-
rowed his cousins cellphone to tell his par-
ents the good news.
Rent a room, his father told him. We
want to join you. We cant take it here any-
more.
Omars family arrived in Beirut in Febru-
 THE WALL STREET JOURNAL.
Kate Brooks for The Wall Street Journal
Omar works 14 hours a day in a vegetable shop, earning $15 a day, which pays for rent and food for his family. His boss says he turns away other Syrians every day looking for work, most of them boys younger than 17.
ary. They rented a room in a building filled
mostly with refugees. They had no kitchen
and shared a bathroom.
After a month, Omar saw the neighbor-
hoods unofficial leasing agent to find a
bigger space. The man placed refugees with
landlords who wanted proof of income and
a reference. He charged Omar $100 and
found the family their one-room apart-
ment.
The room was at street level, making it
easier for Omars father, and it was close to
the vegetable shop. The bathroom had no
shower or faucet. The family washed with
water in buckets, standing between the toi-
let and a moldy wall.
Women who shopped at Omars store
donated plates, cups, pots and pans. Omar
hunted for abandoned furniture. One day
he saw a man hauling away two sofas with
a purple leopard-skin pattern and snagged
them for the apartment.
By the standards of many refugees,
Omars family is a success, with a roof, a
steady income and all of them still alive.
They registered with United Nations
High Commissioner for Refugees and now
receive monthly food vouchers for each one
of the family. The vouchers pay for about
one meal a day.
The first time Ms. al-Kurdi shopped
with her vouchers, she filled a basket with
rice, beans and cooking oil at a local super-
market. The cashier turned her away. The
quota for refugees had finished, she was
told.
The al-Kurdi children had missed two
years of school, but the family couldnt af-
ford to send them. In July, Alexis Hurd-
Shires, a volunteer from a Christian Adven-
tist church in Oregon who has befriended
the family, helped get Hamoudi, 10, into a
school the church set up. The new refugee
school, called the Adventists Learning Cen-
ter, had sun-filled classrooms, pink walls
and child-size tables and chairs. It offered
art classes with crayons and watercolors,
and music lessons. There was a rooftop
playground with donated toys.
Hamoudi is the happiest of my broth-
IN DEPTH
ers and sisters because of this school,
Omar said. The little ones get bored and
sad sitting at home all day. It makes me
wish I could be his age and go and play and
laugh and not have to worry.
What Omar missed most were his
friends. Then, miraculously, one surfaced.
Mahmoud, 17, was scouting Omars
neighborhood on behalf of a vegetable
wholesaler looking for new customers.
Omar overheard a Syrian accent in his shop
and looked up. He saw his old friend talking
to the boss.
Mahmoud and his twin brother, Ahmad,
had come to Lebanon without their family
and worked at Beiruts main produce mar-
ket. (They asked that only their first names
be used.)
On a recent Sunday afternoon, Omar
trekked crosstown to visit his friends. This
is my favorite place in all of Lebanon, he
said, climbing three flights of rickety iron
stairs. At the top, was a small room facing
a garbage dump in front and the blue Medi-
terranean in back.
Ahlan, Marhaba, greeted Mahmoud,
throwing his arms around Omar. Are you
ready to get beat today? he said, referring
to the card game they played for points.
Another friend, Abed, who fled Syria,
was also there. He had lived near Zamalka,
one of the areas hit by chemical weapons
that killed more than 1,000 civilians in Au-
gust.
Omar sat cross-legged on one of the
three mattresses along the wall. Ahmad
poured tea into miniature glass cups.
Ahmad reached under the mattress for a
deck of cards, a notebook and a pen. The
boys played cards and smoked Winston
Lights, a habit Omar hides from his par-
ents. They dumped ashes in an ornate,
handmade brass ashtray the twins mother
brought on her last visit.
As the teenagers joked and reminisced,
Ahmad, the only one with a cellphone,
played a music video that showed images of
the Syrian countryside.
Omar held the phone on his lap and a
fleeting look of grief skipped across his
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 11
face. He passed the phone.
I miss you my country, the lyrics went.
I miss to kiss my moms handMy country,
you are my breath.
After the song ended, Omar said, It
might be years before we go back.
What will be left of it? Ahmad said.
Before it was not so good, but now its
not good, either, Omar said. Assad was an
oppressor and he has made everything
worse by not stepping down. But the rebels
did no service for Sunnis, either.
If Assad stays now he will be more op-
pressive, Abed said. He will control us
and punish us.
Mahmoud sprang up to close the win-
dow and the door. He hushed Omar and
Abed. The neighborhood is predominantly
Shiite, the sect in Lebanon that mostly sup-
ports Syrias regime. Mahmoud feared trou-
ble from neighbors.
When the boys rode a bus or shared a
taxi, they didnt speak, afraid to reveal
their accent. Seemingly ordinary questions
such as What part of Syria are you from?
could categorize them on one side of the
conflict or the other.
One afternoon in October, Omar came
home for lunch looking haggard. He
dropped a few bags of greens from the
shop. His baby brother ran to him. Omar
picked him up and tickled his belly.
You look like you didnt sleep last
night, his mother said.
Omar walked to the window and lifted
the curtain to look out at the street. He
showed his little brother the passing cars.
Mr. al-Kurdi gestured for Omar to sit. He
had news.
We talked to your uncle in Turkey this
morning, Mr. al-Kurdi said. He thinks we
should move there.
Omar protested. What do I do for a liv-
ing? he said. I have a job here.
Ms. al-Kurdi backed her husband. Your
uncle said there are lots of jobs in Turkey,
she said. And rent is only $150.
His father pressed the idea. Imagine,
Omar, $150, he said. That would leave us
with extra cash. And we wont be alone. We
will have your uncle there.
Omar rubbed his eyes and looked an-
noyed.
In the past week, the landlord had is-
sued an eviction order. He lived on the top
floor and had complained the children
made too much noise.
All week, Omar spent lunch breaks look-
ing for apartments. Three days earlier, he
had taken his mother to see one and she
complained the rooms didnt have doors.
Omar lost his temper. What do you want
from me? he said. Im done, you go look
for a place yourself.
The next day his mother apologized and
said they should take the apartment. When
Omar called, it was already taken.
To Omar, Lebanon was no great land of
opportunity. But he couldnt imagine reset-
tling his family in a country where he
didnt speak the language.
If we go to Turkey we have to start all
over again, Omar said. I have to start all
over again. We have stuff now. I have a job.
How would we even get to Turkey?
We could go through Syria, his father
said.
There is no safe passage through Syria,
its too risky, Omar replied.
Why dont you try to call your cousin
and find out a little more? his mother
said.
Fine, Ill call, whatever gives you com-
fort, Omar said.
The family sat silent for a few minutes.
Omar thought of the months of hardship
that had finally delivered his family here,
and what might lay ahead.
A midday TV news broadcast from Syria
showed grainy images of bombed-out build-
ings. Men holding guns skipped across the
screen. No one bothered to turn up the
sound. It looked like a silent horror movie.
Omar finally stood. His lunch break was
over. Will you really think about Turkey?
his mother asked. Omar nodded. He clung
to the idea he could ease his familys pain.
This is what God wanted for me, Omar
said, as he walked to work, to grow up
very fast.
12| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
W
hen Vladimir Putin became
Russias acting president on
December 31, 1999, the coun-
try was reeling from terrorist bombings
of apartment buildings in Moscow while
it attempted to bring an insurrection in
the Caucasus to heel. Fourteen years
on, not enough has changed.
Thats something the Russian presi-
dent might consider following back-to-
back suicide bombings in the Russian
city of Volgograd (previously Stalin-
grad), which left 32 dead and dozens
more wounded. Coming weeks before
the 2014 Winter Olympics in Sochi
more than 400 miles to the south, the
attacks are an unsettling reminder of
how vulnerable Russia remains to ter-
rorism.
So far no group has taken responsi-
T
he euro zone is poised to enter
2014 on a high note, relatively
speaking. For several years it has
been easier to call the future of the com-
mon currency into doubt than predict its
success. But in 2013 the euro survived
the tremors in Cyprus, Ireland exited its
bailout program, and watching euro-zone
sovereign-bond spreads is no longer a
daily trauma.
Speaking of Greece, the economy re-
mains a shambles and the countrys debt
is stratospheric. But its government
spending is in surplusif you dont
count the 4% of GDP that it must pay in
interest on that debt.
So if things still arent bullish in the
euro zone, they have at least become re-
assuringly dull. With some justification,
ECB President Mario Draghi credits his
Outright Monetary Transactions pro-
gram for this quiet. Hes called this pro-
gramwhich boils down to his promise
to peg a countrys interest rates through
W
ell, what do you know. Maybe
the U.S. National Security
Agencys collection of tele-
phone metadata doesnt violate the
Fourth Amendment or any relevant stat-
ute. You wouldnt know this from the
left-libertarian political clamor of recent
weeks, but on Friday federal Judge Wil-
liam Pauley delivered a much-needed re-
ality check.
Judge Pauley, a Bill Clinton appointee,
rebuffed a challenge from the American
Civil Liberties Union and ruled that the
program to find and isolate gossamer
contacts among suspected terrorists in
an ocean of seemingly disconnected
data is critical for national security in
the modern era. Unlike Judge Richard
Leons mid-December opinion against an-
titerror surveillance that made him a
shooting political star, Judge Pauley
grounded his careful decision in the U.S.
Constitution and Supreme Court prece-
dent.
Since Smith v. Maryland in 1979, the
High Court has held that individuals have
no reasonable expectation of privacy
THE WALL STREET JOURNAL.
OPINION: REVIEW & OUTLOOK
The Volgograd Bombings
bility for the attacks, though in July thought to have taken 100,000 lives and inefficient police force and equally
an Islamist Chechen leader named so its tempting to view these attacks bad conscript army. In some cases
Doku Umarov released a video calling as a reprisal. But the Chechen jihadists Chechen terrorists have succeeded in
on followers to use maximum force are not much different from the So- bribing their way through security
in anticipation of the mali jihadists who checkpoints.
Olympics. Chechen ter- Russia is still seized Nairobis West- In the short term, Russia will have
rorists have also been
responsible for the 2002
vulnerable to gate mall in September,
or the Indonesian jihad-
no choice but to heighten security
throughout the country while it at-
seizure of a Moscow the- terrorism 14 years ists who blew up a tempts to track down Umarov and his
ater, the 2004 attack
against schoolchildren in
after Putin took nightclub in Bali a de-
cade ago. Terrorists will
followers. But Russias long-term secu-
rity requires a democratic evolution
Beslan, the 2010 attacks power. justify their murders that gives the government the political
on the Moscow subway with whatever political legitimacy it lacks under Mr. Putin,
and the Domodedovo air- alibi is convenient. along with the administrative efficiency
port attack in in 2011. The potential Then again, Mr. Putin also needs to and transparency he has done so much
for further attacks leading up to Sochi reconsider the merits of creating a se- to block. The tragedy of the Volgograd
is high. curity state, especially when it fails to bombings will only be compounded if
Mr. Putin has pursued a policy of provide Russians with basic security. they give the perpetrators an excuse for
maximum repression in the Caucasus Fourteen years of Putinesque discipline more terrorism, and the government an
the second Chechen war alone is have done little to improve a corrupt alibi for greater repression.
The Year in Euroland
ECB bond-buyingthe most successful In theory, fiscal discipline was sup- ineffectual to boot.
central-bank program in history. The par- posed to render devaluation unnecessary Theres a broader point here about
adox is that he never had to use it be- as a policy of last resort. That didnt economic reform. Successful reform of,
cause his mere pledge took the risk of work because the fiscal rules, in the form say, the French welfare state will require
systemic euro failure off of the Stability and firm leadership to make the case for it as
the table and calmed mar- The single currency Growth Pact, proved to be well as democratic legitimacy. It isnt
kets.
Sovereign-bond yields
still faces serious unenforceable. So the euro
zones leadership has
enough to say, Alors, I have signed a
contract with Brussels, so I must do it
were never the source of problems in 2014. spent much of the past now. Such a reform would be unlikely to
the euro zones troubles. two years arguing over stick when the unions turned out in the
They were a symptom how to replace it. streets.
that Mr. Draghis promise has succeeded Angela Merkel, the euro zones de Entering 2014, the euro zone finds it-
in masking. The root of the euro crisis facto holder of the purse strings, pro- self in the curious position that most
hasnt gone away. It remains essentially posed her latest idea before Christmas: people in most countries still support the
this: Modern welfare states are built legally binding contracts between na- currency but many fewer support the re-
around the assumption that governments tional governments and the EU on eco- forms needed to keep economies in the
will maintain an unlimited capacity to nomic reforms and government spending. currency bloc afloat. Perhaps the New
borrow and spend. In the last resort, es- The idea was overwhelmingly rejected Years resolution that Mrs. Merkel & Co.
pecially since the collapse of Bretton by her euro-zone peers, and with good need is to spend less time arguing over
Woods in 1971, this capacity has been reason. The countries of the euro zone procedure, and more time making the
preserved through currency devaluation. are still democracies, and a democracy case to their voting public for the flexible
But the formation of the euro zone cant bind its parliament or the citizens labor markets, lower government spend-
closed that escape hatch, and nothing re- who elect it. Such a contract would be ing and lower taxes that the euro zone
placed it. an affront to democratic principles, and needs to thrive and grow.
Verdict for National Defense
about numbers they dial or receive. spooks rifling through digital drawers. such as New York City subway bomber
When someone voluntarily conveys infor- But Judge Pauley writes that the uses of Najibullah Zazi. Then theres the plot
mation to a third party, he forfeits his the bulk collection program are narrow, that wasnt prevented, as Judge Pauley
right to privacy in the information, only relevant information is reviewed by describes:
Judge Pauley observes. Phones have the NSA, and it is overseen by all three Prior to the Sept. 11 attacks, the Na-
more versatility since Smith, and the branches of government. tional Security Agency intercepted seven
scope of collection is His opinion is also a calls made by hijacker Khalid al-Mihdhar,
broader, yet what meta- A federal judge rules tutorial for the privacy who was living in San Diego, California,
data is has not changed scolds about the realities to an al Qaeda safe house in Yemen. The
over time.
that collecting of counterterrorism. The NSA intercepted those calls using over-
Reports of the death of metadata is metadata program is not seas signals intelligence capabilities that
this legal doctrine are meant to procure evi- could not capture al-Mihdhars telephone
greatly exaggerated. The
constitutional. dence to prove wrongdo- number identifier. Without that identi-
Fourth Amendment is de- ing after the fact, like or- fier, NSA analysts concluded mistakenly
signed to balance liberty dinary law enforcement. that al-Mihdhar was overseas and not in
and security, and expanding privacy to The point is to detect relationships so the United States. Telephony metadata
include such third-party information attenuated and ephemeral they would would have furnished the missing infor-
would disrupt the equilibrium. Rather otherwise escape notice and stop at- mation and might have permitted the
than forums for terrorists to share and tacks, and there is no way to know pro- NSA to notify the Federal Bureau of In-
expose their intentions, the telecoms spectively which metadata contain useful vestigation of the fact.
would become safe houses for them to information. This blunt tool only works Judge Pauleys unfashionable opinion
conspire. Warrants might be impossible because it collects everything. . . . With- wont earn him the media acclaim of
because evidence would be protected by out all the data points, the Government Judge Leon, but it is a useful corrective
the Fourth Amendment. cannot be certain it has connected the for our current political amnesia. This
The ACLU argued that metadata col- pertinent ones, Judge Pauley writes. controversy seems bound for the Su-
lection is too broad and sweeps up irrel- He then runs down some of the plots preme Court, and Judge Pauleys ruling
evant information, conjuring government that metadata collection helped prevent, is a worthy amicus brief.
THE WALL STREET JOURNAL.
The Islamist Feud Behind Turkeys Turmoil
BY SONER CAGAPTAY
AND JIM JEFFREY
The news last week about a
corruption scandal in Turkey
seems on the surface a traditional
case of prosecutors ferreting out
wrongdoers in high places. But the
turmoil that threatens Prime Min-
ister Recep Tayyip Erdogans gov-
ernment has been a long time
coming and is the most public
manifestation of a struggle be-
tween Turkeys two main Islamic-
conservative factions hitherto
united under the governing party:
the prime ministers Justice and
Development Party, known as AKP,
and the influential, popular Gulen
movement.
The past year has already been
challenging for Mr. Erdogan. Dem-
onstrations that began in May
grew out of anger over plans to
develop Istanbuls Gezi Park and
were a liberal affair, challenging
the prime ministers increasingly
autocratic rule. The Gezi Park oc-
cupants would seem to have little
in common with the Gulen move-
ment, an opaque, Sufi-inspired
group known for its Islamic piety
and, until recently, its support for
Mr. Erdogan. But the Gezi and Gu-
len movements are now de facto,
if not actual, partners with similar
aims: resisting Mr. Erdogans
near-total power.
The countrys longest-serving
prime minister since it became a
democracy in 1950, Mr. Erdogan
runs Turkey almost single-hand-
edly. He has built a broad political
coalition to win three successive
elections with ever-increasing ma-
jorities. His coalition has included
Islamists, nationalists, center-
right voters and pro-business lib-
erals. Mr. Erdogan has sway over
the executive and legislative
[ Information Age ]
BY L. GORDON CROVITZ
Herewith New
Years resolutions
for a happy and
productive 2014:
For the U.S.
Transportation De-
partment: This is the year to
close the self-driving-car gap. Eu-
ropean auto makers are winning
the race to build self-driving cars,
which have the potential to re-
duce traffic accidents by 90%.
Mercedes already offers vehi-
cles that drive themselves on
highways, even passing slower ve-
hicles. Audi lets drivers in Europe
hand off control of cars in traffic
jams. In the United States, the big
barriers to self-driving cars are
unclear rules of liability and the
certain risk of lawsuits. U.S. regu-
lators have slowed down the pro-
cess for developing and funding
self-driving cars when they
should be stepping on the gas to
eliminate regulatory uncertain-
ties.
For Jeff Bezos: Bring some of
the Amazon magic to the newspa-
per industry. Amazons founder
made the surprising purchase of
the Washington Post for $250
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 13
OPINION
branches of government, as well U.S. by prominent AKP officials
as much of the media and busi- and pro-government media, which
ness community. His rule first have accused America of being be-
worried secular liberal opponents hind the corruption probes. Other
but has now alarmed even the Gu- allegations include an assertion
lenists. that U.S. Embassy staffers have
The Gulen movement traces its conspired with Turkish nongov-
roots to the 1970s, when founder ernmental organizations to try to
and Islamic scholar Fethullah Gu- oust the AKP government. Last
len, now 72, began attracting fol- week, Mr. Erdogan publicly com-
lowers. The Gulen message pro- plained that the corruption inves-
Agence France-Presse/Getty Images
moting a conservative yet tigation is a foreign plot. And he
relatively modern form of Islam made matters even more precari-
has made inroads in Turkey. Some ous on Dec. 21 by suggesting that
estimates of the movements size the American ambassador, Francis
run as high as five million sup- J. Ricciardone Jr., a stellar diplo-
porters, though others peg it mat, leave the countrythe first
considerably lower, as little as un- such incident in living memory.
der a million people. The stakesgiven Turkeys
The movement has its own me- People hold placards reading "Shame to thieves with Boxes" during a size, economy, military strength
dia, universities, schools, think demonstration on Dec. 29 in Istanbul against corruption and the Government. and strategic locationare huge,
tanks and businesses; followers and American influence is limited.
can also be found in the police bers of Mr. Erdogans cabinet. eral candidate. But simply by not The U.S. must play a careful game,
and judiciary. With its widespread With this move, the Gulenists, voting the movement could tilt avoiding the limelight, and focus
appeal and Islamic credentials, the who have several supporters in the election to the Republican on maintaining Turkeys basic
movement appears to be the last key judiciary positions, presented Peoples Party, and thus show de- Western, democratic, free-market
remaining obstacle to Mr. Erdo- an even more direct challenge to finitively that it is a powerful orientation. This means not over-
gans consolidation of power. Mr. Erdogans 12-year rule than check against Mr. Erdogan. reacting publicly to what are
The Erdogan administration anyone has before. If Mr. Erdogans party wins in likely to be new provocations.
became alarmed by the move- The corruption allegations Istanbul, the prime minister would But privately, the U.S. should
ments growing power last year have led so far to the resignation likely be emboldened to seek a make clear to audiences inside
when prosecutors connected to it of three cabinet ministers, fol- popular referendum to blend the and outside Turkey that, while not
attempted to subpoena the head lowed last week by the biggest powers of the presidency and the taking sides in the countrys cur-
of Turkeys intelligence agency cabinet reshuffle in the AKP since prime ministers office ahead of rent domestic disputes, Americas
Hakan Fidan, a close confidant of 2002. Mr. Erdogan has also fired elections in the summer. Mr. Erdo- ability to assist Turkey diplomati-
Mr. Erdogan. The prime minister hundreds of pro-Gulenist police gan would then run for the newly cally, economically and within
blocked this move by passing new chiefs, as well as, on Thursday, re- omnipotent executive presidency. NATO hinges on Turks resolving
legislation. But he saw it as a moving the key prosecutor, Muam- If he won, he would become the these matters in a democratic
warning and responded by trying mer Akkas, from the graft case. most dominant political figure in fashion that preserves the rule of
to close the Gulenists powerful All of this is merely a prelude modern Turkish history. law.
network of private prep schools. to what promises to be an even What happens in March has
The Gulenist pushback came more high-stakes battle: the Istan- the potential to determine Tur- Mr. Cagaptay is a fellow at the
quickly, with the movements bul mayoral election in March. keys democratic trajectory. This Washington Institute for Near
newspapers beginning to editorial- The Istanbul race has always been poses a major challenge for the East Policy and author of The
ize against Mr. Erdogan, who then closely contested between the AKP U.S., raising thorny questions Rise of Turkey: The Twenty-First
postponed the move against the and the secular, leftist opposition about the future of Americas alli- Centurys First Muslim Power
schools. On Dec. 12, prosecutors Republican Peoples Party, which ance with Turkey. (Potomac/University of Nebraska,
known to be close to the Gulen has a viable, populist candidate in The threat to bilateral relations 2014). Mr. Jeffrey, a visiting fel-
movement pressed corruption Mustafa Sarigul. The Gulenists are has been exacerbated by the re- low at the institute, is a former
charges against prominent mem- unlikely to vote en masse for a lib- markably explicit attacks on the ambassador to Turkey.
Tech Resolutions for the New Year
million in 2013. He has not made immigrants, including greater and Britain. He demurred, saying: lawyers and lobbyists: The mod-
any big changes yet, but news English-language proficiency. The This was a most unimpressive ern software industry was born in
executives hope he can bring Congressional Budget Office esti- target. The Israeli government a libertarian spirit, symbolized by
fresh ideas to their troubled mates that immigration reform said: Our working assumption is the Apple advertisement declaring
industry. based on the number of workers that not only Arab states but also the end to the 1984 model of
Will he find new ways to mine the country needs would result in world powers, including friendly centralized computing. The per-
data about consumer preferences? tax revenues that would cut the ones, try to follow us. Israel de- sonal computer, mobile and
Will Amazon drones deliver the deficit by $200 billion over the serves a slot ahead of Germany to smartphone eras have put vast
Sunday newspaper? News execu- next decade and by $700 billion become the Sixth Eye. power in the hands of individuals.
tives would also like to know how the following decade. For Apple: The U.S. Justice De- But as corporations, software
Mr. Bezos managed to create a partment has alleged that the firms act like a prematurely ma-
huge amount of value, reflected in iPads entry into the e-book mar- ture industry, maintaining huge
Amazons sky-high market capital- For congressional ket violated antitrust law, even lobbying offices in Washington
ization, while having only razor-
thin profit marginslower even
Republicans: Just say yes though Amazons Kindle still
holds a dominant market position.
and suing one another, invoking
patents they know are nonsensi-
than at many newspaper compa- to immigration reform. The case against his company, Ap- cal.
nies. ple CEO Tim Cook said, is bi- The industry should heed Mil-
For congressional Republicans: zarre. Weve done nothing ton Friedmans warning in 1999
Just say yes to immigration For Angela Merkel: The Ger- wrong, he added, so were going during the antitrust case against
reform. For the first time in a man chancellor claimed outrage to fight. Microsoft: You will rue the day
century, there is a consensus to at the news that U.S. spies lis- Other book publishers said when you called in the govern-
base American immigration policy tened to her cellphone conversa- they couldnt afford to defend ment. From now on, the computer
on economics, not primarily on tions, but didnt mention that she themselves in court in the same industry, which has been very
racial limits or family ties. Yet had been privately lobbying for price-fixing lawsuit against Apple, fortunate in that it has been rela-
Democrats have blocked proposals months for Germany to be able to but Apple refused to settle. The tively free of government intru-
to give visas to foreign students become a member of the Five company is appealing a federal sion, will experience a continuous
who earn technology degrees in Eyes group. This refers to the trial judges decision that its reve- increase in government regula-
the U.S. So Canada buys bill- post-World War II agreement nue-sharing model for selling e- tion.
boards in Silicon Valley luring among longtime alliesthe U.S., books is unlawfulit is the same One of the lessons of the Infor-
visa-less entrepreneurs north, Britain, Canada, Australia and pricing model that Apple uses for mation Age is that technology
while China and India have gone New Zealandto pool intelligence apps on the iPad. Apple is per- moves forward faster than regula-
from being exporters of talent to resources and limit spying on one forming a public service by trying tors can keep up. Whether its
competitors for entrepreneurs. another. to block a government mandate driverless cars, e-books or adding
The U.S. Senate bill that Ms. Merkel should compare dictating how e-books must be more skilled workers, the task for
passed in the summer would her tantrum with the reaction of sold and priced. The company government in 2014 is to allow an
boost visas for skilled workers Ehud Olmert, a former prime min- should persevere. environment where innovation
while adding requirements for all ister of Israel spied on by the U.S. For Silicon Valley CEOs, their can best happen.
14| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Mapping Terror Networks: Why Metadata Matters
BY PHILIP MUDD
We met every afternoon in the
CIA directors conference room at
5. At the FBI directors conference
room, we met every morning
shortly after 7.
At both agencies, the questions
were similar: How best can we
clarify the blurry picture of an
emerging terror conspiracy over-
seas or in the United States? How
can we identify the key players and
the broader network of fundraisers,
radicalizers, travel facilitators and
others quickly enough so they cant
succeed? And how do we ensure
that weve mapped the network
enough to dismantleand not
merely disruptit?
The only way to understand
why the NSA collects and needs ac-
cess to vast amounts of telephone
metadata is to keep these ques-
tions in mind, especially the last. In
ruling on Friday that the data col-
lection is lawful, U.S. District Court
Judge William H. Pauley III ex-
pressed it well: The government
needs a wide net that could find
and isolate gossamer contacts
among suspected terrorists in an
ocean of seemingly disconnected
data.
Mapping a network of people is
simple in concept but complex in
practice: find the key operators,
and then find the support group.
The challenge isnt limited to coun-
terterrorism. Any groupfrom or-
ganized-crime enterprises to gangs,
drug cartels, or human traffick-
ersconsists of a team of people
who interact and are organized for
a particular purpose. If an analyst
maps that network well enough,
then a series of arrests or lethal
operations can destroy it.
Map a network poorly, however,
and you may miss peripheral play-
ers who will recreate a conspiracy
BY MARIAN TUPY
Leon McCarthy, a precocious
12-year-old from Massachusetts,
was born without fingers on his
left hand. The fingers didnt grow
because blood flow had been re-
stricted in his mothers womb.
Earlier this year, Leons father
Paul built his son a functioning
prosthesis using a borrowed 3-D
printer and $10 worth of material.
Leon, who declared his new hand
awesome, is now able to help his
mother with the groceries. Mean-
while Paul saved his family more
than $30,000 in medical bills.
The McCarthys are not the only
family who can give thanks for the
marvels of modernity this holiday
season. Contrary to popular per-
ception, most peoples lives have
improved over the last year. Hu-
man progress, and the political
and economic freedoms that en-
able it, is making our lives longer,
healthier and more comfortable
than ever before.
Lets take a trip around the
world. This year, Japanese scien-
tists grew human liver tissue in-
side a mouse and Australian re-
searchers used stem cells to grow
a kidney in a lab. These innova-
tions will eventually cut waiting
times for transplants and get
after the core conspirators are ar-
rested. The goal is to eliminate the
entire spiderweb of a conspiracy;
cutting off a piece, like the arm of a
starfish, is a poor second choice.
The starfishs arm regenerates.
Think of the range of linkages
you might find among individuals
in these networks. Money, phone
calls, email exchanges, travel, social
media, chat roomsthe modes
constantly expand. How many link-
ages could a security service moni-
tor electronically even two decades
ago? Very few: Many of todays
means of communication and inter-
action didnt exist.
A security service can also use
human surveillance teams on the
ground to map a network. This is
more familiar and comforting, and
it might sound less intrusive than
the digital mapping programs run
by NSA computers. But human
surveillance operations are slow,
inefficient and costly. And they
have a higher risk of missing mem-
bers of the network. The fastest,
most efficient solution to mapping
David Klein
a network of conspirators lies in
following digital connections
among people. And as digital trails
expand, digital network mapping
will increase in value.
There is a healthy debate about
how far U.S. security services
should delve into our digital trails,
but emotions too often overcome
common sense. Every week I hear
someone comment on whether the
government is listening to their
conversationsas if theres some
huge complex of government em-
ployees in a mythical Area 51, lis-
tening to other Americans. The de-
bates about government
intelligence collection should be
clearer about distinguishing be-
tween what the government col-
lects and what it does with it. They
may be collecting my phone num-
Another Year of Progress
around the problem of immune re-
jection. Similarly, British scientists
used stem cells to repair a dogs
broken spine, bringing the medical
profession a step closer to fixing
spinal injuries in humans. Other
medical advancesfrom improved
understanding of the workings of
the HIV virus and causes of de-
pression, to advances in cardiol-
ogy and human bionicsare too
numerous to mention.
Its fashionable to be gloomy
about the state of the world,
but signs of progress
are everywhere,
if you look for them.
Progress was not restricted to
medicine. Google has launched
balloons that can bring the Inter-
net to people in the remotest
places on earth, while so-called
cloud schools are gearing up to
remotely teach millions of chil-
dren in the developing world.
In 2013, for the first time,
there were more Indians with mo-
bile phones than Americans, and
mobile-phone penetration in Af-
rica crossed the 50% threshold.
OPINION
ber; what Id worry more about is
what they do with what they col-
lect.
For an ongoing investigation,
the data might seem relatively
straightforward: link cellphones,
email contacts, financial transac-
tions, travel and visa information,
add in whatever else you can find,
and sort through the data using
modern network analysis tools.
Bingo! Within a day, you can have
the beginnings of an understanding
of a complex network that might
take old-school investigators weeks
or more to piece together.
Even so, an analyst has to ask
other questions. Where did the
conspirators travel a year ago? Five
Never before has it been easier for
an Indian woman to call for help
or to organize a protest against
sexual abuse and harassment.
Never before has an African fish-
erman had such easy access to
weather information, or a more
convenient way to send money to
his mother.
Such advances have brought
global life-expectancy to an all-
time high. The average human can
now expect to live more than
twice as long as 100 years ago.
Declining infant mortality is re-
ducing fertility rates, as women
feel more certain of their chil-
drens survival into adulthood. As
a consequence, some demogra-
phers argue, the world will soon
reach peak population levels,
thus reducing future pressure on
natural resources.
More children, especially girls,
receive schooling in poor coun-
tries. Literacy, numeracy and bet-
ter access to information will en-
able young people to assert their
political rights against corrupt in the story of our species better
and authoritarian governments.
Girls will be better equipped to
strive for equality.
Rapid economic growth in the
developing world has not only in-
creased average global per-capita
income to a record high of $12,700
years ago? Who did they live with?
Who did they sit next to on an air-
plane? Who gave them money?
And a thousand other questions.
Investigators need a historical
pool of data, in other words, that
they can access only when they
have information that starts with a
known or suspected conspirator in
the middle of a spiderweb they
dont fully understand. Meanwhile,
time pressures lurk: If youre late
by a day, you lose.
In the post-9/11 world, the
harder debate and more difficult
questions center on pre-emptive
intelligencepotentially lethal un-
knowns. Consider Minnesota, with
its significant Somali expatriate
per person, but helped to reduce
global income-inequality as poor
countries start catching up with
rich ones. As people become more
prosperous, experience from the
developed world shows, they will
become more able and willing to
pay for cleaner air and water, pro-
tection of endangered species and
reforestation.
All this sounds like progress.
Yet judging by the headlines, and
the pronouncements of political
and religious leaders, 2013 was a
year of growing despondency.
Wars raged, women and children
were abused and enslaved, people
went hungry and mass poverty
persisted globally. The world is an
imperfect place and will remain
so, because we, the human beings
who inhabit it, are ourselves im-
perfect.
But as long as we insist on
comparing the world today with
an imagined utopia, we will re-
main blinded to the incremental
improvements that make each day
than the day before. Appreciating
the progress that humanity made
in 2013 does not mean we should
not try to make 2014 even better.
On the contrary, appreciating the
breadth and depth of human ac-
complishment should imbue our
THE WALL STREET JOURNAL.
population. Should analysts look
for youths who buy one-way cash
tickets to a country neighboring
Somalia? What if theyve accessed
extremist websites? Would that
combination of digital signals
none of which is an illegal actbe
sufficient to initiate an
investigation? And if there are
circumstances that would result in
preventive investigations, how can
we conduct them if we dont have
access to historical data in real
time?
There are few certainties in this
debate. But we do know that our
digital trails will grow as more of
our lives appear in bits and bytes,
in records held by tomorrows Am-
azons and Facebooks. And we know
that to piece together networks,
law enforcement and intelligence
will use these data streams and
need historical data to do so.
Intelligence analysts will look
for more clarity on how policy
makers and the public want to bal-
ance the ability to discern trou-
bling patterns in private citizens
data and the national interest in
ensuring that America remains a
land of personal freedom where
privacy is respected. But given the
threats the country faces, mapping
digital interactions among people
will become ever more critical to
understanding terrorists, criminals
and foreign spies.
These tools and access to his-
torical data are essential to map-
ping how bad guys operate. The
trick wont be choosing privacy
over security but in balancing the
two.
Mr. Mudd was deputy director of
the CIA Counterterrorist Center,
2003-05, and senior intelligence
adviser at the FBI, 2009-10. He is
now director of Global Risk at
SouthernSun Asset Management.
future efforts with renewed pur-
pose and confidence. It should
also encourage us to contemplate
in an open-minded way the insti-
tutional framework of political
and economic freedom that made
the creation of this magnificent
world possible.
Mr. Tupy is a policy analyst at
the Cato Institutes Center for
Global Liberty and Prosperity. He
is the editor of www.human-
progress.org.
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
2013 Dow Jones & Company. All Rights Reserved
Pound/Euro 0.8362 0.16%
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Bets on Emerging-World Bonds Pay Off
BY NEELABH CHATURVEDI
For most emerging-markets in-
vestors, 2013 was a year to forget.
The beginning of the end of the U.S.
Federal Reserves giant stimulus
program sucked money out of risky
assets. The J.P. Morgan Emerging
Market Bond Index has lost more
than 5%, its worst performance in
half a decade.
But a handful of fund managers
bucked the trend, with some un-
usual strategies.
Two of the best-performing
emerging-market bond funds made
an especially unconventional bet:
Marching Higher
Nikkei Stock Average
18000
16000
14000
12000
10000
8000
J F M A M J
Source: WSJ Market Data Group
Japanese Shares Surge 57%
For the Year as Yen Weakens
BY BRAD FRISCHKORN
TOKYOTokyo shares ended
2013 trading at their highest level in
six years, capping a stellar perform-
ance for the benchmark Nikkei Stock
Average as it surged 57% this year.
A weaker yen has helped fuel
share prices over the past 12 months
by boosting exporters profits, while
expectations for the economic pro-
gram of Prime Minister Shinzo Abe
have helped strengthen appetite for
risk amid a brightening outlook for
the global economy as the U.S. re-
covery gains traction.
Mirroring the trend through
2013, the dollar rose to a five-year
high against the yen on Monday,
helping the Nikkei add 0.7% to end
the year at 16291.31, its ninth con-
secutive gain and the highest close
since Nov. 2, 2007. The 57% gain
over the last 12 months made it the
best single year for the benchmark
since 1972.
An aggressive monetary-easing
program by the Bank of Japan, with
Mr. Abes backing, has pushed the
dollar up 21% against the yen over
the past year. As of the close of To-
kyo Stock Exchange trading on Fri-
day, the dollar stood at 105.30 and
was trading Monday morning in
New York at 105.08. It was under
Yen/$ 105.01 g 0.04% Global Dow 2480.85 0.08%
Apollos Deal for Cooper Tire
Reaches the End of the Road
BUSINESS & FINANCE 17
THE WA L L STR E ET JOU RNAL.
buying Argentinian provincial debt.
The funds are small and the strate-
gies risky, but their relative success
makes plain that, in a year domi-
nated by tidal swings of money, not
everything went the same way.
The 130 million ($179 million)
Edmond De Rothschild Emerging
Bonds fund has returned 5.4% for
the year, followed by Barcelona-
based Trea Capitals 40 million 3G
Opportunities Fund, which has re-
turned about 4.4%, according to
Morningstar.
Both funds bet on bonds sold by
Buenos Aires, Argentinas largest
province, and some Buenos Aires
Bloomberg News
J A S O N D
The Wall Street Journal
87 at this time in 2012.
The greenbacks decisive break
through the 105 level over the
weekend kept buying pressure alive
in the stock market on Monday, de-
spite the traditional year-end slow-
down. Exporter Kyocera Corp.
added 1.4%, while Mitsui Fudosan
Co. topped real-estate shares with a
gain of 2%.
Exporters benefit from a weaker
yen by being able to sell goods more
cheaply overseas, and land develop-
ers profit from inflation expecta-
tions, a key component of the push
to reverse the countrys long-stand-
ing deflationary trend.
Although the Nikkei remains top
heavy, there are no domestic or
global downside risks immediately
ahead, said Junya Naruse, chief
strategist at Daiwa Securities. He
also said that selling pressure from
Japanese retail investors has less-
ened because the deadline to take
advantage of lower tax rate on capi-
tal gains and dividends has passed
already.
Japans capital-gains tax is set to
rise to 20% from 10% beginning Jan.
1, but the benefit of the lower rate
ended Dec. 25.
The start of newly created tax-
sheltered NISA individual savings
accounts provided a convenient
Gold 1203.10 g 0.91% Oil 99.29 g 1.03%
bond prices have risen more than
10%.
Since defaulting on its sovereign
debt in 2001, Argentina hasnt sold
any bonds. Investors still perceive
its debt to be among the riskiest in
the world, and the government has
shown a strong tendency toward in-
fluencing private businesses.
But a recent victory for a rival
faction in elections in the province
of Buenos Aires has fueled optimism
that the next Argentine administra-
tion may have a more pro-business
slant. Investors who foresaw this
move have pocketed returns.
We believed that the risk/re-
Prime Minister Shinzo Abe
year-end push for the market. Play-
ers could lock in a zero tax rate for
their accounts starting Dec. 26.
Going into the new year, the
market will likely remain firm, with
the overall uptrend remaining intact
on the back of the strong dollar and
a strong U.S. stock market, said
Yoshihiro Okumura, general manager
for research at Chibagin Asset Man-
agement. The outperformance of fi-
nancials and real-estate shares
shows that expectations for ongoing
monetary easing and strong demand
remain high.
David Baran, co-chief executive
at Symphony Financial Partners, a
Japan-based hedge fund with over
$300 million in assets, said that
Japanese stocks will continue to
trade inversely to the yen, as has
been the pattern for most of the last
year. He expects to see the dollar in
the 110 to 115 range in relatively
short order.
If the Japanese government can
just do a few things to make global
investors feel progress is being
made with the restructuring efforts
that Japan needssuch as lowering
trade tariffs, cutting corporate taxes,
and getting more women into the
workforce, it could lead many for-
eign investors to raise their expo-
Please turn to page 22
3-month Libor 0.24660
A Hard Lesson
From Sanofi
HEARD ON THE STREET 28
ward ratio in Argentina was favor-
able. The bonds had been beaten up
quite badly, said Jean-Jacques Du-
rand, who runs the Edmond De
Rothschild Emerging Bonds fund
along with colleague Romain Borde-
nave. Mr. Durand said he started
buying Buenos Aires bonds in 2012.
Investing in Argentina is fraught
with risksnot the least a long-run-
ning battle between the government
and creditors who contest its forced
debt restructurings. Last year, credi-
tors persuaded Ghana to seize and,
for a time, hold an Argentinian Navy
training ship in its waters.
But bonds sold by the province
Small U.S. Businesses
Expect Breakout Year
BY ANGUS LOTEN
Entrepreneur Bill Brown had
scaled back his San Jose, Calif., con-
struction firm as demand for new
Silicon Valley homes and offices
dried up in recent years, cutting his
staff by two-thirds, to 50 by late
2011.
But over the course of 2013, he
has spent $200,000 on equipment
and some new trucksafter run-
ning the old trucks pretty hard for
too long, he saysand brought
staff levels back to about 100 work-
ers, recently hiring 20 more people.
He plans to hire dozens more to fill
new construction jobs in the year
ahead.
After several false starts in the
dragged out U.S. economic recovery,
you might expect Americas small-
business owners to be wary. Yet
many, such as Mr. Brown, expect
2014 to be a breakout year, one that
finally puts the worst of the down-
turn behind them.
Its hard not to be optimistic.
Were struggling to keep up with de-
mand and I dont see this stopping
any time soon, he says.
Of course, entrepreneurs may be
an optimistic bunch by naturefew
people go into business for them-
selves expecting to fail. But opti-
Bill Brown surveys the foundation for a new home in Woodside, Calif.
10-year Treasury 8/32 yield 2.976%
europe.WSJ.com
of Buenos Aires arent involved in
the court case, and investors say the
extra yield on offer on Buenos Aires
bonds compensates for the inherent
risks.
It is the largest province in Ar-
gentina, generates a large propor-
tion of the governments revenues,
and is widely perceived as too big
to fail, said Rohit Gadkar, portfo-
lio manager of the Trea fund. Mr.
Gadkar, an American, worked on
Bear Stearnss emerging-markets
team before leaving in 2008. He
went traveling in Spain, fell in love
with a local woman and stayed in
Please turn to page 20
mism may now finally be under-
pinned by some actual encouraging
signs about the year ahead. Overall
the economy grew by 4.1% in the
third quarter, driven by an upswing
in consumer spending, and unem-
ployment overall in November was
down to its lowest in five years.
A 30-year veteran of the con-
struction industry who builds homes
and offices for technology execu-
tives across Southern California, Mr.
Brown says he expects the com-
panys revenue to hit $12 million in
2013, up from $10 million in 2012
and more than double his earnings
at the height of the recession.
Other business owners across the
country are seeing more customers
coming through their doors, and
placing orders online. And in turn,
the owners are more willing to open
their wallets, too, spending money
on new equipment, vehicles, build-
ing repairs or office furniture and
fixtures. Weve had a good sales
year and were above our numbers,
says Jorge Arroyo, president of Ben-
efit Consultants Group Inc., a Del-
ran, N.J., retirement planning com-
pany with 65 employees. The firms
revenue hit $8 million in 2013, up
roughly $500,000 over 2012.
Of 937 small-business owners
Please turn to next page
James Tensuan for The Wall Street Journal
16| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 THE WALL STREET JOURNAL.

BUSINESS & FINANCE

Small-BusinessChallengesin14
BY ANGUS LOTEN On another front, the U.S. Securi- group plans based on industry, or ments, such as hiring or spending
Carlsberg
To Acquire
AND SARAH E. NEEDLEMAN

Heres a closer look at the three

ties and Exchange Commission early
in 2014 is poised to unveil final rules
that will allow small businesses to
the health or gender of its staff,
many are expecting premiums to
rise for employers in industries with
plans, amid uncertainty over taxes,
subsidies and other federal policies.
While Congress agreed on a fed-
8 Breweries
biggest challenges small businesses
face heading into 2014:
seek small-dollar investors online, a
strategy known as equity crowd-
funding. A provision of the Jump-
lots of young, healthy workers.
Meanwhile, moderate rate increases
are expected for companies with
eral budget in December, the Trea-
sury Department has said that unre-
solved issues over raising the federal
In China
Accessing Capital start Our Business Startups Act of older and sicker employees, and in debt ceiling will need to be ad- BY CLEMENS BOMSDORF
For the first time since the 2008 2012, the move is intended to create higher-risk industries. dressed by March, possibly sparking
financial crisis, there are signs that a new source of growth capital for As a result of technical glitches another government shutdown. Dur- C O P E N H A G E N D e n m a r k s
tight credit markets for small U.S. smaller companies. Some worry that in the governments online market- ing the last shutdown, in October, Carlsberg A/S, the worlds fourth-
companies are loosening up. In No- the agencys proposed rules, set out place for coverage, known as the small-business confidence plunged largest brewer, will pay 1.56 billion
vember, big banks approved 17.4% of in a 500-page notice in October, are Small Business Health Options Pro- to a nine-month lowhitting a level yuan ($250 million) to expand in the
small-business loans, ranging be- too onerous and costly for smaller gram, or SHOP, small businesses not seen since the so-called fiscal Chinese beer market as it counters
tween $25,000 and $3 million, up companies. with 50 or fewer workers wont be cliff crisis in January 2013, accord- stagnant conditions in its core Eu-
from 13.2% a year earlier, according able to buy plans on the site until ing to separate surveys by The Wall rope operation.
to Biz2Credit. Over the same period, Health-Care Worries November. The one-year delay is sig- Street Journal and Vistage Interna- Carlsberg said Monday it is buy-
smaller banks approved 49.7% of Earlier in 2013, small-business nificant because the exchanges were tional Inc. ing Chongqing Beer Group Assets
these loans, up from 49.2%, the New employers were given a one-year re- meant to attract more participants, These kinds of issues can put a Management, a holding company
York lending broker said. prieve from the U.S. health-care boost competition among insurers drag on growth, says Giovanni that owns eight breweries in three
Craig Everett, director of Pepper- laws employer mandate, which re- and lower premiums. However, pre- Coratolo, the vice president for different Chinese provinces. The
dine Universitys capital markets re- quires businesses with 50 or more miums for small-group plans might small business policy at the U.S. breweries primarily sell brands li-
search group, says that despite mod- full-time equivalent workers to offer not decline as expected. Chamber of Commerce. Other issues censed from Chongqing Brewery
est gains, credit will likely remain health insurance or pay a penalty. Another change slated for 2014: Congress left on the table in 2013 Company Co. Ltd, which is majority-
tight for small firms. Its still grim, The bad news: Other changes Insurance companies will be re- will add to the uncertainty, Mr. owned by Carlsberg, as well as the
but its less grim, he says. that go into effect in 2014 are likely quired to pay a new annual fee, Coratolo adds, such as immigration brand Tianmuhu.
Many owners continue to subsi- to boost costs for many of these em- which the Congressional Budget Of- reform and the federal minimum
dize their businesses with personal ployers. fice and insurance-industry experts wage.
assets, such as savings or credit Starting in 2014, all Americans say will largely be passed on to Congress isnt getting things Asia is seen contributing
cards, he adds. At the same time, will be required to carry health in- small businesses and consumers done, and theres been a lot of half-
home equityonce a mainstay of surance, or face a penalty. As a re- who buy their own policies in the measures put in place, says Duane
over 20% of Carlsbergs
small-business financinghasnt re- sult, many uninsured workers will form of higher premiums. Presti, the president and chief exec- profit in 2015.
bounded enough from the housing likely be prompted to enroll in their utive of Paris Technologies Inc., a
market crash for small-business employers plans for the first time, Beltway Battles Doylestown, Pa., business-data soft-
owners to tap, he says. boosting the overall cost of the What happens in Washington, ware company with 50 employees.
Your business is meant to make plans. D.C., in 2014 could also be a concern, Mr. Presti said the company is The move comes as Carlsberg
you money, not the other way Because insurers will no longer because business owners are often working to diversify risk by expand- and its Western rivals are eager to
around, Mr. Everett says. be able to set premiums for small- unable to make long-term commit- ing sales outside of the U.S. bolster their presence in emerging
markets at a time when they are
struggling in recession-hit Western

Small Firms Europe and the former growth mar-

ket of Eastern Europe.
Asia is particularly attractive for
Anticipate a global brewers because it is the
worlds largest regional beer mar-

Breakout Year ket, accounting for 35% of world-

wide consumption, and is one of the
fastest-growing.
Continued from previous page Declining revenue has put in-
surveyed in December by The Wall creasing pressure on Carlsberg to
Street Journal and Vistage Interna- pursue growth in new markets. Dur-
tional, 52% said the economy had ing the third quarter of 2013, the
improved in 2013, up from 36% a companys sales fell by 3%.
year ago. An additional 38% said The Asian region is expected to
they expect conditions to be even account for more than 20% of Carls-
better in the year ahead, up from bergs profit in 2015, up from only
27%. A full three out of four about 6% in 2006.
businesses said they expect better In its quest to capitalize on the
James Tensuan for The Wall Street Journal

sales in 2014, and overall, the small growing appetite for beer in Asia,
business confidence indexbased the Danish brewer made its initial
on business owners sales expecta- investment in Chongqing Brewery in
tions, spending and hiring plans 2010. After increasing its holding
hit an 18-month high of 108.4 in De- gradually, Carlsberg owned 60% of
cember. All respondents, polled the Chinese brewery as of earlier
online from Dec. 9 to Dec. 18, had this month.
less than $20 million in annual reve- In February, Carlsberg an-
nue and most had less than 500 em- nounced it would set up a brewery
ployees. in Myanmar. More moves in Asia
According to the latest data from Employees of Bill Brown Construction work on a home in Woodside, Calif., earlier this month. could be on the table after Danish
the National Federation of Indepen- regulators recently approved a
dent Business, a Washington lobby pre-2007. companies to finance growth. clude the likelihood of renewed fis- change in Carlsbergs ownership
group, small-business owners in No- Strong sales, and a healthier bot- Still, Dane Stangler, head of re- cal squabbles in Washington, and structure, which frees up more cash
vember ranked weak sales below tom line, might lead to better access search at the Ewing Marion Kauff- the health-care law rollout, which for the brewer.
taxes and red tape as their biggest to capital for some businesses, as man Foundation, a Kansas City, Mo., threatens to boost costs for some The Carlsberg Foundation, the
headache, for the first time since banks begin to lend more freely to entrepreneurship advocacy group, employers. brewers major shareholder, got per-
June 2008. In the groups most re- small firms. Federal regulators are cautions that the brighter outlook Theres no doubt were still in a mission from regulators to reduce
cent survey, owner sentiment im- also loosening decades-old rules for could be dimmed by a number of hangover from the financial crisis, its 30% stake in the company to less
proved slightly in November but raising cash from outside investors, unresolved issues that await busi- says Mr. Stangler. But things look than 25%, which enables a rights is-
was still dismal compared with offering new ways for small private nesses in the new year. These in- good in the short term, he says. sue to raise more capital.

Businesses Access Midstream Partners......................22
This index of businesses mentioned in Allocab.com................................................17
todays issue of The Wall Street Journal Apollo Tyres...............................................17
is intended to include all significant Apple ............................................................ 8
reference to companies. First reference Asics...........................................................19
Banca Monte dei Paschi di Siena S.p.A...28
to the companies appears in bold face
Bank of Japan.......................................15,28
type in all articles except those Biogen Idec............................................18,28
on page one and the editorial pages. Box..............................................................18
Carlsberg....................................................16
Chauffeur-Prive.com..................................17
Chesapeake Energy....................................22
Chongqing Brewery....................................16
Cooper Tire & Rubber................................17
INDEX TO BUSINESSES
Credit China Holdings................................20
Facebook.....................................................18
Fidelity Investments................................. 21
Food and Drug Administration.................18
Genzyme.....................................................18
Groupon......................................................18
International Monetary Fund....................28
International Personal Finance.................22
Kyocera.......................................................15
Max India ................................................... 17
Mediolanum S.p.A. .................................... 20
Mitsui Fudosan..........................................15
New Star Shoes.........................................19
Nokian Renkaat Oyj...................................22
Palantir.......................................................18 Yuhu Investment.......................................20
Papa John's International.........................20 Zynga..........................................................18
Pinterest.....................................................18
Piramal Enterprises...................................17
Sanofi....................................................18,28
Southland (Cambodia)...............................19
Corrections
Tata Group ................................................. 17 Amplifications
Tesco...........................................................17
Twitter........................................................26 Readers can alert the London news-
room of The Wall Street Journal to
Uber Technologies......................................17 any errors in news articles by email-
United Nations.............................................9 ing wsjcontact@wsj.com or by call-
Universal Apparel (Cambodia)..................19 ing +44 (0)20 7842 9901.
Violin Memory ........................................... 18
Vodafone .................................................... 17
THE WALL STREET JOURNAL.
Cooper Tire Halts Sale to Apollo
BY LIZ HOFFMAN
The takeover of Cooper Tire &
Rubber Co. has officially gone flat.
Cooper terminated its $2.2 bil-
lion sale to Apollo Tyres Ltd. of In-
dia on Monday, an admission of de-
feat in a deal that began crumbling
almost immediately after it was
struck in June.
Cooper said it made the decision
after Apollos lenders refused to ex-
tend their financing commitments
beyond Dec. 31, when they were set
to expire. Apollo had planned to bor-
row most of the purchase price.
The deals collapse comes after
Cooper failed in court last month to
hold Apollo to the original $35-a-
share price and as the Ohio-based
manufacturer tries to reassure in-
vestors and regain control over a
Chinese subsidiary.
It is time to move our business
forward, Coopers chief executive,
Roy Armes, said in a statement.
Bloomberg News
Apollo had been seeking a price
cut amid a costly work stoppage at
one of Coopers Chinese factories
and souring projections at Coopers
U.S. business. Cooper refused to ac-
cept a lower price without firmer
guarantees the transaction would
close, its executives have said.
Apollo has made exhaustive ef-
forts to find a sensible way forward
over the last several months. How-
ever, Cooper has been unwilling to
work constructively to complete a
transaction that would have created
value for both companies and their
shareholders, Apollo said in a state-
ment.
The merger, which would have
been the largest Indian takeover of
a U.S. company, ran into trouble al-
most immediately.
Within days of the June 12 an-
nouncement, a key Cooper subsid-
iary in China revolted. Coopers mi-
nority partner there, a powerful
local figure named Che Hongzhi,
took out newspaper ads, including
one in The Wall Street Journal, de-
nouncing the deal.
In court papers, Cooper claimed
Mr. Che incited a workers strike at
the factory and instructed execu-
tives to stop giving Cooper execu-
tives access to the joint ventures fi-
nancial records. Efforts to reach Mr.
Che were unsuccessful.
By August the factorywhich ac-
counted for about a quarter of Coo-
Taxis Fight the Web on French Streets
BY SAM SCHECHNER
PARISOnline car-service com-
panies including Uber Technologies
Inc. plan to challenge a new French
regulation that slows how quickly
they can pick up passengers, escalat-
ing a battle over apps that are up-
ending the traditional taxi business.
California-based Uber and French
competitors including Chauffeur-
Prive.com and Allocab.com said
Monday that they are planning an
appeal to Frances Conseil dEtat, the
countrys highest administrative
court, to block the new French de-
cree on competition grounds soon
after it goes into effect on Jan. 1.
Under the new rule, all car serv-
icesbut not licensed taxismust
wait at least 15 minutes between
taking a reservation and picking up
a passenger, more than double what
car services like Uber say is their
normal wait time. The only excep-
tion: pickups at four- and five-star
hotels and at industry expos.
Cooper Tires sale price was $2.2 billion. Above, the Apollo Tyres logo on the door of a company retail outlet in Mumbai.
pers 2012 saleshad stopped pro-
ducing Cooper-branded tires. Cooper
was later unable to file third-quarter
earnings reports to U.S. investors or
provide Apollos lenders with infor-
mation to market the deals $2.4 bil-
lion in debt.
Cooper had problems at home,
too.
The United Steelworkers, which
represented about 2,500 workers at
Cooper plants in Ohio and Texas,
said the deal triggered a clause in
their contract entitling the union to
negotiate a new labor agreement.
Cooper and Apollo challenged
that claim and, according to court
testimony, were confident they
would win.
But in mid-September, a federal
labor arbitrator ruled for the union:
The deal couldnt close without a
new contract.
Cooper claimed the labor ruling
gave Apollo the opening it needed to
delay the deal. Despite several meet-
ings in Pittsburgh and Nashville,
Tenn., over the next few weeks, at-
tended by Apollos top brass, no con-
tract was signed.
Cooper sued in October, claiming
Apollo was stalling in negotiations
Its an effort by the government
to slow down innovation to preserve
the interests of traditional compa-
nies, said Pierre-Dimitri Gore-Coty,
Ubers head of France and Northern
Europe. We feel good about our
chances of blocking it.
The legal tussle is the latest skir-
mish in a broader fight between
companies in regulated markets and
new competitors that operate
largely online. Dallas and other cit-
ies have tried to regulate and re-
strict the operation of companies
such as Uber. Apartment-rental com-
pany Airbnb has faced challenges in
New York and elsewhere over hotel
regulations.
Paris has been a fertile ground
for the new app-based car-service
companies, with more than more
than 12,000 vehicles now available
compared with nearly zero in 2010.
It is one of Ubers two biggest mar-
kets outside the U.S., alongside Lon-
don. Revenue at Chauffeur-Prive.com
is growing 10% week to week, its
BUSINESS & FINANCE
with the USW in an attempt to delay
the deal and squeeze a price cut
from Cooper. In court, Coopers law-
yers quoted from emails between
Apollos lead banker at Morgan
Stanley, Apollos lawyer and another
financial adviser suggesting that
Apollo use the union negotiations to
wriggle out of the transaction.
What would prevent [Apollo]
from taking a very difficult position
with the USW and then watching the
clock run out to the end of the
year? the banker, William Dotson,
wrote, according to court filings. In
other words, does [Apollo] now have
an out to the deal?
The emails failed to persuade a
Delaware Court of Chancery judge
that Apollo had deliberately dragged
its feet. Vice Chancellor Sam Glass-
cock III in November declined to
force Apollo to close the deal. The
Delaware Supreme Court then dis-
missed Coopers appeal, further
dimming the deals chances.
The lawsuit, which continues in
the Chancery Court, now becomes a
fight for damages.
In court papers, Cooper said
Apollos failure to close on the deal
has cost it millions of dollars in lost
founder says.
In response, French taxi compa-
nies lobbied for new rules, saying
they had been put at a disadvantage
since rules created in 2009 allowed
a new class of cars to take reserva-
tions, but not street hails, with
fewer certification requirements.
Taxi drivers say that the new on-
line services, in which a taxi can be
ordered via an app and arrive at
your GPS coordinates at a prear-
ranged price within five minutes, ef-
fectively compete for passengers
who would otherwise be hailing
taxis. Drivers and taxi companies
buy licenses for exclusive rights to
offer street-hail trips.
These car services are doing the
same work as taxis, but without the
same constraints. Its unfair compe-
tition, said Alain Griset, chairman
of Frances Union Nationale des
Taxis, and a taxi driver himself.
There need to be different rules be-
cause they are different forms of
transportation.
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 17
revenue and damaged customer re-
lationships. The company could also
make a claim for the roughly $780
million in unrealized value between
the $35 per share that Cooper share-
holders were promised and the cur-
rent stock price. Coopers shares re-
gained some losses Monday, trading
at around $23 midday, but they are
still below the $24.56 closing price
before the deal was announced.
Cooper says it is entitled to dam-
ages on top of a $112.5 million
breakup fee and that it doesnt owe
Apollo a $50 million fee for termi-
nating the deal. Apollo is likely to
challenge both points when the com-
panies return to court next month.
A key issue will be whether the
so-called marketing periodthe 20-
business-day window for Apollos
banks to find buyers for the deals
bondsever began. Cooper claims it
did, which would give Cooper the
right to terminate the agreement
and claim its breakup fee. In court
papers, Apollo has said that Cooper
never gave the banks accurate finan-
cial information, a condition of the
marketing period.
Michael Calia
contributed to this article.
Online companies, however, con-
tend that taxis are just protecting
their turf by unfair means. Under
the new rule, they say their drivers,
who are often independent contrac-
tors, wont be able to make as many
trips, driving up prices for consum-
ers. Meanwhile taxis will be able to
accept reservations without any de-
lay, taking market share.
The online services have already
found an ally in Frances competition
watchdog. In a nonbinding decision
issued earlier in December, the Au-
torit de la Concurrence said the
new services werent competing for
street hails, and that adding a 15-
minute delay could distort competi-
tion with very negative conse-
quences for the new companies.
In every city where the new are sold on the India opportunity. In
services arise, there is a reaction
from the taxi business where they
try to stop us, said Yan Hascot,
founder of Chauffeur-Prive.com.
This rule is just an artificial way of
making us less efficient.
Vodafone,
Tesco Clear
Hurdles
In India
BY MUKESH JAGOTA
AND R. JAI KRISHNA
NEW DELHIA government
panel Monday approved investments
by Vodafone Group PLC and Tesco
PLC worth more than $1.5 billion, il-
lustrating Indias ability to attract
much-needed foreign direct invest-
ment by revamping its regulations.
Indias Foreign Investment Pro-
motion Boarda panel of senior bu-
reaucrats who vet foreign direct in-
vestment proposalsapproved U.K.-
based Vodafones plan to buy its
partners stakes in its Indian arm
for 101.4 billion rupees ($1.6 billion),
Economic Affairs Secretary Arvind
Mayaram said Monday.
The panel also approved a pro-
posal by U.K. retailer Tesco to ac-
quire 50% of Trent Hypermarket
Ltd., a retail arm of the Indian con-
glomerate Tata Group, for about
$110 million, said another govern-
ment official. Tata operates busi-
nesses in areas as diverse as steel
and software.
India opened both the retail and
the telecommunications industries
to more control by foreign compa-
nies in the past year and a half.
With the countrys growth stagnat-
ing, the South Asian nation has been
looking for ways to attract more
foreign investment.
New Delhi opened the telecom-
munications industry to 100% for-
eign ownership in July. Before that,
foreign companies were permitted
to own as much as a 74% stake in
phone companies in India.
The country allowed more foreign
investment in retail in September of
last year, by opening up the retail sec-
tor to international supermarket
chains. Previously, there was no for-
eign investment allowed in supermar-
kets and other stores that carried
more than one brand on their shelves.
Both Vodafone and Tesco are
raising their bets on India, hoping
to cash in on the nations growing
middle class, which is expected to
spend increasing amounts on phone
services and groceries.
Both U.K. companies are also
looking to grab growth in emerging
markets like India as expansion in
their home market and other devel-
oped markets has decelerated.
Vodafone currently owns 64% of
Vodafone India Ltd., Indias second-
largest telecom operator by number
of users. The rest is held by Ajay Pi-
ramal of Piramal Enterprises Ltd.
and Analjit Singh of Max India Ltd.
Vodafone will still need its pro-
posal to get approval from the federal
cabinet before it can buy out its In-
dian partners.
Under Indian rules, any foreign di-
rect investment of more than 12 bil-
lion rupees must be approved by the
cabinet. Cabinet approval is expected
in coming weeks.
The Indian government hopes
that investment from Tesco and
other foreign retailers will help mod-
ernize the countrys food-supply
chain and reduce the amount of food
that is ruined on the way to market.
Still, not all foreign companies
October, Wal-Mart Stores Inc. an-
nounced plans to wind up its Indian
joint venture, citing difficulties ful-
filling local sourcing requirements
as a reason for its reluctance to
open more retail outlets in India.
18| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Beware of a Tech Bubble, Maybe
[ High Definition ]
BY FARHAD MANJOO
I spend a lot of
time worrying
about the next tech
bubble. Its my job
to worry, of course,
and this year,
worrying became a full-time
occupation.
Ever since Facebooks stock
price rebounded this year to the
level of its initial public offering,
tech startups have seen an
incredible run-up in valuations.
Box recently raised financing that
valued the data-storage company
for businesses at $2 billion, almost
double its value when it raised
funds in the summer of last year.
The value of Palantir, whose
software analyzes data for law-
enforcement agencies, shot up to
$9 billion from $6 billion in just
three months. Even more
Getty Images
suspicious are the dollars being
thrown at companies that barely
make money: Pinterests investors
value it at nearly $4 billion, for
instance, and Facebook was willing
to pay around $3 billion for
Snapchat.
Then there are other, less
tangible signs that the tech sector
is becoming unmoored. The
industrys towering ambitions, its
capacity to skew local economies
and its swaggering, tin-eared way
of dealing with the rest of the
world (witness Silicon Valleys
secession movement) all came into
sharp relief this year.
Doesnt this feel like a bubble?
And, if it is, shouldnt we do
something about it?
We should. Im not convinced
that were in a bubble now, that
the tech sector is too hot or that
were somehow spinning out of
control, however. At the same
time, its not unreasonable to fear
that we might get there soon,
perhaps next year.
With that in mind, Ive come up
with a simple, two-step guide for
reaping the best from tech while
staving off the next bout of
irrational exuberance. Think of it
as my year-end gift to you, a clip-
and-save guide for preventing a
new tech bubble.
Step 1: Worry. If youre an
investor, employee, founder, tech
journalist or in some other way
connected to the tech business,
worrying about the bubble is your
best defense against the bubble.
Worrying keeps you sharp.
Worrying keeps magical thinking
FINANCE
Borrowing From ECB Jumps
Borrowing by euro-zone banks from
the European Central Banks regular
loan facility hit its highest point in a
year and a half on Monday. The
increase, along with the ECBs failure
to get banks to give up excess funds
in a regular weekly operation, raised
some eyebrows, although liquidity is
often tight near the end of the year.
Commercial banks borrowed nearly
169 billion, or roughly $232 billion, in
the latest period through the ECBs
Main Refinancing Operationthe
highest amount borrowed since late
June 2012.
Euro-zone market stresses are
back, wrote Lena Komileva, an
After Facebooks stock price rebounded to the level of its IPO, tech startups have seen an incredible run-up in valuations.
at bay. As in the 1990s, the tech
industry is pushing grand, society-
transforming novelties on the rest
of the world. If youre not worried
that some of these claims are
crazy, youre not paying attention.
Step 2: Dont panic. Dont let
your anxiety become all-
consuming. If you study the last
dot-com boom, youll see profound
differences between what
happened then and whats
happening now. Unlike in the
1990s, todays public markets have
yet to fully buy in to the boom; its
difficult to take a tech company
public, and a newly public
company can expect to be judged
harshly by the press and investors
if it shows any sign of weakness.
This factorthe stock markets
demand for resultsis an
enormous difference from the last
boom. And it is reason enough to
hold off on any panic.
Now, I know that my plan
worry, but dont panicsounds like
a glib, easy way to deal with techs
rise. As a columnist, I strive for
firmer, less squishy opinions. I
want to say, Hey, keep partying,
theres no bubble! or Everyone results.
hide, doom awaits, the end is
nigh!
But unfortunately, the truth is
more nuanced and complicated.
People with an interest in tech
should be on guard against the
bubble at the same time they are
BUSINESS BRIEFS
economist with market researcher G+
Economics. She noted that banks have
been under pressure to reduce reliance
on the ECB and to find alternative
sources of funding. But, she added, it
would seem that banks rush to slim
their balance sheet has caused them
to underfund themselves. ... We have
all of the symptoms of a short-term
liquidity squeeze, she said.
Others warned against overreacting.
Its very difficult to gauge what
money-market conditions are like at
this time of the year, said Luca
Jellinek, head of European rates
strategy at Crdit Agricole CIB in
London. For this time of year, its
normal for there to be a bit of a
squeeze on cash.
Todd Buell
BUSINESS & FINANCE
open to the transformative powers
of tech. Maintaining the right
balance between skepticism and
optimism isnt simple. But looking
at the overall market, it does look
like weve got the worst impulses
in check, at least for now.
As my colleagues have pointed
out, the major difference between
todays investing climate and that
of the last boom concerns IPOs. In
the 1990s, companies went public
soon after they were founded, with
far less revenue than todays IPOs
have and with far more enthusiasm
from investors and the media.
Today the game is different.
Again and again over the last
couple of years, weve seen market
skepticism swoop in to pop an
emerging bubble. Look what
happened to Facebook when it
struggled to generate mobile-ad
revenue after its IPO. Look at how
investors punished Groupon and
Zynga as soon as their revenue
and user growth began to slide.
Recall how flash-storage company
Violin Memory turned into one of
the years most disastrous IPOs,
after it delivered terrible financial
Note, too, that while todays
tech startups offer a dizzying array
of new technologies, most arent
peddling brand-new business
models. For the most part, todays
tech darlings make money from
ads, e-commerce or corporate
TECHNOLOGY
Three Executives Leave Acer
Acer Inc. said three senior
executives had left the company and
some of them wont be replaced as
the personal-computer maker tries to
keep costs low.
The changes are the latest of
Acers efforts to pull itself out of a
crisis as sales of tablet computers and
smartphones eclipse those of PCs.
Walter Deppeler, head of
commercial-business global operations,
Chief Technology Officer Arif Maskatia
and Dave Chen, general manager of
Chinas smartphone operations,
resigned in December because they
had other career plans, Acer
spokesman Henry Wang said Monday.
sales. These are all well-
functioning, mature businesses,
sectors where markets have
developed expertise about how to
tell a titan from a turkey. And
when they notice anything that
gobbles like a turkey (see
Groupons fishy metrics), they
attack.
But what about those towering
valuations for pre-IPO startups?
What about the outsize
expectations for risky-looking
businesses like Snapchat and
Pinterest?
Heres a thought experiment: If
these valuations turn out to be
wrong, who gets hurt? The answer:
private investors and employees,
not the public at large.
In some ways, whats
happened is that weve transferred
risk from the public market to the
private market, says Danielle
Morrill, the chief executive of
Mattermark, which collects data on
the growth of startups. Snapchat
got this huge valuation, but it isnt
in the public market, so theres a
limit to how many people they can
screw over if theyre wrong.
That, I think, is a key detail.
Is the tech sector overheated?
Maybe. Maybe not. I dont know.
But at least the nations retirement
funds arent riding on it anymore.
And as long as thats true, I
may worry about the bubble, but I
wont panic.
Mr. Deppelers position has been
assumed by the operations associate
vice president, Evis Lin, while Mr.
Maskatias and Mr. Chens positions
wont be filled, Mr. Wang said.
He said Mr. Maskatias job is being
shared among other senior technology
officers. Smartphone operations in
China are now overseen by the
president of Acers smartphone
business group, S.T. Liew.
Messrs. Deppeler, Maskatia and
Chen couldnt be reached for comment.
Aries Poon
Online>>
For more breaking news, go to
WSJ.com/Business and follow
@wsjbusiness on Twitter.
THE WALL STREET JOURNAL.
Sanofi Plans
To Appeal
Rejection
Of MS Drug
BY HESTER PLUMRIDGE
Frances Sanofi SA said it would
appeal a rejection by U.S. regulators
of its new multiple-sclerosis drug
Lemtrada.
The Food and Drug Administra-
tion expressed concern over serious
side effects of the drug and the de-
sign of Sanofis clinical trials.
Lemtrada was approved for sale in
Europe, Canada and Australia ear-
lier this year.
The U.S. decision is a setback for
the French drug maker since
Lemtrada was one of the main driv-
ers of its $20 billion takeover of
Genzyme Corp. in 2011. Genzyme
developed the drug, and the FDA in
2001 approved its active ingredient,
alemtuzumab, to treat leukemia, un-
der the trademark Campath. Last
year, Sanofi withdrew Campath
from sale in preparation to relaunch
it as Lemtrada.
Disagreements over Lemtradas
potential drew out takeover negotia-
tions between Sanofi and Genzyme
over six months. Eventually they re-
sulted in Sanofi agreeing to pay an
extra $3.8 billion to Genzyme share-
holders as contingent value rights
based on certain milestones, includ-
ing regulatory approval of Lemtrada
and the drug hitting specific sales
targets. Sanofi said it now expects
to miss the milestone of March 2014
U.S. approval for Lemtrada.
The drugs rejection by the FDA
wasnt a surprise. Reviewers in No-
vember raised concerns about po-
tentially fatal safety risks associated
with the drug, including cancer, dia-
betes and autoimmune diseases.
They also were unhappy with the
design of trials to test it, noting
that participants may have been
aware they were taking Lemtrada
rather than the substitute treatment
it was being tested against.
Sanofi is currently trying to ap-
prove Lemtrada for use in other
countries around the world. The
company said it cant give a timeline
for how long its appeal against the
U.S. decision might take. The FDA
wants to see the results of more tri-
als of Lemtrada before it will con-
sider approving it.
We are extremely disappointed
with the outcome of the review and
the implications for patients in the
U.S. suffering with multiple sclerosis
who remain in need of alternative
therapies to manage a devastating
disease, said Genzyme President
and Chief Executive David Meeker.
In the almost three years since
Sanofi bought Genzyme, the market
for MS treatments has become
much more competitive. Several
new drugs have been approved, in-
cluding easier-to-administer oral
treatments from Sanofi and Biogen
Idec Inc.
Lemtrada, which must be taken
intravenously, is an annual treat-
ment. Patients take one dose over
five days and then another a year
later, over three days.
Genzyme once forecast peak an-
nual Lemtrada sales of $3.5 billion.
Consensus forecasts for annual sales
by 2017 are now just $512 million,
according to Jefferies.
Multiple sclerosis is a progres-
sive disease that attacks the central
nervous system, damaging the
nerves controlling muscles and vi-
sion.
THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 19

BUSINESS & FINANCE

Cambodias Underage Garment Workers

BY KATE OKEEFFE of the Better Factories Cambodia
program, said specialists would
SIHANOUKVILLE, CambodiaIn have to examine which types of
this quiet beach town, Lim Loeung chemicals are used, the factorys
says she spends up to 80 hours a ventilation system and other factors
week gluing soles onto shoes at a before knowing whether a factory is
factory that does work for compa- safe for minors.
nies including Japanese sneaker- Its not as easy as all glues are
maker Asics Corp. The factory says dangerous, or no glues are danger-
Ms. Lim is at least 18 years old. ous, she said.
Except shes not. According to Ms. Singh, the U.N. child-labor
her parents and her birth record, specialist, said the thought of young
Ms. Lim soon will turn 15. employees working with glue made
Ms. Lim said that at her job in- her super nervous. She said she
terview a factory employee wrote an would generally recommend that
earlier birth year on her paperwork factories assign teens to tasks that
than the one on the birth record she have more certainty of being safer,
presented. If they see our age is such as packaging.
younger, they will not choose us, Lim Loeungs older sister Len re-
she said. quested a transfer to another area
Will Baxter for The Wall Street Journal

Her 20-year-old sister Len said a of the factory. Her request was de-
factory worker did the same thing nied, she said. When the factory
when she applied there a couple of hired Loeung this year, they as-
years ago before she had turned 18. signed her to the same section.
A spokesman for the factory, The New Star spokesman didnt
New Star Shoes Co., said, We do comment on the Lim sisters ac-
not change the birthdays. The fac- count.
tory doesnt employ any workers When Loeung started work this
under 18, he said, but some people year, she earned $30 a month for a
may lie about their age to get hired. Garment workers take a lunch break at the New Star factory on the outskirts of Sihanoukville, Cambodia. probationary period. Now she and
He also said no one at the factory her sister Len each earn around
works 80 hours a week but declined ers. I need 3,000. Chea Sothavirith, director of ad- hired by New Star when they were $150 a month. They send half of it
to specify workers schedules. Many people, including labor ac- ministration at Wing Star, said the under 18. Half were still under 18. home to their family, which lives in
Katsumi Funakoshi, general man- tivists, believe it is vital to keep gar- factory didnt know Ms. Kim was Six of the nine said they had sub- a wooden hut on stilts in the coun-
ager of Asics public-relations de- ment factories open to teens, in part underage before she died because mitted false age information. Lim tryside.
partment, said the company re- because the jobs can help keep them she had presented false documenta- Loeung, the girl who said she I wanted to help my family, 14-
cently conducted a third-party labor away from the sex trade and other tion. He said he didnt know her spends up to 80 hours a week gluing year-old Loeung said of her decision
audit at New Star. He said the in- perils and allow the youngsters to cousin, Vann Dany. soles, said factory supervisors falsi- to join the shoe factory. Working in
spection didnt find evidence of em- help support their families. Since the incident happened, we fied her age. Two workers didnt the factory is not like working at
ployees who were under age 15 but One risk is that the teens fall off respect the law more and we try to fully explain how they were hired home, she said. At home, we can
that it revealed excessive working the radar and into more informal- be stricter on child labor, Mr. Chea despite their age. go to sleep whenever we want.
hours and health and safety issues sector work thats even less regu- said. We do more studies on the The New Star spokesman said At her glue post, she works in si-
at the factory, which he said Asics is lated and maybe even more danger- documents and work with authori- the factory in Sihanoukville doesnt lence. We cannot talk because we
working to fix. ous, or morally damaging, said ties before recruiting them. employ anyone under 18 and that have to finish work, she said. The
Overall, child and teen labor is Simrin Singh, a child labor specialist Ron Pietersen, senior general when workers have appeared partic- factory, she said, recently boosted
declining, according to United Na- at the U.N.s International Labor Or- manager in the global legal and ularly* young, the company has her workweek to 80 hours from 70.
tions surveys of numerous types of ganization in Bangkok. compliance division of Asics, which made efforts to verify ages with The New Star representative said
work across the world. But a Wall Globally, the number of youths also contracts with Wing Star, said parents. He said working conditions workers are paid between one-and-
Street Journal investigation into the engaged in child labor fell by nearly Ms. Kims death was a wake-up call at New Star have significantly a-half to three times their normal
garment business indicates that un- 78 million between 2000 and 2012 for the company, which is now tak- improved recently and that the hourly wages for work beyond eight
derage labor continues to be an is- to 168 million, according to U.N. ing a tougher approach with its factory two months ago joined the hours a day. (The higher rates kick
sue, especially involving teen work- data released in September. The de- suppliers to ensure workplace safety U.N. Better Factories Cambodia in for Sunday or holiday overtime.)
ers who are able to pass themselves cline was especially pronounced is a priority. For example, Mr. Piet- program. Loeung and Len returned to their
off as 18 or older. among younger children and ap- ersen said, Asics instructed all its The two Lim sisters who were village for a joint interview with
Teen hiring carries moral com- peared to accelerate over the past supplier factories in Cambodia to hired before they were 18 are part their parents. The Journal covered
plexities particular to poor nations, join the U.N.s Better Factories Cam- of a team that makes 550 pairs of moderate expenses.
where much of the worlds clothes bodia program, which monitors fac- shoes a day. They work in a glue Their mother, Teum Heurn, a 46-
are sewn. Teen hiring carries moral tories, publishes its findings and of- section. The smell chokes them, year-old rice farmer, said she is con-
Employers in Cambodia, for in- fers training for factories and they say. cerned for her daughters.
stance, are required to ensure that
complexities particular workers. Cambodian law prohibits chil- Im afraid theyll get sick. Im
workers under 18 are in safe envi- to poor nations, where Cambodia, a poor Southeast dren under 18 from working around afraid theyll get cheated by the fac-
ronments and dont work overtime Asian country, burst onto the global harmful chemical agents but tory. I worry about their safety. Im
or night shifts. Cambodia has also
much of the worlds garment scene in the 1990s when its doesnt specify whether glue is con- afraid my children will go out at
ratified U.N. conventions designed clothes are sewn. leaders looked to create jobs after sidered such an item. The countrys night and make bad friends. I worry
to keep teens who are under age 18 years of civil war. In the first 10 secretary of state at the Labor Min- about drug trafficking and vio-
from hazardous work that jeopar- months of this year, the value of istry, Oum Mean, said the legality of lence, she said.
dizes their health or morals. Cambodias garment exports rose minors working with glue would But ultimately, she said, she
Meanwhile a U.N. factory-moni- four years. But scrutiny of the 20% to $4.61 billion over the previ- have to be determined on a case-by- didnt feel that she had a choice be-
toring program has cleared a signifi- global garment trade, and the role ous year, according to the Com- case basis after an investigation. cause her family is poor, with nine
cant hurdle in its long-running bat- young laborers continue to play in merce Ministry. Foreign direct in- The New Star spokesman said children, no toilet and no electricity.
tle to improve standards in it, has increased after disasters in- vestment rose 73% last year. the factory mostly uses water-based Every three or four days the family
Cambodias textile industry. cluding the April collapse of the This rapid growth makes it adhesives, which are considered goes to town to recharge a battery
On Dec. 18, the U.N.s Interna- Rana Plaza complex in Bangladesh, harder to find enough workers. safer by experts, but that sometimes that runs a lamp. Charging the bat-
tional Labor Organization signed a which killed more than 1,100 people. In addition to ratifying U.N. con- the factory cannot avoid using reg- tery costs around fifty cents.
memorandum of understanding with In Cambodia, accidents in May at ventions on child labor, Cambodia ular glue. I am grateful to the factory for
the Cambodian government and the two factories injured around 30 peo- has set its own minimum-age rules. Experts say the issue is complex. hiring my daughters, Ms. Teum
local garment-factory association ple and killed two, including a 15- Children under 18 arent allowed to Jill Tucker, chief technical adviser said.
that enables the high-profile U.N. year-old girl. do hazardous or overtime work or
program, Better Factories Cambodia The 15-year-old, Kim Dany, was to sign employment contracts with- ADVERTISEMENT
to continue operating in the country killed at a factory outside Phnom out a guardians consent. Workers
for another three years.
But the definitions of hazards
arent always clear. And teens them-
Penh after just two weeks on the
job. She died when a mezzanine
floor at the factory, Wing Star
between 12 and 15 are prohibited
from doing jobs that could interfere
with school attendance, among
The Mart
selves, eager for money, sometimes Shoes, collapsed. Ms. Kims parents other provisions. Children under 12
CAPITAL AVAILABLE TRAVEL
present the identification docu- said their daughter used an older cant hold jobs.
ments of other people to appear neighbors identity documents to But some youths, like Ms. Kim,
older, according to labor activists, get hired at the factory. falsify their age. In other instances, LOAN, BANK GUARANTEE/
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robert.clapton@rocketmail.com ,,,)%3384<&.$6)5$4
eral manager of Universal Apparel quit after her cousins death. Nine of the 12 workers inter-
(Cambodia) Co. and Southland Wing Star has the same Taiwan- viewed one Sunday this year near Contact: Mr Robert Clapton /212- 2=1!1#2"
(Cambodia) Co. garment operations ese ownership as New Star, the fac- the New Star factory, where the Lim Tel: + 44 777-650-6313
in Phnom Penh. I have 2,000 work- torywhere the Lim sisters work. sisters work, said they had been
20| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 THE WALL STREET JOURNAL.

BUSINESS & FINANCE

Sharks Smell Blood in China Waters

BY JASON CHOW land in the Shanghai suburb of
Songjiang. The project has sat
Sitting in an empty Papa Johns empty since 2011 and now the de-
pizza restaurant, real-estate devel- veloper is trying to convert the
oper Yang Boqun said he would buildings into retirement homes.
somehow catch up on loan pay- Yuhu borrowed 60 million yuan
ments for 150 million yuan ($24.7 ($9.9 million) in 2011 from Credit
million) he borrowed to finish a China, putting up the empty office
five-story shopping mall in the east- development as collateral. But Mr.
ern Chinese city of Jinhua. Ting didnt want empty office build-
But the malls only tenants are a ings more than 40 kilometers (or 25
Bentley car dealership, movie the- miles) from Shanghais center.
ater and the restau- When Yuhu had trouble repaying
CHINAS rantand the loans its loans earlier this year, Credit
RISING interest rate is a China threatened to sue, says Mr.
RISKS steep 40%. The rea- Ting. In response, Yuhu agreed to
son: When construc- sell a prized asseta commercial
tion costs on the two property in Shanghaito Credit
billion-yuan project China at a discount. Yuhu officials
soared surprisingly high, traditional couldnt be reached for comment.
Darren Hayward/The Wall Street Journal

banks couldnt lend more to Mr. Its a perfect time to increase

Yang. profit, he says of borrowers who
So he turned to Credit China fall behind on their payments. Its
Holdings Ltd., one of the thousands the pawnshop mind-set: We hope
of so-called shadow lenders in you dont come back for the Rolex.
China. Mr. Yang got the moneyand Credit China has about 74.1 mil-
now Credit China wants it back. lion yuan in past-due loans, or 9.1%
I am a loan shark but a legal of the companys total loan portfo-
one, said Raymond Ting, chairman lio. Mr. Ting says he doesnt con-
and executive director of Credit sider the loans bad because he
China, in an interview about 750 Credit Chinas Raymond Ting is an unusually aggressive example of shadow bankers. I am a loan shark but a legal one. could easily seize collateral that
miles away at a wine store he owns would cover them.
in Hong Kong. He made a fist and cludes trust companies, pawn of their loans to giant, state-owned Investors arent so confident.
said he is squeezing Mr. Yang by shops, informal lenders, microfi- Overshadowed companies. Credit-quality concerns have
threatening to seize a piece of the nance and a handful of publicly New bank loans as a percentage of Getting a loan at a bank takes dragged down Credit China shares.
shopping mall. traded companies like Credit China all nongovernment nancing in China months, taking people out for din- In Friday trading on the Hong Kong
The real-estate developer has re- that tap the capital markets to keep ner and karaoke, waiting for ap- Stock Exchange, they closed at
paid five million yuan and promised loans flowing. Such firms often use 100% provals, and still its no guarantee, HK$0.65, down 57% from their May
to hand over another 25 million lending practices that arent per- he says. Credit Chinas turnaround 2011 peak of HK$1.51.
soon. mitted at traditional banks. Some time on loans is about two weeks. As Chinas real-estate market
Mr. Ting is an unusually aggres- economists say the sectors rise has 75 Its license as a pawnshop operator cools and competition for a shrink-
sive example of the shadow bankers worsened Chinas credit binge by in- allows the company to accept real ing number of property loans inten-
who have stepped in to lend to creasing the number of risky loans estate as collateral. sifies, Credit China is shifting more
debt-hungry businesses and house- and inflating real-estate prices. 50 A son of a former Shanghai attention to another corner of
holds as the Chinese government Mr. Ting, 41 years old, says property developer, Mr. Ting stud- shadow lending. Mr. Ting is expand-
tries to rein in traditional banks. down-on-their-luck property devel- ied economics at Beloit College in ing his microfinance business in the
Many analysts and investors are opers like Mr. Yang who have been 25 Wisconsin but left after two years. western Chinese metropolis of
worried that the countrys slowing cut off by banks and need a bit He previously ran a Chinese mobile- Chongqing, with loans of as much
economy could ignite a debt crisis, more money to finish a project are communications firm and joined as 250,000 yuanwith no collateral
but shadow lending keeps growing. typical customers of Credit China. 0 Credit China after his family got a required.
In the past five years, borrowing As of June 30, the company had 03 05 07 09 11 13* controlling stake in the lender. He Such loans often are used for
by businesses and households as a about 816.7 million yuan in loans on *Through October runs Credit China from Hong Kong. weddings, car purchases, small
Source: People's Bank of China
percentage of gross domestic prod- its books, up from 303.8 million The Wall Street Journal
The company funds loans from businesses and down payments on
uct rose nearly 60% in China, ac- yuan in 2010. proceeds of its initial public offer- apartments.
cording to Goldman Sachs Group Mr. Ting charges the highest in- ing in 2010, three bond sales in the Demand is growing like crazy,
Inc. From 2010 to 2012, shadow terest rate allowed by Chinese regu- his collection of more than 50,000 past two years and a one billion he says. Credit Chinas microfinance
lending doubled to 36 trillion yuan, latorsfour times the prime lend- bottles. yuan ($164.8 million) investment loans usually must be repaid in a
according to analysts at J.P. Morgan ing rate, now 6%and adds We have to assume that its al- from state-owned company Shang- year and charge interest and fees of
Chase & Co. Bank loans totaled just consulting fees that can boost the ways going to be bad debt, he hai Xinhua Publishing Group Ltd. about 2.8% per month.
53% of all lending in China in the total borrowing cost to 50% per added. At 3.3% a month, how can Xinhua couldnt be reached for com- A guy who makes 10,000 yuan a
first 10 months of 2013, down from year. they be good people? ment. month deserves a loan, too, he
72% in 2010 and 92% in 2002, ac- We dont loan to friends, the Mr. Ting says he is trying to Mr. Ting isnt shy about his loan- says. The property sector eventu-
cording to figures from the Peoples banker said while sitting in his wine meet demand from borrowers who collection tactics. In 2010, Shanghai ally will be sucked dry. I dont want
Bank of China, the countrys central store. Wearing loafers and no socks, cant get money in Chinas tradi- property-development company to suck their blood.
bank. Mr. Ting whirled a glass of 1985 tional banking industry, where gi- Yuhu Investment built a 26-build- Fanfan Wang in Shanghai
The shadow-banking industry in- Chteau Mouton Rothschild from ant, state-owned banks make most ing office complex on industrial contributed to this article.

Unusual Wager on Emerging-Market Debt Pays Off

Continued from page 15 that had more flexibility than some- picked up, with German institutional
Barcelona. one following a benchmark and was investors now making up 30% of his Winning Bet
The Rothschild and Trea funds willing to beat the market. Mr. Gad- investor base, from zero last year. Funds betting on Argentine bonds have beaten rivals in a
have an advantage many of their kars philosophy is to find assets Mr. Gadkars fund suffered from turbulent year for emerging markets.
peers dont: They are small and thus that are undervalued and uncorre- defaults by Mexican home builders Total returns, year to date
can take proportionally large posi- lated with broad market moves, such as Urbi and OGX, the Brazilian
tions in small debt issues. They are said Mr. Gaudio. conglomerate run by Eike Batista. 8% Edmond De
Rothschild Emerging
especially flexible and can buy risk- Despite faring better than most Mr. Durand has recently taken 6 Bonds fund*
ier bonds that more-traditional in- of their peers, both Mr. Durand and profits on his holdings of Argentin-
4 Trea 3G Credit
vestors arent permitted to hold. ian debt and has scaled up holdings
Opportunities Fund
Mr. Durand, for instance, said of Kazakh and Venezuelan debt. 2
he also bought bonds sold by Be- Rothschild and Trea have Mr. Gadkar said he recently pur-
0
lize and politically volatile Egypt. chased Greek government bonds.
Mr. Gadkar invests in Greek gov-
an advantage many peers He acknowledges that replicating 2
ernment bonds and purchased Cy- dont: They are small. this years performance may not be 4
priot sovereign debt before Cy- easy. I believe 2014 could very well J.P. Morgan EMBI
pruss bailout, correctly betting be another difficult year for emerg- 6 Global Diversied
that the government would pay ing-markets credit, and fixed-in- USD (benchmark)
8
creditors in full. Mr. Gadkar had setbacks. The overall come assets in general, given the
10
Vittorio Gaudio, who manages weakness in emerging-market bonds broader macro backdrop of rising
55 billion of assets as chief invest- weighed on Mr. Durands perform- interest rates, he said. People have 12
ment officer at Banco Mediolanum ance. At one stage, investor outflows to readjust their expectations of 2013
SpA in Milan, has been invested in pulled down the size of his fund to what type of returns are achievable, *Latest data are from Dec. 25
Mr. Gadkars fund since 2011. We less than 70 million, from 100 mil- as the gains seen in the last 10 years Source: Morningstar The Wall Street Journal
were looking to invest in a fund lion. Cash flowing in has since are unlikely to be replicated.
THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 21

MARKETS

Hong Kong, China Near Deal on Funds

Mutual Recognition Will be Given to Investment Funds Domiciled in Either Hong Kong or on the Mainland
Hong Kong and China will soon At the same time, the program deposits at the end of 2012, accord- management. By 2020 Chinas mid- showing signs of slipping. Chinas
sign a deal by which mutual funds will allow Chinese investors for the ing to the Peoples Bank of China. dle class, which tends to be more foreign-exchange regulator said last
can be sold to retail investors in ei- first time to invest directly in fund As of the end of November, assets investment-focused, could reach week that US$84 billion was allo-
ther market, potentially allowing products launched by a non-Chi- in Chinas mutual-fund industry to- 40% of the population, double the cated for foreign investment for the
billions of dollars of cross-border nese asset manager without a taled 4.07 trillion yuan, equivalent level in 2000, according to research period from 2006 to 2013; three
investments in stocks and bonds. China domicile, so I would say this to 10% of individuals deposits in from the Shanghai Academy of So- months earlier, the regulator said it
A deal according mutual recog- is fairly significant, Mr. Tse said. banks, according to the Asset Man- cial Sciences, a think tank. was allocating US$88 billion. Chi-
nition to funds domiciled in either He expects the program to be ex- agement Association of China. Chinese fund managers, mean- nese investors remain wary of in-
Hong Kong or on the mainland may panded to markets such as London, while, will be able to sell their vesting in overseas stocks after the
get the green light as soon as the Paris, Taiwan and Singapore that funds to overseas buyers eager to 2008 financial crisis hurt many of
first quarter of 2014, say fund man- all have signed treaties allowing The deal will probably have more access to relatively the investments made through the
agers, bankers and strategists fa- some level of yuan investments into cheap stocks that could benefit Qualified Domestic Institutional In-
miliar with the talks. China.
be the best thing to from a new wave of government vestor quota.
The program would open up op- In a speech last month, Alexa happen to Hong Kongs overhauls. For now, the question is how big
portunities to tap the trillions of Lam, deputy chief executive of At the moment, a non-Chinese the immediate benefits will be. Ef-
dollars in savings held by Chinese Hong Kongs Securities & Futures
asset-management resident who wants to buy Chinese fie Vasilopoulos, co-head of the in-
investors, while allowing invest- Commission, said the talks with industry. stocks or bonds needs to buy vestment funds practice in Asia at
ment-starved mainland investors Chinas Securities and Regulatory through two quotas: the Renminbi international law firm Sidley Austin
more access to outside markets. Commission, which have been go- Qualified Foreign Institutional In- in Hong Kong, said the rules on
But given capital controls on the ing on for more than a year, were vestor program and the older Qual- which Hong Kong funds can be sold
yuan in China, some measure of close to a conclusion. The SFC de- Many mainland investors have ified Foreign Institutional Investor into China are clearer than the
quotas is inevitable, say the people clined to comment further, while a accumulated a decent amount of program. These two quotas allow other way around.
familiar with the talks. CSRC spokesman said that the two wealth, but they lack investment al- foreigners to buy US$76 billion of The SFC has said that only Hong
The deal will probably be the sides have made big progress but ternativesthere is high concentra- Chinese stocks and bonds in the Kong-domiciled funds, or 300 of
best thing to happen to Hong declined to elaborate. tion risk, said Sally Wong, chief country and, according to analysts, the 1,800 that are registered in
Kongs asset-management industry, For Chinese investors, buying executive of the Hong Kong Invest- already have reached their limit. Hong Kong, will be eligible to be
said Hubert Tse, a partner at Boss & into Hong Kong-domiciled funds ment Funds Association. But if current demand is any in- sold under the program. Many
Young, a Chinese law firm based in like stock funds offered by J.P. Mor- PricewaterhouseCoopers said in dication, foreign fund managers funds in Hong Kong are domiciled
Shanghai that is advising a number gan Asset Management and Fidel- a report dated July 2 that if indi- with Hong Kong-domiciled funds in venues like the Cayman Islands
of mutual funds and hedge funds ity Investments would give a viduals in China decided to move will be the biggest beneficiaries of and Bermuda. All funds in mainland
based in the U.S., Europe and Hong much-needed outlet for investment. just 25% of their savings into Hong the program for now. China are domiciled domestically.
Kong that are preparing to apply Chinese individuals had 39.95 tril- Kong-based funds, this would gen- Meanwhile, demand by Chinese Amy Li, Fiona Law
for the new program. lion yuan (US$6.6 trillion) in bank erate US$1.6 trillion in assets under investors for overseas assets is and Enda Curran

INTERNATIONAL INVESTMENT FUNDS

Data provided by:

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NAV %RETURN NAV %RETURN NAV %RETURN NAV %RETURN
FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR FUND NAME GF AT LB DATE CR NAV YTD 12-MO 2-YR
n ALEXANDRA INVESTMENT MANAGEMENT GH FUND S GBP OT OT CYM 12/13 GBP 160.21 8.4 9.3 7.8 Pictet-Brazil Index-P USD OT OT LUX 12/27 USD 68.36 -17.1 -16.3 -10.2 Paragon Limited USD A EU EQ CYM 12/31 USD NS.00 12.7 12.7 14.2
AlexandraConvertibleBondFundI,Ltd.(ClassA) OT OT VGB 08/31 USD 2155.22 NS NS NS GH Fund S USD OT OT CYM 12/13 USD 179.86 8.4 9.2 7.7 Pictet-CHF Bonds-P CH BD LUX 12/27 CHF 460.57 0.0 0.1 2.7 UK Fund USD A OT OT CYM 04/13 USD 157.94 1.8 NS NS
GH Fund USD OT OT GGY 12/13 USD 312.63 7.1 8.0 6.5 Pictet-China Index-P USD AS EQ LUX 12/27 USD 105.08 3.1 3.8 11.3
Hedge Investments OT OT GGY 08/16 USD 158.48 NS NS 3.6 Pictet-Clean Energy-P USD OT OT LUX 12/27 USD 84.87 33.8 34.6 17.4 n PT CIPTADANA ASSET MANAGEMENT
Leverage GH USD OT OT GGY 12/13 USD 143.79 12.3 14.0 11.0 Pictet-Digital Comm-P USD OT EQ LUX 12/27 USD 205.68 39.2 40.9 25.0 Tel: +6221 25574 883 Fax: +6221 25574 893 Website: www.ciptadana-asset.com
Pictet-Eastern Europe-P EUR EU EQ LUX 12/27 EUR 342.24 -6.7 -6.3 7.7 Indonesian Grth Fund GL EQ BMU 12/27 USD 136.34 -23.9 -23.9 -13.5
MultiAdv Arb CHF Hdg OT OT JEY 12/13 CHF 99.89 4.5 4.4 3.9
Pictet-Em Corp Bds-P USD OT OT LUX 12/27 USD 99.69 -2.8 -2.7 NS
MultiAdv Arb EUR Hdg OT OT JEY 12/13 EUR 111.30 4.6 4.5 4.1 Pictet-Em Loc Curr Dbt-P USD OT OT LUX 12/27 USD 178.88 -11.1 -11.6 0.7
MultiAdv Arb GBP Hdg OT OT JEY 12/13 GBP 121.22 5.2 5.1 4.7 Pictet-Em Mkts Hgh Div-P USD GL EQ LUX 12/30 USD 112.00 -2.8 -2.6 NS
MultiAdv Arb S EUR OT OT JEY 12/13 EUR 125.33 5.9 5.8 5.5 Pictet-Em Mkts Index-P USD GL EQ LUX 12/27 USD 243.60 -3.9 -3.3 5.5
n BANC INTERNACIONAL D'ANDORRA. BANCA MORA.
MultiAdv Arb S GBP OT OT JEY 12/13 GBP 132.55 6.4 6.4 6.0 Pictet-Em Mkts Sust Eq-P USD GL EQ LUX 12/27 USD 96.02 -5.7 -5.2 NS
Avgd. Meritxell 96, Andorra la Vella. Andorra. Ph. +376.884884 www.bibm.ad MultiAdv Arb S USD OT OT JEY 12/13 USD 143.45 6.0 6.0 5.7 Pictet-Emerging Markets-P USD GL EQ LUX 12/30 USD 518.05 -1.9 -1.5 5.0
Andfs. Anglaterra UK EQ AND 11/16 GBP 8.47 2.8 3.6 14.9
Andfs. Borsa Global GL EQ AND 12/27 EUR 6.65 12.6 12.3 8.3 MultiAdv Arb USD OT OT JEY 12/13 USD 210.36 4.8 4.8 4.5 Pictet-Envir Megatr Sel-P EUR OT OT LUX 12/27 EUR 120.39 17.0 17.1 14.4
Andfs. Emergents GL EQ AND 11/02 USD 14.77 -20.4 -19.2 -4.7 Pictet-Eu Equities Sel-P EUR EU EQ LUX 12/27 EUR 545.09 11.3 11.1 16.8 n THE NATIONAL INVESTOR
n HSBC Uni-folio Pictet-EUR Bonds-P EU BD LUX 12/27 EUR 464.02 0.6 0.7 7.1 PO Box 47435, Abu Dhabi, UAE Web:www.tni.ae
Andfs. Espanya EU EQ AND 12/27 EUR 14.15 37.1 35.5 18.3
Asian AdbantEdge EUR OT EQ JEY 12/13 EUR 97.25 7.5 8.6 4.0 Pictet-EUR Corp Bds Ex Fin-P EU BD LUX 12/27 EUR 130.72 0.9 1.0 5.4 MENA Special Sits Fund OT OT BMU 11/28 USD 1103.88 6.8 6.6 6.2
Andfs. Estats Units US EQ AND 12/27 USD 20.91 29.8 30.5 18.9
Asian AdvantEdge OT EQ JEY 12/13 USD 182.16 7.7 8.9 4.7 Pictet-EUR Corporate Bonds-P EU BD LUX 12/27 EUR 176.02 1.9 2.0 8.0 MENA UCITS Fund OT OT IRL 12/19 USD 1290.88 25.0 26.5 17.6
Andfs. Europa EU EQ AND 12/27 EUR 7.54 18.6 17.9 13.4
Andfs. Franca EU EQ AND 12/27 EUR 10.91 19.5 18.2 18.4 Emerg AdvantEdge OT EQ JEY 09/28 USD 151.22 3.4 -2.4 -5.5 Pictet-EUR Government Bonds-P EU BD LUX 12/27 EUR 135.39 1.2 1.3 6.1 UAE Blue Chip Fund OT OT ARE 12/19 AED 9.01 76.5 77.6 43.1
Andfs. Japo JP EQ AND 12/27 JPY 688.80 46.6 47.5 31.7 Emerg AdvantEdge EUR OT EQ JEY 09/28 EUR 82.99 2.8 -3.0 -5.9 Pictet-EUR High Yield-P EU BD LUX 12/27 EUR 217.79 9.7 9.8 17.6
Andfs. Plus Dollars US BA AND 10/22 USD 9.66 2.3 3.0 6.2 Europ AdvantEdge EUR OT EQ JEY 06/30 EUR 127.84 -3.4 -1.3 2.2 Pictet-EUR Inflation Lkd Bds-P EU BD LUX 12/27 EUR 115.76 -4.8 -4.8 2.9
Andfs. RF Dolars US BD AND 12/27 USD 12.15 -0.6 -0.5 2.5 Europ AdvantEdge USD OT EQ JEY 06/30 USD 135.07 2.0 4.3 5.1 Pictet-EUR SM-Term Bds-P EU BD LUX 12/27 EUR 131.31 1.7 1.8 3.3
Andfs. RF Euros EU BD AND 12/27 EUR 11.62 0.5 0.5 2.7 Real AdvantEdge EUR OT OT JEY 04/30 EUR 104.69 1.3 -9.5 -1.9 Pictet-EUR ST High Yld-P EU BD LUX 12/27 EUR 115.27 5.9 5.5 NS
Andorfons EU BD AND 12/27 EUR 15.63 2.2 2.3 3.9 Pictet-Euroland Index-P EUR EU EQ LUX 12/27 EUR 113.82 23.0 22.2 21.9
Real AdvantEdge USD OT OT JEY 04/30 USD 105.31 1.5 -8.8 -1.7
Andorfons Alternative Premium GL EQ AND 10/31 EUR 115.15 23.0 23.8 10.5 Pictet-Europe Index-P EUR EU EQ LUX 12/27 EUR 144.79 19.4 19.0 19.5
Trading AdvantEdge OT OT GGY 12/13 USD 126.04 -11.3 -12.6 -8.4
Andorfons Mix 30 EU BA AND 12/27 EUR 10.31 4.9 4.9 5.3 Pictet-European Sust Eq-P EUR EU EQ LUX 12/27 EUR 183.94 17.3 16.9 16.9
Trading AdvantEdge EUR OT OT GGY 12/13 EUR 113.99 -11.2 -12.5 -8.5 Pictet-Generics-P USD OT EQ LUX 12/27 USD 189.98 24.8 25.6 22.5
Andorfons Mix 60 EU BA AND 12/19 EUR 8.96 4.4 7.1 -2.5 Trading AdvantEdge GBP OT OT GGY 12/13 GBP 121.59 -11.3 -12.6 -8.3 n YUKI MANAGEMENT & RESEARCH
Pictet-Glo Bds Fundamental-P USD OT OT LUX 12/27 USD 127.95 -5.1 -5.2 NS
n CG Portfolio Fund Ltd Pictet-Glo Em Currencies-P USD OT OT LUX 12/27 USD 104.83 -2.7 -2.6 1.1
NAV OT OT CYM 06/07 GBP 25839.68 5.3 10.9 9.8 n HSBC Trinkaus Investment Managers SA Pictet-Glo Emerging Debt-P USD GL BD LUX 12/27 USD 305.18 -7.0 -7.3 3.9 n YMR-N Series
Pictet-Glo Megatrend Sel-P USD GL EQ LUX 12/27 USD 203.11 26.6 27.5 22.2 YMR-N Growth Fund JP EQ IRL 12/30 JPY 14381.00 65.7 65.7 36.8
n CHARTERED ASSET MANAGEMENT PTE LTD - TEL NO: 65-6835-8866 E-Mail: funds@hsbctrinkaus.lu Pictet-Greater China-P USD AS EQ LUX 12/30 USD 399.13 4.2 4.4 12.2
Fax No: 65-6835 8865, Website: www.cam.com.sg, Email: cam@cam.com.sg Telephone: 352 - 47 18471 Pictet-High Dividend Sel-P EUR OT OT LUX 12/27 EUR 128.30 16.0 16.2 12.0 n Yuki Asia Umbrella Series
CAM-GTF Limited OT OT MUS 12/20 USD 325702.22 -19.0 -17.6 3.1 HSBC Trinkaus Golden Opportunities OT OT LUX 12/27 USD 71.31 -44.8 -45.3 -26.3 Pictet-India Index-P USD EA EQ LUX 12/27 USD 83.27 -4.8 -3.9 7.6 Yuki Rebounding Gro Fd JP EQ IRL 12/30 JPY 17231.00 88.2 88.2 45.8
Prosperity Return Fund A JP BD LUX 12/06 JPY 8577.68 -9.3 -8.4 0.3 Pictet-Indian Equities-P USD EA EQ LUX 12/30 USD 301.21 -2.3 -2.3 9.8
n Citadele Prosperity Return Fund B EU BA LUX 12/06 JPY 9032.12 4.6 11.0 13.2 Pictet-Japan Index-P JPY JP EQ LUX 12/30 JPY 13462.59 54.2 54.2 36.7 n Yuki Chugoku Series
Prosperity Return Fund C EU BA LUX 12/06 USD 79.01 -12.2 -11.1 -1.0 Pictet-Japanese Eq Opp-P JPY JP EQ LUX 12/30 JPY 7494.94 58.0 58.0 38.6 Yuki Chugoku Jpn Gen JP EQ IRL 12/30 JPY 9714.00 56.7 56.7 34.0
Republikas square 2a, Riga, LV-1522, Latvia Yuki Chugoku JpnLowP JP EQ IRL 12/30 JPY 10487.00 63.4 63.4 29.5
Citadele Eastern Europ Bal EU BD LVA 12/27 EUR 16.57 2.3 2.3 9.1 Prosperity Return Fund D EU BA LUX 12/06 EUR 121.37 -9.0 -8.8 8.1 Pictet-Japanese Eq Sel-P JPY JP EQ LUX 12/30 JPY 11538.13 53.4 53.4 36.2
Citadele Eastern Europ Bd EU BD LVA 12/27 USD 20.38 2.8 2.9 8.9 Renaissance Hgh Grade Bd A EU BA LUX 12/06 JPY 10807.34 3.5 5.1 11.3 Pictet-Latam Index-P USD GL EQ LUX 12/27 USD 78.46 -14.1 -13.4 -4.5
Renaissance Hgh Grade Bd B EU BA LUX 12/06 JPY 11130.39 17.9 25.6 23.9 Pictet-Latin Am Loc Curr Dbt-P USD OT OT LUX 12/27 USD 135.09 -11.2 -10.8 -1.4 n Yuki Mizuho Series
Citadele Russian Eq EE EQ LVA 12/27 USD 22.48 0.3 0.0 7.4
Renaissance Hgh Grade Bd C EU BA LUX 12/06 USD 96.94 -0.9 0.7 8.4 Pictet-Pac (ExJpn) Idx-P USD AS EQ LUX 12/30 USD 357.28 4.3 3.9 14.0 Yuki Mizuho Jpn Dyn Gro JP EQ IRL 12/30 JPY 6153.00 64.1 64.1 35.9
n DJE INVESTMENT S.A. Renaissance Hgh Grade Bd D EU BA LUX 12/06 EUR 102.83 -4.6 -4.1 6.9 Pictet-Piclife-P CHF OT OT LUX 12/27 CHF 896.63 7.2 7.2 8.1 Yuki Mizuho Jpn Inc JP EQ IRL 12/30 JPY 10429.00 49.9 49.9 29.9
Pictet-Premium Brands-P EUR OT EQ LUX 12/27 EUR 126.18 20.2 20.8 20.6 Yuki Mizuho Jpn Lg Cap JP EQ IRL 12/30 JPY 6733.00 53.5 53.5 31.7
internet: www.dje.lu email: info@dje.lu phone:+00 352 269 2522 0 fax:+00 352 269 25252 Yuki Mizuho Jpn LowP JP EQ IRL 12/30 JPY 19724.00 96.4 96.4 46.4
DJE Real Estate P OT OT LUX 12/30 EUR 4.34 -8.3 -8.3 -6.5 Pictet-Quality Gl Eq-P USD GL EQ LUX 12/27 USD 123.59 22.7 22.6 NS
Pictet-Russia Index-P USD EE EQ LUX 12/27 USD 82.50 -0.7 -0.9 5.2 Yuki Mizuho Jpn Val Sel AS EQ IRL 12/30 JPY 9564.00 87.9 87.9 48.9
DJE-Absolut P OT OT LUX 12/30 EUR 251.92 8.0 8.3 12.0
DJE-Alpha Glbl P OT OT LUX 12/30 EUR 194.34 12.8 12.9 10.8 Pictet-Russian Equities-P USD EE EQ LUX 12/27 USD 67.94 3.3 3.6 9.0
DJE-Div& Substanz P OT OT LUX 12/30 EUR 282.86 11.6 11.8 12.9 Pictet-Security-P USD GL EQ LUX 12/27 USD 164.25 23.8 24.7 19.9
DJE-Gold&Resourc P OT EQ LUX 12/30 EUR 121.31 -29.3 -29.1 -19.9 Pictet-Short-T Money Mkt CHF-P CH MM LUX 12/27 CHF 124.25 0.0 0.0 0.0
DJE-Renten Glbl P EU BD LUX 12/30 EUR 148.77 1.8 1.9 5.8 Pictet-Short-T Money Mkt EUR-P OT OT LUX 12/27 EUR 137.70 -0.1 -0.1 0.1
LuxPro-Dragon I AS EQ LUX 07/20 EUR 144.57 -8.5 5.0 7.6 n MP ASSET MANAGEMENT INC. Pictet-Short-T Money Mkt JPY-P OT OT LUX 12/27 JPY 10129.16 0.0 0.0 0.0
LuxPro-Dragon P AS EQ LUX 07/20 EUR 140.29 -8.8 4.4 7.0 Tel: + 386 1 587 47 77 Pictet-Short-T Money Mkt USD-P OT OT LUX 12/27 USD 132.29 0.2 0.2 0.3
LuxTopic-Aktien Europa EU EQ LUX 12/30 EUR 20.38 4.3 4.6 10.6 MP-BALKAN.SI EE EQ SVN 08/12 EUR 19.29 -1.9 -8.4 -10.9 Pictet-Small Cap Europe-P EUR EU EQ LUX 12/27 EUR 817.48 30.3 30.6 29.5
LuxTopic-Pacific OT OT LUX 12/30 EUR 19.93 -6.6 -5.9 7.8 MP-TURKEY.SI OT OT SVN 12/24 EUR 38.02 -22.0 -20.2 11.1 Pictet-Sov. ST Money Mkt-P EUR OT OT LUX 12/27 EUR 102.69 -0.2 -0.2 -0.2
Pictet-Sov. ST Money Mkt-P USD OT OT LUX 12/27 USD 102.03 0.1 0.1 0.1 n OTHER FUNDS
Pictet-Timber-P USD GL EQ LUX 12/27 USD 150.47 14.3 14.8 21.8 For information about these funds, please contact us on Tel: +44 (0) 207 842 9694/9633
n HERMITAGE CAPITAL MANAGEMENT LTD. Pictet-US Eq Grwth Sel-P USD US EQ LUX 12/27 USD 168.49 34.1 35.4 21.5 Medinvest Plc Dublin OT EQ IRL 09/30 USD NS.00 NS 1.3 -4.4
Tel: +7501 258 3160 www.hermitagefund.com Pictet-US Eq Value Sel-P USD US EQ LUX 12/27 USD 186.22 27.7 28.0 20.7
The Hermitage Fund GL EQ JEY 03/12 USD 963.12 4.5 105.6 -23.2 Pictet-US High Yield-P USD US BD LUX 12/27 USD 142.86 5.6 5.6 9.7 n WINTON CAPITAL MANAGEMENT LTD
Pictet-USA Index-P USD US EQ LUX 12/27 USD 156.88 30.8 31.6 22.2 Tel: +44 (0)20 7610 5350 Fax: +44 (0)20 7610 5301
n HORSEMAN CAPITAL MANAGEMENT LTD. Pictet-USD Government Bonds-P US BD LUX 12/27 USD 571.38 -3.8 -3.9 -0.4 Winton Evolution EUR Cls H GL OT CYM 11/30 EUR 1171.94 13.4 15.0 3.4
T: +44(0)20 7838 7580, F: +44(0) 20 7838 7590, www.horsemancapital.com n MERIDEN GROUP Pictet-USD Short Mid-Term Bds-P US BD LUX 12/27 USD 125.49 0.1 0.1 0.5
Winton Evolution GBP Cls G GL OT CYM 11/30 GBP 1185.59 14.1 15.6 3.8
Horseman EurSelLtd EUR EU EQ GBR 11/30 EUR 329.26 29.9 30.5 27.1 Tel: + 376 741 175 Fax: + 376 741 183 Email: meriden@meriden-ipm.com Pictet-Water-P EUR OT OT LUX 12/27 EUR 194.68 16.4 16.6 15.2
Winton Evolution USD Cls F GL OT CYM 11/30 USD 1492.32 14.1 15.5 3.7
Pictet-World Gvt Bonds-P EUR OT OT LUX 12/27 EUR 128.75 -9.4 -9.3 -4.3
Horseman EurSelLtd USD EU EQ GBR 11/30 USD 357.30 NS NS NS Antanta Combined Fund EE EQ AND 11/22 USD 207.89 -20.9 -16.8 -18.4 Winton Futures EUR Cls C GL OT VGB 11/30 EUR 250.78 8.5 10.0 3.1
PTR-Banyan-P USD OT OT LUX 12/27 USD 101.99 -0.5 -0.4 3.5
Horseman Glbl Ltd EUR GL EQ CYM 11/30 USD 522.77 NS NS NS Antanta MidCap Fund EE EQ AND 11/22 USD 346.85 -13.2 -12.4 -15.7 Winton Futures GBP Cls D GL OT VGB 11/30 GBP 272.94 8.9 10.4 3.5
PTR-Corto Europe-P EUR OT OT LUX 12/27 EUR 125.68 14.7 14.8 16.2
Horseman Glbl Ltd USD GL EQ CYM 11/30 USD 522.77 NS NS NS Meriden Opps Fund GL OT AND 12/25 EUR 22.70 -10.6 -10.5 -10.9 Winton Futures JPY Cls E GL OT VGB 11/30 JPY 17542.87 9.3 10.8 3.1
PTR-Kosmos-P EUR OT OT LUX 12/27 EUR 106.33 0.7 0.8 1.9
Meriden Protective Div GL EQ AND 11/24 EUR NS.00 -2.8 NS NS PTR-Mandarin-P USD OT OT LUX 12/30 USD 105.41 11.3 11.5 8.9 Winton Futures USD Cls B GL OT VGB 11/30 USD 894.56 9.0 10.5 3.4
n HSBC ALTERNATIVE INVESTMENTS LIMITED
T +44 20 7860 3074 F + 44 20 7860 3174 www.hail.hsbc.com n POLAR CAPITAL PARTNERS LIMITED

INDICES
HSBC ALTERNATIVE STRATEGY FUND International Fund Managers (Ireland) Limited PH - 353 1 670 660 Fax - 353 1 670 1185
Special Opp EUR OT OT GGY 12/13 EUR 120.45 12.5 15.9 16.7 Global Technology OT EQ IRL 12/24 USD 22.55 30.6 31.3 20.3
Special Opp Inst EUR OT OT GGY 03/31 EUR 88.51 0.7 -0.3 13.3 Japan Fund USD JP EQ IRL 12/24 USD 22.11 23.9 26.7 15.2
Special Opp Inst USD OT OT GGY 03/28 USD 123.18 4.2 18.5 10.6 Polar Healthcare Class I USD OT EQ IRL 12/24 USD 28.18 54.8 55.1 39.4
Special Opp USD OT OT GGY 12/13 USD 127.23 12.3 15.8 16.9 Polar Healthcare Class R USD OT EQ IRL 12/24 USD 27.67 54.3 54.6 38.9 NAV %RETURN
n Pictet Funds (Europe) SA, ROUTE DES ACACIAS 60, CH-1211 GENEVA 73 FUND NAME GF DATE CR NAV 1-WK 1-MO 1-Q 1-YR 2-YR
n HSBC Portfolio Selection Fund n Hemisphere Management (Ireland) Limited
GH Fund CHF Hdg OT OT GGY 12/13 CHF 123.78 7.5 8.3 6.2 Tel: + 41 (58) 323 3000 Web: www.pictetfunds.com Discovery USD A GL OT CYM 12/31 USD 101.35 NS NS NS
Pictet-Abs Ret Gl Div-P EUR GL OT LUX 12/27 EUR 113.83 -5.2 -5.1 0.5 n ARIX ABSOLUTE RETURN INVESTABLE INDEX
GH Fund EUR Hdg (Non-V) OT OT GGY 12/13 EUR 137.74 7.0 7.8 6.1 Elbrus USD A OT OT CYM 11/30 USD 10.51 NS NS NS
Pictet-Agriculture-P EUR OT OT LUX 12/27 EUR 152.55 3.7 4.1 8.6 Feri Institutional Advisors, www.feri.de
GH Fund GBP Hdg OT OT GGY 12/13 GBP 152.20 7.7 8.5 6.8 Europn Conviction USD B EU EQ CYM 11/30 USD 161.28 2.2 3.9 4.7
Pictet-Asian Eq ExJpn-P USD OT OT LUX 12/30 USD 183.26 3.7 4.0 9.6 ARIX Composite Gross USD OT OT GBR 11/30.00 USD1589.87 7.1 8.8 6.3
GH Fund Inst USD OT OT GGY 12/13 USD 131.12 7.8 8.7 7.1 Europn Forager USD B EU EQ CYM 11/30 USD 312.95 10.9 12.5 11.4
Pictet-Asian Loc Cur Dbt-P USD AS BD LUX 12/30 USD 142.33 -8.2 -8.0 -0.7 Latin America USD A GL EQ CYM 06/30 USD NS.00 NS NS NS n CG Portfolio Fund Ltd
GH FUND S EUR OT OT CYM 12/13 EUR 153.03 8.2 8.9 7.3 Pictet-Biotech-P USD OT EQ LUX 12/27 USD 551.25 53.6 54.4 39.6 NAV OT OT CYM 06/07.00 GBP25839.68 5.3 10.9 9.8
Data as shown is for information purposes only. No offer is being made by Morningstar, Ltd. or this publication. Funds shown arent registered with the U.S. Securities and Exchange Commission and arent 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.

For information about listing your funds, please contact: Lauren Berkemeyer tel: +44 20 7572 2102; email: lauren.berkemeyer@dowjones.com
 22| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Reuters
Chesapeake isnt tapping enough natural gas to fill pipeline space it had reserved. Above, its offices in Oklahoma City.
Chesapeake Is Haunted
By Cost of Earlier Deals
BY DANIEL GILBERT
As Chesapeake Energy Corp.
burned through cash in recent years,
it raised billions of dollars by selling
pieces of its empire: oil and gas
properties, pipelines, even royalties
from wells yet to be drilled.
Some of these deals saddled the
second-largest U.S. natural-gas pro-
ducer with costs that only now are
becoming clear. The obligations pose
hurdles to new Chief Executive Doug
Lawler, who has pledged to rein in
spending and improve profit.
When Chesapeake unloaded its
pipeline business last year in a med-
ley of transactions totaling more
than $4 billion, it agreed to ship a
certain amount of natural gas on
lines now owned by Access Mid-
stream Partners LP. But in north
Texas, Chesapeake isnt tapping
enough gas to fill the space it re-
served as it cuts back on drilling
new gas wells.
The shortfall means Chesapeake
must pay for a service it isnt using.
If its wells there continue to produce
gas at current rateswhich isnt
likely, given that production has
been fallingthe company would
have to pay at least $400 million to
Access over the next five years to
make up for the shortfall, according
to a Wall Street Journal analysis of
regulatory filings. That equals al-
most half of the companys profit for
the first nine months of 2013.
They expected the world to be
different than it is today, Jason
Wangler, an energy analyst at Wun-
derlich Securities Inc., said of the
commitments Chesapeake made to
ship more natural gas. Assuming the
companys gas output stops declin-
ing in north Texas likely understates
the cost of those commitments, he
said, adding, Its going to be siz-
Japanese Stocks Climb 57% as Yen Weakens
Continued from page 15
sure to Japan stocks, he said.
Foreigners comprise about two-
thirds of Japan stock trading by
value, TSE data show.
Moves elsewhere in Asia were
modest on a quiet trading day as in-
vestors looked ahead to economic
reports coming out in the new year.
Chinas official purchasing managers
index will be released Wednesday,
while in the U.S., Thursdays ISM
able.
Chesapeake declined to com-
ment.
Such obligations are common
features of deals Chesapeake struck
to help cover a roughly $25 billion
gap between its spending and cash
flow from 2010 to 2012, led by then
CEO Aubrey McClendon. Mr. Lawler,
who took the reins in June, and
Chesapeake have made some prog-
ress in narrowing that gap.
So far this year, the Oklahoma
City-based company has spent just
half as much as it did last year on
drilling and leasing. Oil output has
surged, boosting its cash flow and
lifting profits to nearly $1 billion
through September after ending
2012 in the red. Chesapeake shares
have climbed 65% this year, as natu-
ral-gas prices have risen and inves-
tors cheered the companys new-
found financial discipline.
Still, cutting costs leaves Mr.
Lawler with difficult choices: He has
acknowledged the company will let
some drilling leases expire as it tar-
gets only the most lucrative pros-
pects. But some past deals dont al-
low such a choice.
The company in 2011 spun off a
portion of its interests in an Okla-
homa oil field it then billed as
among its best. The deal raised $410
million for Chesapeake and gave in-
vestors a cut of royalties from oil
and gas wells the company owned or
agreed to drill in a field it calls the
Colony Granite Wash.
But the wells are producing less
oil and gas than Chesapeake fore-
cast, resulting in lower cash payouts
to investors and to the company,
which owns half of the trusts
shares. The company has said the
underground pressure is lower than
expected, pushing less fuel to the
surface.
manufacturing report will provide a
checkup on the health of manufac-
turing.
Chinas PMI is expected to show
a decline to 51.2 for December, from
51.4 in November, according to the
median forecast of eight economists
surveyed by The Wall Street Journal.
In China, the Shanghai Compos-
ite Index slipped 0.2% to 2097.53.
This came after Fridays 1.4% gain,
which followed a moderation in the
MARKETS
Shares in the trust, which traded
at almost $30 in March 2012, have
fallen sharply, to $10.53 on Friday.
Chesapeake has cut back on drilling
in the Colony Granite Wash, to two
rigs down from four earlier this
year. But under its agreement with
investors, it must drill another 40
wells, at an estimated cost of $82.4
million.
The obligation is small in the
context of Chesapeakes planned $5.7
billion drilling budget this year, but
there are others.
Chesapeake has raised $6 billion
by selling future oil and gas produc-
tion in 10 separate deals since 2007,
and banked another $2.5 billion
from two transactions in which it
transferred oil and gas prospects
into two subsidiaries and sold pre-
ferred shares in them.
As Chesapeake dials back on
drilling gas wells, its commitments
mean that, too, comes at a cost. In
the gas-rich Barnett Shale of North
Texas, Chesapeake has allowed
leases on 14,000 acres to expire. It
expects to pay $28 million to its
partner in the venture, French oil
company Total SA., which has dis-
puted how much it is owed, accord-
ing to regulatory filings.
Both companies are on the hook
for shipping a minimum amount of
gas on pipelines in the region owned
by Access through 2019, at a rate
that increases 2% a year, or pay for
what they dont ship. So far this
year, Chesapeake and Total have
shipped 17% less gas in the Barnett
region than a year ago, according to
Access filings with the Securities
and Exchange Commission.
An Access executive in October
estimated they would likely pay at
least $50 million in the fourth quar-
ter of 2013 for not shipping enough
gas.
money markets, which had spiked
earlier in the month. Hong Kongs
Hang Seng Index ended just 1.6
points higher at 23244.87.
Australias S&P ASX 200 moved
up 0.6% to 5356.80, while South Ko-
reas Kospi gained 0.5% to 2011.34.
Monday was the last full day of
trading for many of Asias markets.
On Tuesday, Australia, Hong Kong
and Singapore will be among the
markets trading for half a day.
European Stocks
Pause After Gains
BY TOMMY STUBBINGTON
AND SAABIRA CHAUDHURI
European stocks snapped a six-
session winning streak Monday, edg-
ing down after closing at five-year
highs Friday.
The Stoxx Europe 600 Index de-
clined 0.2% to 327.13. Germanys
DAX fell 0.4% to 9552.16 after hitting
an all-time high Friday. Frances CAC
40 slipped 0.05% to 4275.71, and
Londons FTSE 100 shed 0.3% to
6731.27.
MARKET
Despite sizable gains
REPORT in 2013, many investors
remain confident that
European equities can sustain their
run next year.
Unlike their global peers, Euro-
pean company profits and stock
markets remain well below peak,
said Kevin Lilley, European equity
manager at Old Mutual Global Inves-
tors. With attractive multiples, a
recovering economy, a return of in-
ternational investors and an unlim-
ited European Central Bank backstop
in place, Europe would appear to
have significant potential for 2014.
Shares also took a breather in
the U.S., with the market on track
for its best annual performance
since the late 1990s. Indexes were
mixed after pending home sales
ticked up by 0.2% in November, fall-
ing short of economists expecta-
tions for 1%, according to the Na-
tional Association of Realtors.
The Dow Jones Industrial Aver-
age added 25.88 points, or 0.2%, to
16504.29, a record high. The S&P
500 fell 0.33 point, or less than 0.1%,
to 1841.07. The Nasdaq Composite
slipped 2.40 points, or 0.1%, to
4154.20.
Investors said they were wary of
making big moves or changing
course at the close of a blockbuster
year. Everyone is holding their
breath until the end of the year so
they can mark their performance,
said Ron Florance, deputy chief in-
vestment officer at Wells Fargo Pri-
vate Bank, which manages $170 bil-
lion. Its been such a phenomenal
year on the equities side, and the
Fund Scorecard
Europe ex-UK Large-Cap Equity
Funds that invest in the equities of large-cap companies in continental Europe. At least
75% of total assets are invested in equities. Ranked on % total return (dividends
reinvested) in Euros for one year ending December 30, 2013
Leading 10 Performers
FUND FUND
RATING * NAME FUND MGM'T CO.
5 Henderson Henderson Global
European Focus Trust Ord Investors
3 Invesco Cont Invesco Global
European Equity A Asset Management Limited
4 IP European Invesco Fund
Equity Income Acc Managers Limited
3 European Edinburgh Partners
Investment Ord Limited
3 IP European Invesco Fund
Equity Acc Managers Limited
5
4
Henderson
EuroTrust Ord Investors
CF Odey
Henderson Global
Odey Asset
ContinentalEuropeanRAcc Management Llp
4 JPM Europe JPMorgan Funds
Dynamic (ex-UK) A Acc Limited
5 JPMorgan JP Morgan
European Income Pool Ord Investment Mgmt Inc.
3 Artemis Artemis Fund
European Growth R Managers Limited
NOTE: Changes in currency rates will affect performance and rankings.
KEY: ** 2YR and 5YR performance is annualized
NA-not available due to incomplete data;
NS-fund not in existence for entire period
THE WALL STREET JOURNAL.
beginning of a painful process for
the fixed-income side.
Mr. Florance said he is expecting
a more normal environment in
2014, with stocks in the U.S. gaining
6% to 8%. He said he favors stocks in
the industrial sector due to the
pickup in manufacturing activity, as
well as stocks in the consumer-dis-
cretionary and information-technol-
ogy sectors. He is pulling back on
longer-dated bonds as interest rates
rise.
In Asia, most markets rose. To-
kyos Nikkei Stock Average climbed
0.7% on its last day of trading for
2013 to end at 16291.31, its highest
close in six years. That sealed a 57%
gain for the benchmark this year.
Twitter was down 5.3% in late
trade, extending a 13% loss on Fri-
day after an analyst downgraded the
microblogging website on concerns
that its stock was too expensive. Be-
fore the selloff, the stock had surged
76% in December.
Crocs surged 21% after announc-
ing over the weekend that Black-
stone Group will invest $200 million
in the footwear company, giving
Blackstone a 13% ownership stake in
Crocs.
The price of the 10-year Treasury
note rose 8/32, pushing the yield
back below 3% to 2.976%. Over the
past few months, buyers have shown
up when the 10-year yield ap-
proached 3%, limiting the pace of
the yields rise. The yield is a key
reference for long-term interest
rates for consumers, banks and com-
panies in the U.S. and abroad.
For money managers who dont
have to worry about year-end,
theres decent value to be had with
10-year yields right around the 3%
mark, said Guy LeBas, chief fixed-
income strategist at Janney Mont-
gomery Scott LLC in Philadelphia.
Crude for February delivery lost
$1.03 a barrel, or 1%, to $99.29 on
the New York Mercantile Exchange.
Gold for January delivery fell $11 a
troy ounce, or 0.9%, to $1,203.10 on
the Comex division of Nymex.
Dan Strumpf contributed
to this article.
LEGAL % Return in $US **
CURR. BASE YTD 1-YR 2-YR 5-YR
GBPGBR 39.66 40.81 35.12 17.83
EURIRL 40.89 39.33 28.83 13.99
GBPGBR 36.97 37.49 29.24 14.14
GBPGBR 35.76 36.74 27.92 16.37
GBPGBR 36.33 36.55 26.86 13.77
GBPGBR
GBPGBR
35.54 34.99 32.46 18.90
34.07 34.86 25.89 12.87
GBPGBR 33.25 34.46 29.33 16.34
GBPGBR 32.58 33.78 28.50 19.60
GBPGBR 32.82 33.55 28.84 13.98
Source: Morningstar, Ltd
1 Olivers Yard, 55-71 City Road
London EC1Y 1HQ United Kingdom
www.morningstar.co.uk; Email: mediaservice@morningstar.com
Phone: +44 (0)203 107 0038; Fax: +44 (0)203 107 0001
THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 23

GLOBAL MARKETS LINEUP

Major stock market indexes Stock indexes from around the world, grouped by region. Shown in local-currency terms.
PREVIOUS SESSION PERFORMANCE PREVIOUS SESSION PERFORMANCE
Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk. Region/Country Index Close Net change Percentage change Yr.-to-date 52-wk.
EUROPE Stoxx Europe 600 327.13 -0.55 -0.17% 17.0% 17.3% Spain IBEX 35 9901.90 1.80 0.02% 21.2 21.8
Stoxx Europe 50 2909.37 -10.17 -0.35 12.9 13.3 Sweden OMX Stockholm 423.66 -0.44 -0.10 23.2 23.2
Euro Zone Euro Stoxx 313.63 -0.59 -0.19 20.2 20.6 Switzerland SMI 8202.98 -18.92 -0.23 20.2 20.2
Euro Stoxx 50 3100.93 -10.44 -0.34 17.6 18.0 Turkey BIST 100 67985.70 4100.5 6.42 -13.1 -13.5
Austria ATX 2546.54 -3.89 -0.15 6.1 6.1 U.K. FTSE 100 6731.27 -19.60 -0.29 14.1 13.6
Belgium Bel-20 2915.33 -5.72 -0.20 17.8 18.2 ASIA-PACIFIC DJ Asia-Pacific 146.65 0.86 0.59 10.1 9.9
Czech Republic PX 989.04 2.13 0.22% -4.8 -4.8 Australia SPX/ASX 200 5356.80 32.70 0.61 15.2 15.2
Denmark OMX Copenhagen 565.98 2.34 0.41 25.1 25.1 China Shanghai Composite 2097.53 -3.72 -0.18 -7.6 -7.6
Finland OMX Helsinki 7336.98 -22.84 -0.31 26.5 26.5 Hong Kong Hang Seng 23244.87 1.63 0.01 2.6 2.6
France CAC-40 4275.71 -1.94 -0.05 17.4 18.1 India S&P BSE Sensex 21143.01 -50.57 -0.24 8.8 8.8
Germany DAX 9552.16 -37.23 -0.39 25.5 25.5 Japan Nikkei Stock Average 16291.31 112.37 0.69 56.7 56.7
Hungary BUX 18564.08 229.99 1.25 2.2 3.4 Singapore Straits Times 3153.29 3.53 0.11 -0.4 -0.4
Ireland ISEQ 4512.18 -36.72 -0.81 32.8 34.0 South Korea Kospi 2011.34 9.06 0.45 0.7 0.7
Italy FTSE MIB 18967.71 11.19 0.06 16.6 16.6 AMERICAS DJ Americas 463.79 0.10 0.02 25.0 26.9
Netherlands AEX 399.77 -1.22 -0.30 16.6 16.9 Brazil Bovespa 51507.16 240.60 0.47 -15.5 -15.5
Norway All-Shares 602.80 -1.51 -0.25 22.9 22.9 Mexico IPC 42936.36 183.14 0.43 -1.8 -1.8
Poland WIG 51284.25 16.96 0.03 8.1 8.1 Note: Americas index data are as of 3:00 p.m. ET. Sources: SIX Financial Information; WSJ Market Data Group
Portugal PSI 20 6553.60 -90.72 -1.37 15.9 15.8
Russia RTSI 1442.73 -2.66 -0.18% -5.5 -5.5

S&P Dow Jones Indices MSCI indexes

Price-to- Price-to-
Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Dividend earnings PERFORMANCE (euros) PERFORMANCE (U.S.dollars) Developed and emerging-market regional and country indexes
yield* ratio* S&P Dow Jones Index Last Daily 52-wk. Last Daily 52-wk. yield* ratio* S&P Dow Jones Index Last Daily 52-wk. Last Daily 52-wk. from MSCI as of December 30, 2013
2.37% 19.13 Global TSM 3222.07 0.17% 20.9% Turkey Titans 20 -c 688.17 6.21% -13.8% Price-to- LOCAL-CURRENCY
2.89 18.01 Global DOW 1691.63 -0.15% 18.7% 2480.75 0.07 24.3 5.71%21.90 Global Select Div 249.71 0.35 13.8 Dividend earnings PERFORMANCE
yield ratio MSCI Index Last Daily YTD 52-wk.
2.94 14.25 Global Titans 50 224.98 -0.41 13.6 232.02 -0.19 19.0 6.01 15.89 Asia/Pacific Select Div 282.75 0.34% -2.3% 334.28 0.61 2.3
2.40% 16 MSCI ACWI* 406.81 -0.47% 19.7% 22.3%
3.11 19.80 Dev Europe TSM 3382.94 0.08 23.6 U.S. Select Dividend -d 1234.27 -0.09 28.7
2.40 17 World (Developed Markets) 1,654.16 -0.48 23.6 25.7
2.32 20.03 Developed Markets TSM 3240.63 0.15 23.9 3.14 25.50 S&P Glb Nat Resources 1993.06 -0.17 -6.2 2734.25 0.05 -1.7
2.30 17 World ex-EMU 201.57 -0.29 23.3 25.1
2.76 13.64 S&P BMI Emg Markets 254.41 0.60 -4.1 2.12 19.41 Islamic Market 2731.47 0.05 18.9
2.30 18 World ex-UK 1,666.12 -0.40 24.4 26.6
3.26 19.11 S&P Europe 350 1333.68 -0.23 16.7 1655.64 0.13 22.3 2.40 17.63 Islamic Market 100 2994.65 -0.09 21.5
3.00 16 EAFE 1,908.00 -1.20 19.0 22.6
3.20 22.21 S&P Euro 1331.78 -0.23 20.6 1675.47 0.13 26.4 Islamic Turkey -c 4162.99 5.39 -3.4
2.60 12 Emerging Markets (EM) 997.56 -0.44 -5.5 -0.9
3.83 17.69 Europe Dow 1373.47 -0.23 15.5 2015.06 0.04 21.1 3.24 22.33 Sustainability Europe 107.62 -0.18 15.4 163.41 0.09 20.9
3.30 16 EUROPE 111.95 1.03 16.2 17.8
3.14 9.18 BRIC 50 380.80 -0.12 -10.3 501.23 0.08 -6.0 3.96 22.74 S&P Glb Infrastructure 1451.15 -0.01 5.1 2263.40 0.21 10.0
3.20 18 EMU 197.61 -1.75 25.7 30.3
1.87 20.85 U.S. TSM 19324.22 -0.06 30.3 1.81 14.71 Luxury 2075.29 0.30 21.8
3.10 18 Europe ex-UK 120.23 1.23 19.1 21.2
Kuwait Titans 30 -c 201.34 -0.06 5.1 DJ-UBS Commodity -p 112.51 -0.39 -8.8 127.11 -0.39 -8.6
4.20 13 Europe Value 113.32 0.94 16.9 19.5
*Fundamentals are based on data in U.S. dollar. Footnotes: a-in US dollar. b-dividends reinvested. c-in local currency. Note:All data as of 2 p.m.ET. Source: S&P Dow Jones Indices 2.30 21 Europe Growth 106.44 1.13 15.5 16.0
2.40 24 Europe Small Cap 259.18 0.77 29.7 34.3
Cross rates U.S.-dollar and euro foreign-exchange rates in global trading 3.40 6 EM Europe 272.52 -0.69 -12.2 -7.9
3.60 14 UK 1,992.87 0.83 14.1 14.7
USD GBP CHF SEK RUB NOK JPY ILS EUR DKK CDN AUD 3.20 17 Nordic Countries 200.42 1.19 16.0 18.3
Australia 1.1210 1.8520 1.2644 0.1748 0.0341 0.1848 0.0107 0.3225 1.5487 0.2076 1.0535 ... 3.50 5 Russia 786.97 -0.55 2.6 7.9
Canada 1.0640 1.7579 1.2002 0.1659 0.0324 0.1754 0.0101 0.3061 1.4700 0.1971 ... 0.9492 3.00 18 South Africa 1,121.73 1.30 10.9 16.4
Denmark 5.3994 8.9202 6.0904 0.8418 0.1644 0.8899 0.0514 1.5533 7.4594 ... 5.0745 4.8167 2.80 14 AC ASIA PACIFIC EX-JAPAN 465.00 -0.36 -0.2 2.8
Euro 0.7238 1.1958 0.8165 0.1129 0.0220 0.1193 0.0069 0.2082 ... 0.1341 0.6803 0.6457 1.70 17 Japan 798.03 0.72 50.5 65.9
Israel 3.4762 5.7429 3.9211 0.5420 0.1058 0.5730 0.0331 ... 4.8024 0.6438 3.2670 3.1010
3.00 10 China 62.98 0.41 0.2 5.1
Japan 105.0097 173.4855 118.4497 16.3721 3.1970 17.3081 ... 30.2085 145.0744 19.4485 98.6913 93.6772
1.40 16 India 817.97 0.73 7.0 7.8
Norway 6.0671 10.0234 6.8436 0.9459 0.1847 ... 0.0578 1.7453 8.3819 1.1237 5.7020 5.4123
1.00 11 Korea 588.16 0.17 1.4 5.4
Russia 32.8463 54.2651 37.0503 5.1211 ... 5.4139 0.3128 9.4490 45.3783 6.0834 30.8700 29.3016
2.90 17 Taiwan 299.84 0.60 8.4 9.3
Sweden 6.4139 10.5964 7.2349 ... 0.1953 1.0572 0.0611 1.8451 8.8611 1.1879 6.0280 5.7218
Switzerland 0.8865 1.4646 ... 0.1382 0.0270 0.1461 0.0084 0.2550 1.2248 0.1642 0.8332 0.7909
1.90 19 US BROAD MARKET 2,097.61 0.05 30.5 31.7
U.K. 0.6053 ... 0.6828 0.0944 0.0184 0.0998 0.0058 0.1741 0.8362 0.1121 0.5689 0.5400 1.40 29 US Small Cap 3,218.02 0.10 36.7 40.5
U.S. ... 1.6521 1.1280 0.1559 0.0304 0.1648 0.0095 0.2877 1.3815 0.1852 0.9398 0.8921 3.00 16 EM LATIN AMERICA 3,197.30 -0.50 -15.8 -10.7
Source: ICAP Plc. *Twenty-four developed and 21 emerging markets Source: MSCI

Commodities Prices of futures contracts with the most open interest Currencies London close on Dec. 30
EXCHANGE LEGEND: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures U.S.MDEX: Bursa Malaysia Per In Per In
Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; AMERICAS Per euro In euros U.S. dollar U.S. dollars EUROPE Per euro In euros U.S. dollar U.S. dollars
NYMEX: New York Mercantile Exchange;ICE-EU: ICE Futures Europe *Data as of December 27, 2013
Year Year Argentina peso-a 9.0085 0.1110 6.5207 0.1534 Euro zone euro 1 1 0.7238 1.3815
ONE-DAY CHANGE
Commodity Exchange Last price Net Percentage high low Brazil real 3.2505 0.3076 2.3529 0.4250 1-mo. forward 1.0000 1.0000 0.7238 1.3815
Corn (cents/bu.) CBOT 423.50 -4.00 -0.94% 614.00 418.50 Canada dollar 1.4700 0.6803 1.0640 0.9398 3-mos. forward 1.0000 1.0000 0.7238 1.3815
Soybeans (cents/bu.) CBOT 1308.50 -5.25 -0.40 1,377.75 1,174.00 Chile peso 726.40 0.001377 525.80 0.001902 6-mos. forward 0.9999 1.0001 0.7238 1.3817
Wheat (cents/bu.) CBOT 600.25 -8.75 -1.44 845.00 600.00 Colombia peso 2660.66 0.0003758 1925.88 0.0005192 Czech Rep. koruna-b 27.386 0.0365 19.823 0.0504
Live cattle (cents/lb.) CME 135.200 0.250 0.19% 137.125 124.025 Ecuador US dollar-f 1.3815 0.7238 1 1 Denmark krone 7.4594 0.1341 5.3994 0.1852
Cocoa ($/ton) ICE-US 2,712 -73 -2.62 2,844 2,083 Mexico peso-a 18.0292 0.0555 13.0501 0.0766 Hungary forint 296.36 0.003374 214.51 0.004662
Coffee (cents/lb.) ICE-US 114.50 -1.85 -1.59 172.25 104.15 Peru sol 3.8613 0.2590 2.7950 0.3578 Norway krone 8.3819 0.1193 6.0671 0.1648
Sugar (cents/lb.) ICE-US 16.35 -0.08 -0.49 20.72 15.86 Uruguay peso-e 29.233 0.0342 21.160 0.0473 Poland zloty 4.1481 0.2411 3.0026 0.3330
Cotton (cents/lb.) ICE-US 84.75 0.63 0.75 90.61 76.65 U.S. dollar 1.3815 0.7238 1 1 Russia ruble-d 45.378 0.02204 32.846 0.03044
Rapeseed (euro/ton) LIFFE 367.25 0.25 0.07 441 357
Venezuela bolivar 8.77 0.113989 6.35 0.157480 Sweden krona 8.8611 0.1129 6.4139 0.1559
Cocoa (pounds/ton) LIFFE 1,716 -44 -2.50 1,809 1,421
ASIA-PACIFIC Switzerland franc 1.2248 0.8165 0.8865 1.1280
Robusta coffee ($/ton) LIFFE 1,692 -22 -1.28 2,190 1,426
Australia dollar 1.5487 0.6457 1.1210 0.8921 1-mo. forward 1.2245 0.8167 0.8863 1.1283
Copper ($/lb.) COMEX 3.3820 -0.0030 -0.09 3.8280 3.0270 1-mo. forward 1.5519 0.6444 1.1233 0.8902 3-mos. forward 1.2239 0.8171 0.8859 1.1288
Gold ($/troy oz.) COMEX 1197.40 -16.60 -1.37 1,706.50 1,186.00
3-mos. forward 1.5579 0.6419 1.1277 0.8868 6-mos. forward 1.2228 0.8178 0.8851 1.1298
Silver ($/troy oz.) COMEX 19.585 -0.464 -2.31 32.310 18.600
6-mos. forward 1.5673 0.6381 1.1344 0.8815 Turkey lira 2.9298 0.3413 2.1207 0.4715
Aluminum ($/ton)* LME 1,797.00 41.50 2.36 2,165.50 1,740.50
China yuan 8.3733 0.1194 6.0609 0.1650 U.K. pound 0.8362 1.1958 0.6053 1.6521
Tin ($/ton)* LME 23,000.00 80.00 0.35 25,150.00 19,300.00
Hong Kong dollar 10.7133 0.0933 7.7547 0.1290 1-mo. forward 0.8364 1.1956 0.6054 1.6518
Copper ($/ton)* LME 7,365.50 93.50 1.29 8,286.00 6,676.00
India rupee 85.3787 0.0117 61.8000 0.0162 3-mos. forward 0.8368 1.1951 0.6057 1.6510
Lead ($/ton)* LME 2,279.00 32.00 1.42 2,455.00 1,961.00
Indonesia rupiah 16855 0.0000593 12200 0.0000820 6-mos. forward 0.8374 1.1942 0.6061 1.6498
Zinc ($/ton)* LME 2,102.50 30.50 1.47 2,214.00 1,820.50
Nickel ($/ton)* LME 14,225 115 0.82 18,665 13,245 Japan yen 145.07 0.006893 105.01 0.009523 MIDDLE EAST/AFRICA
1-mo. forward 145.05 0.006894 104.99 0.009524 Bahrain dinar 0.5208 1.9203 0.3769 2.6529
Crude oil ($/bbl.) NYMEX 99.21 -1.11 -1.11 106.26 85.57
3-mos. forward 145.01 0.006896 104.96 0.009527 Egypt pound-a 9.5846 0.1043 6.9377 0.1441
Heating oil ($/gal.) NYMEX 3.0544 -0.0377 -1.22 3.1784 2.7850
RBOB gasoline ($/gal.) NYMEX 2.7890 -0.0205 -0.73 2.8693 2.4342 6-mos. forward 144.91 0.006901 104.89 0.009533 Israel shekel 4.8024 0.2082 3.4762 0.2877
Natural gas ($/mmBtu) NYMEX 4.383 0.047 1.08 4.6760 3.4680 Malaysia ringgit-c 4.5345 0.2205 3.2823 0.3047 Jordan dinar 0.9774 1.0232 0.7075 1.4135
Brent crude ($/bbl.) ICE-EU 111.05 -1.13 -1.01 112.80 96.00 New Zealand dollar 1.6815 0.5947 1.2172 0.8216 Kuwait dinar 0.3894 2.5679 0.2819 3.5476
Gas oil ($/ton) ICE-EU 941.00 -14.00 -1.47 960.75 840.00 Pakistan rupee 145.800 0.0069 105.535 0.0095 Lebanon pound 2076.38 0.0004816 1502.95 0.0006654
Philippines peso 61.341 0.0163 44.401 0.0225 Saudi Arabia riyal 5.1815 0.1930 3.7506 0.2666
Sources: SIX Financial Information; WSJ Market Data Group
Singapore dollar 1.7507 0.5712 1.2672 0.7891 South Africa rand 14.3998 0.0694 10.4231 0.0959
South Korea won 1457.23 0.0006862 1054.80 0.0009481 United Arab dirham 5.0744 0.1971 3.6731 0.2723
WSJ.com>> Follow the markets throughout the day with updated stock quotes, news and Taiwan dollar 41.237 0.02425 29.849 0.03350 a-floating rate b-financial c-government rate c-commercial
commentary at WSJ.com. Also, receive email alerts that summarize the days trading in Europe Thailand baht 45.338 0.02206 32.818 0.03047 rate d-Russian Central Bank rate.
Source: ICAP Plc.
and Asia. To sign up, go to WSJ.com/email.
24| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 THE WALL STREET JOURNAL.

BLUE CHIPS & BONDS

Dow Jones Industrial Average P/E: 17
Major players & benchmarks
Below, a look at the Dow Jones Stoxx
50, the biggest and best known
companies in Europe, including the U.K. LAST: 16504.29 s 25.88, or 0.16%
YEAR TO DATE: s 3,400.15, or 25.9%
Stoxx Europe 50: Monday's best and worst... OVER 52 WEEKS s 3,400.15, or 25.9%

Previous
close, in STOCK PERFORMANCE High
Company Country Industry Volume local currency Previous session YTD 52-week
Close 16500
Rio Tinto United Kingdom General Mining 1,951,408 3,409 0.89% -2.9% -3.6%
Barclays United Kingdom Banks 22,562,119 271.10 3.3 3.4
Low
0.52
SAP Germany Software 1,358,597 62.31 0.37 2.7 2.7 16000
L'Air Liquide France Commodity Chemicals 428,750 102.15 0.25 7.5 8.7
GlaxoSmithKline United Kingdom Pharmaceuticals 3,010,985 1,607 0.22 20.4 19.4
15500

Deutsche Telekom Germany Mobile Telecommunications 5,339,197 12.43 -1.35% 46.1 46.1 t
Tesco United Kingdom Food Retailers & Wholesalers 7,357,908 336.35 -1.07 0.1 -0.3 50day 15000
Bayer Germany Specialty Chemicals 943,611 101.95 -1.07 41.8 41.8 moving average
British American Tobacco United Kingdom Tobacco 1,411,331 3,221 -0.98 3.2 3.6
14500
Siemens Germany Diversified Industrials 1,200,376 99.29 -0.96 20.8 20.8

...And the rest of Europe's blue chips 14000

4 11 18 25 1 8 15 22 29 6 13 20 27
Latest, Latest, Oct. Nov. Dec.
in local STOCK PERFORMANCE in local STOCK PERFORMANCE
Company/Country (Industry) Volume currency Latest YTD 52-week Company/Country (Industry) Volume currency Latest YTD 52-week Note: Price-to-earnings ratios are for trailing 12 months
Glencore Xstrata PLC 10,535,568 316.35 0.21% -9.9% -10.6% Standard Chartered 2,516,253 1,356 -0.26% -13.8% -13.9%
United Kingdom (General Mining) United Kingdom (Banks) DJIA component stocks
AXA 3,065,973 20.13 0.17 50.8 52.2 Sanofi SA 2,007,092 76.28 -0.34 6.8 7.8
France (Full Line Insurance) France (Pharmaceuticals) Volume, CHANGE
Stock Symbol in millions Latest Points Percentage
Financiere Richemont 817,035 88.80 0.17 24.4 24.4 Allianz SE 712,180 130.35 -0.34 24.4 24.4
Switzerland (Clothing & Accessories) Germany (Full Line Insurance) AT&T T 10.4 $35.19 0.01 0.03%
Zurich Insurance Group 278,080 258.50 0.15 6.2 6.2 Diageo 1,361,213 1,987 -0.35 11.2 10.3 AmExpress AXP 1.4 89.53 0.34 0.38
Switzerland (Full Line Insurance) United Kingdom (Distillers & Vintners) Boeing BA 2.1 135.76 1.14 0.83
Schneider Electric 978,372 63.40 0.14 15.6 16.2 Total 3,112,369 44.33 -0.39 12.7 13.9 Caterpillar CAT 2.3 90.87 ... ...
France (Electrical Components & Equipment) France (Integrated Oil & Gas)
Chevron CVX 3.5 124.48 0.75 0.60
BG Grp 2,389,894 1,299 0.12 28.2 28.8 Daimler 1,492,168 62.90 -0.40 52.2 52.2
United Kingdom (Integrated Oil & Gas) Germany (Automobiles) CiscoSys CSCO 24.5 22.27 0.25 1.14
Deutsche Bank 2,217,706 34.68 0.12 5.2 5.2 ING Groep 8,817,393 10.03 -0.45 42.0 43.5 CocaCola KO 8.5 41.02 0.36 0.89
Germany (Banks) Netherlands (Life Insurance) Disney DIS 7.8 76.13 1.78 2.39
BNP Paribas 1,894,489 56.48 0.11 32.6 33.4 ENI 7,908,947 17.49 -0.46 -4.6 -4.6 DuPont DD 1.8 64.63 0.38 0.59
France (Banks) Italy (Integrated Oil & Gas)
ExxonMobil XOM 6.2 100.55 0.96 0.95
Roche Holding Part. Cert. 832,129 249.20 ... 35.4 35.4 Novartis AG 2,996,017 71.20 -0.49 23.9 23.9
Switzerland (Pharmaceuticals) Switzerland (Pharmaceuticals) GenElec GE 19.8 27.87 0.04 0.14
Unilever 1,250,001 2,472 -0.04 4.5 3.8 HSBC Hldgs 11,212,638 659.10 -0.50 1.9 1.3 GoldmanSachs GS 1.0 175.48 0.87 0.49
United Kingdom (Food Products) United Kingdom (Banks) HomeDpt HD 3.0 81.82 0.18 0.22
Reckitt Benckiser Grp 375,421 4,787 -0.04 23.4 22.6 National Grid 3,798,765 786.50 -0.51 11.9 11.6 Intel INTC 16.7 25.82 0.22 0.86
United Kingdom (Nondurable Household Products) United Kingdom (Multiutilities)
IBM IBM 2.6 186.39 1.31 0.71
Nestle 3,341,777 65.30 -0.08 9.6 9.6 Royal Dutch Shell A 2,141,947 2,152 -0.51 1.4 0.8
Switzerland (Food Products) United Kingdom (Integrated Oil & Gas) JPMorgChas JPM 7.7 57.89 0.25 0.43
Moet Hennessy Louis Vuitt 729,295 132.20 -0.11 -5.2 -4.1 Vodafone Group 30,743,045 236.70 -0.53 53.3 52.3 JohnsJohns JNJ 3.7 92.19 0.16 0.17
France (Clothing & Accessories) United Kingdom (Mobile Telecommunications) McDonalds MCD 1.8 96.99 0.08 0.08
BHP Billiton 3,321,270 1,866 -0.13 -12.4 -13.0 Lloyds Banking Group PLC 52,446,021 78.42 -0.53 63.7 60.4 Merck MRK 5.2 49.91 0.12 0.24
United Kingdom (General Mining) United Kingdom (Banks) Microsoft MSFT 14.1 37.21 0.08 0.21
AstraZeneca 1,143,491 3,600 -0.14 23.7 23.6 BASF 1,312,900 77.49 -0.59 8.9 8.9 Nike B NKE 1.9 78.71 0.55 0.70
United Kingdom (Pharmaceuticals) Germany (Commodity Chemicals)
Unilever CVA 2,699,783 29.15 -0.15 1.1 1.3 BP PLC 10,394,719 485.75 -0.60 14.3 14.3 Pfizer PFE 12.5 30.68 0.04 0.13
Netherlands (Food Products) United Kingdom (Integrated Oil & Gas) ProctGamb PG 3.4 81.86 0.15 0.18
Banco Santander S.A. 32,618,326 6.50 -0.17 9.8 11.5 Telefon L.M. Ericsson B 6,458,619 78.50 -0.70 20.6 20.6 3M MMM 1.5 139.43 0.08 0.06
Spain (Banks) Sweden (Telecommunications Equipment) TravelersCos TRV 1.1 90.24 0.39 0.43
Telefonica S.A. 14,905,587 11.80 -0.21 15.8 16.0 Anheuser-Busch InBev 834,750 76.80 -0.75 16.8 16.8 UnitedTech UTX 1.3 112.60 0.20 0.18
Spain (Fixed Line Telecommunications) Belgium (Brewers)
UtdHlthGp UNH 1.6 74.67 0.02 0.03
ABB 3,125,634 23.48 -0.21 25.2 25.2 Credit Suisse Group AG 2,358,415 27.27 -0.84 23.7 23.7
Switzerland (Industrial Machinery) Switzerland (Banks) Verizon VZ 4.7 49.14 0.03 0.06
Banco Bilbao Vizcaya Argn 13,821,371 8.95 -0.22 31.2 31.9 UBS 5,706,452 16.92 -0.88 18.6 18.6 VISA ClA V 1.3 220.75 1.08 0.49
Spain (Banks) Switzerland (Banks) WalMart WMT 2.5 78.53 0.06 0.07
Sources: SIX Financial Information Source: WSJ Market Data Group

Tracking Credit derivatives

Spreads on credit derivatives are one way the market rates
Credit-default swaps: European companies
At its most basic, the pricing of credit-default swaps measures how much a buyer has to pay to purchase-and

credit
creditworthiness. Regions that are treading in rough waters how much a seller demands to sell-protection from default on an issuer's debt. The snapshot below gives a
can see spreads swing toward the maximumand vice versa. sense which way the market was moving yesterday.
Indexes below are for five-year swaps.

markets & Markit iTraxx Indexes

Index: series/version
Mid-spread,
in pct. pts. Mid-price Coupon
SPREAD RANGE, in pct. pts.
since most recent roll
Maximum Minimum Average
Showing the biggest improvement... And the most deterioration

dealmakers
CHANGE, in basis points CHANGE, in basis points
Europe: 20/1 0.70 101.44% 0.01% 1.04 0.70 0.85 Yesterday Yesterday Five-day 28-day Yesterday Yesterday Five-day 28-day
Eur. High Volatility: 20/1 1.04 99.81 0.01 1.61 1.04 1.30 BANKIA 218 14 5 4 Swisscom 43 1 1 1
Europe Crossover: 20/1 2.84 109.52 0.05 4.08 2.84 3.44 HSBC Hldgs 70 2 2 7 IMPERIAL Chem Inds 25 ... ... ...
Asia ex-Japan IG: 20/1 1.27 98.74 0.01 1.57 1.24 1.36 Bco Pop Espanol 211 4 7 30 Portigon 81 1 1 2
Japan: 20/1 0.68 101.58 0.01 0.97 0.68 0.85 3i Gp 127 2 3 8 HSH Nordbank 188 2 1 3
Note: Data as of December 27 Grohe Hldg 56 1 1 5 CABLE WIRELESS 48 ... ... 1
WORLDWIDE
In percentage points
Spreads BAWAG 182 3 4 7
Smiths Gp 90 1 ... 1
Novartis 23 ... 1 1
Spreads on Index roll 3.00
Intelsat Invts 97 1 2 4
TE Connectivity 47 ... ... 5
ve-year swaps 2.00 INEOS GROUP Hldgs 117 2 2 29
Evonik Degussa 43 ... ... ...
Australia
for corporate t KBC Bk 121 2 4 8
BAE Sys 62 1 1 1
debt; based on 1.00 Svenska Cellulosa 59 1 ... 1
Markit iTraxx Source: Markit Group
t
Japan 0
indexes.
1
July Aug. Sept. Oct. Nov. Dec. Behind Europe's deals: Bank revenue rankings, Europe
2013 Behind every IPO, bond offering, merger deal or syndicated loan is one or more investment banks. Here are
Source: Markit Group investment banks ranked by year-to-date revenues from recent deals.
PERCENTAGE OF TOTAL REVENUE
Revenue, Equity Debt Mergers &
in millions share capital markets capital markets acquisitions Loans
Deutsche Bank $1,384 7.7% 24% 38% 22% 16%
JPMorgan 1,250 6.9 22 33 31 14
Goldman Sachs 1,220 6.8 23 28 35 15
Morgan Stanley 891 4.9 25 26 36 12

WSJ.com>> Citi
Credit Suisse
849
828
4.7
4.6
22
20
36
36
28
25
13
18
Follow the markets throughout the day, with updated
Barclays 774 4.3 11 47 28 14
stock quotes, news and commentary at WSJ.com.
Bank of America Merrill Lynch 754 4.2 26 32 21 20
BNP Paribas 673 3.7 10 48 17 25
Also, receive emails that summarize the days trading in
Europe and Asia. To sign up, go to WSJ.com/Email. Source: Dealogic
THE WALL STREET JOURNAL.
Companies Need to Be More Risk-Aware
Real Dangers to Businesses Are at Middle-Management Level, Research Shows
BY EUGENE BURKE
The year now ending has al-
ready seen its fair share of corpo-
rate scandals, sending shudders
and shock waves through stock
markets. From pharmaceutical
bribery to the horse-meat scandal,
phone hacking and recent oil
spills, it is clear
MANAGEMENT that no industry
is safe from dis-
reputewhich raises the question:
Which of your employees will
pose the biggest risk to your orga-
nization?
The financial sector has un-
doubtedly faced the greatest scru-
tiny and reforming the industry
continues to be a key priority for
governments across Europe. New
regulation forcing banks to re-
structure their operations places
increasing pressure on changing
the high stakes culture of the
trading floor.
But while many businesses are
focusing on modifying regulatory
policies and procedures, many are
being blindsided by not assessing
the people aspect of risk. Peoples
actionswhat they do or fail to
docan pose a huge risk to a
business, which can affect share
prices, break laws and catalyze in-
dustry reform. The smart com-
pany, then is one which can in-
crease collective resilience to risk,
to minimize risky traits that may
cause harm to a company.
Resilience to risk is about as-
Shutterstock
sessing peoples decision-making
capabilities and how effective
their communication skills are.
The riskiest leaders and man-
agers will misjudge the impact a
certain decision could have on the
organization; theyll restrict who
they consult before making the
decision and are likely to gloss
over crucial data.
Communication-wise, riskier
managers will be poorer at articu-
lating those decisions and setting
an appropriate tone for others to
follow.
At the front line, people will ig-
nore procedures, have an inability
to accept individual or shared re-
sponsibility, or just focus on get-
ting things done, without due
care and attention.
The responsibility for many re-
cent scandals has often been
placed at the feet of senior leaders
and CEOs.
But it isnt just decision-mak-
ing at the top that should come
under scrutiny; actually it is their
failing to address peoples actions
further down the chain.
By not addressing the root
cause, businesses are self-perpetu-
ating risk. While risk cannot be
eliminated, it has an upside and a
downside and organizations need
to be aware of their own appetite
for and resilience to risk so it can
be managed in a constructive way.
Exclusive data for The Wall
Street Journal Europe taken from
CEBs SHL Talent Analytics data-
base measures how risky 20,000
employees are across a range of
industry sectors in Europe. It
paints a distinctly different pic-
ture of where the greatest behav-
ioral risk lies across an organiza-
tionand it isnt at the C-suite
level.
The data reveal that behavioral
risk is, in fact, lower at more se-
nior levels: showing that one-in-21
executive leaders across Europe
are risky, (which is considerably
lower than the global average of
one in 15 at this level).
This means there is a lower
proportion of senior executives
who are likely to create risk in the
organization. This is what you
would hope to see, given the se-
niority of decision-making at
board level.
European senior managers pos-
sess slightly higher levels of risk
at one in 14. As organizations de-
pend upon senior leaders to ac-
count for and mitigate risk, find-
ing managers that exhibit lower
levels of behavioral risk is crucial.
There is, however, still behav-
ioral risk at the top, which means
organizations need to examine
just how effective their senior
leaders are when managing this
element. For example, are they
failing to listen to good advice
from others? And are they keep-
ing the overall company strategy
in mind when making important
decisions for the business?
Furthermore, behavioral risk
increases significantly as you con-
tinue down through the corporate
hierarchy. Weve calculated that
one in eight middle managers in
European businesses display risky
behavioral traits, which usually
include poor decision-making and
weak communication.
The number of middle man-
agers in corporate hierarchies am-
plified this risk, further increasing
the chances of a corporate scan-
dal. The data also reveal that one
in five individual contributors (or
front-line staff) possesses similar
behaviors to his or her middle-
manager counterparts, which is a
matter of concern for product as-
surance and customer service.
From our data we found that
PERSONAL JOURNAL
there is an execution gap at the
middle-manager level. Yet there
are the employees with a critical
role to play as the interface be-
tween strategy set at the top and
operational execution. Managing
compliance issues and instilling
commitment in front-line staff,
while communicating decisions
from leaders in a relevant way so
staff feel motivated, is no easy
task. So why is the risk at this
level so high?
It could be that employers
have sought to retain talent by
promoting employees with strong
technical backgrounds into mid-
dle-management positions. Lack
The riskiest leaders and
managers will misjudge
the impact a certain
decision could have on
the organization.
of investment in training and de-
velopment has resulted in a gen-
eration of managers who arent
equipped with the critical skills
necessary to effectively communi-
cate and manage people and
therefore pose a significant risk to
that particular organization.
It is, in fact, vital that these
middle managers are equipped
with the right skill set and given
appropriate support to be success-
ful in their role. If these issues
arent addressed, a subsequent er-
ror or ongoing compliance issue
could damage a companys reputa-
tion or profit marginin some
cases irreparably.
While European executives are
Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 25
transforming their business to
adapt to new markets, aligning
talent to meet these changes is a
major challenge.
The board needs to ask them-
selves whether they have the
right talent in place at the mid-
dle-management level and
whether theyve invested enough
in them.
Equipping board members with
this information is crucial to sup-
port rapid change, and will help
them to adjust their talent pipe-
lines to support the businesses
objectives.
Companies should also look at
how they are empowering staff to
raise concerns if they are to im-
prove their approach to risk.
Enforcing ethical standards
and having an effective channel
by which frontliners and middle
managers feel comfortable com-
municating issues is essential.
This will help to boost compli-
ance and commitment from em-
ployees when their views are be-
ing noticed. Too often,
whistleblowers are ignored, or
even demonized, but senior man-
agers need to listen more to view-
points from across the business to
pick up and act on vital clues that
will help them manage risk more
effectively.
CEB also analyzed risk across
17 industries identifying which
ones are the most risky in Europe.
It found that there is a one in five
chance of attracting and employ-
ing someone with a high level of
behavioral risk at every level in
both the engineering and oil and
gas sectors. This is worrying,
given the potential environmental
damage at stake here.
Industries such as banking and
health care also attract a higher
than average level of risk among
employees, with a one in six
chance. This comes as no surprise
given the recent stories in the
U.K. around mistreatment of pa-
tients and the financial product
mis-selling epidemic. It is clear
that these sectors are less likely
to be taking behavioral risk into
account when they attract and
hire people due to the hard tech-
nical skills needed to carry out
the job.
To be an effective middle man-
ager, however, softer skills such as
listening and consulting are vital
to managing and motivating a
team and CEBs data show that
these sectors are really lacking in
these.
On the other hand, profes-
sional services and retail average
only one in eight employees with
high behavioral risk. Perhaps be-
cause these industries are client-
and customer-focused, softer peo-
ple skills are crucial. Effective
performance in a job isnt just
about what you know, but also
how you manage a team to meet
overall business goals.
If we are to learn from the so-
called toxic company cultures por-
trayed in the media, organizations
must view risk holistically, consid-
ering policies, procedures and
people together.
To avoid the corporate blind-
spot, the C-suite needs to have a
better understanding of how their
employees behave, something that
should be an important part of a
human-resources departments
work.
The board needs this insight to
take a view on a companys level
of resilience and the appetite for
risk across the business.
Some level of risk is to be ex-
pected; what is important is how
the organization manages it. Re-
cent events, particularly in the
banking sector, have focused on
the negative consequences of not
managing risk effectively, and
quite rightly so.
But organizations need to
know that there can be a positive
impact from risk. It is about strik-
ing the right balance between cre-
ating risk to seize on new markets
while being resilient.
The technology sector is a
good example of this, where the
market is so competitive that
companies are constantly taking
risks and innovating to make the
next leap forward.
Nevertheless, organizations
need to be aware of the boundar-
ies between achieving a competi-
tive advantage without finding
themselves in their next corporate
crisis.
While many businesses are
waking up to the need for broader
understanding of the people they
employ, most are at an early stage
of comprehending how peoples
behavior impacts reputation and
company performance.
Risk is complex, global in na-
ture and continues to challenge
the most talented of business
leaders.
Unless risk is viewed in the
round and the board has the rele-
vant insight on its people, 2013
and beyond will continue to be
mired with corporate scandals.
Eugene Burke is the chief science
and analytics officer of CEB, a tal-
ent measurement consultancy.
26| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014
Above, Rafael Nadal, center-right, lines up for the Dec. 12 tournament in Prague with his poker opponents. Below, the Spanish star in his more usual tennis action.
Nadal Has an Ace Up his Sleeve
World Tennis No. 1 Shows All His Tactical Prowess to Outsmart Poker Rivals
BY RAVI UBHA
PRAGUEThe water bottle was
there. So was his Spanish coach,
cheering him on. And at one point,
deep into the marathon outing,
Rafael Nadal tried to shake off the
tension by twisting his head from
side to side.
When it was over, an opponent
said, He didnt make any mistakes.
He knew when he had to make the
adjustment to play more aggressive.
Sounds like another win on the
tennis circuit for the world No. 1,
right?
But Nadal wasnt on court earlier
this month in Prague. Instead, he
was playing a charity poker game,
one of his newer hobbies, and the
praise came from poker great Daniel
Negreanu. It was Nadals poker
coach offering support, too, not
Toni Nadal, the uncle who has
helped him claim 13 Grand Slam ten-
nis titles.
Nadal, in his first live tourna-
ment, was the last person standing
after four hours, outlasting, among
others, Negreanu, who has pocketed
more than $19 million in live tour-
nament earnings. The table also fea-
tured retired sporting legends Ron-
aldo, Andriy Shevchenko and skier
Alberto Tomba, along with womens
field hockey gold medalist turned
poker regular, Fatima Moreira de
Melo.
Its easier maybe for Nadal be-
cause he plays for four or five
hours, said Tomba, who excelled in
skiings slalom and giant slalom.
Me, [it was] four, five minutes.
The clinking of chips replaced
the bouncing of balls at the Hilton
Prague, with a constant hum of
chatter at Nadals table. The poker
veterans and onlookers at the Euro-
pean Poker Tour stop made for an
eclectic bunch.
Some donned shorts, sweatpants
and biker jackets. But Nadal, so of-
ten seen in shorts, looked elegant,
opting for a dark blazer and collared
shirt. Unlike others in the massive
hall, he wasnt accompanied by gar-
gantuan headphones and didnt opt
for a back massage during the game.
If we talk about comparing ten-
nis and poker, it is competitionto
control your emotions and be fo-
cused all the time, said Nadal. So
in my opinion, tennis and poker
take out the physical performance
there are a lot of similarities. You
have to have self-control and wait
for your moment. Luck is only a
small part of this game.
Nadal first signed to play tourna-
ments in June 2012, an eventful ten-
nis month for him. He landed a re-
cord seventh French Open crown
then suffered one of the biggest up-
sets in Wimbledon history when he
fell to the giant Czech, Lukas Rosol.
Once again troubled by his
SPORT
knees, Nadal wouldnt play a tourna- cannot be a good poker player only
ment for another seven months, because you are a good bluffer and
which gave him plenty of time to this part is the good part of Rafa.
study poker. He knows how to start with the
When we started the training strategy and sometimes if he thinks
sessions I started to understand the pot is a good one he can bluff.
that Rafa is a winner not because But this month, Nadals tactics
hes a guy who takes a lot of risks, seemed to be spot on. More than an
said Nadals poker coach, Alfonso hour, and then two hours into the
Cardalda. Hes a winner because he game, he avoided elimination. So
knows exactly when he has to take a did his competitors.
risk. Then, after Tomba departed, it
Cardalda recalled that when they set off a chain reaction. Ronaldo,
began, Nadal wanted to run before who had earlier rubbed his face in
he could walk and delve into ad- apparent fatigue, was ousted, fol-
vanced strategies. He called Nadal lowed by Negreanu and Shevchenko.
super intelligent. (Negreanu, the professional, later
But there is, perhaps, one weak- said he wanted a rematch.) That left
ness in his game. Nadal and Moreira de Melo.
Hes not good at bluffing, said As Nadal closed in on victory,
Cardalda. Of course the bluff is an Moreira de Melo said to him, You
important part of poker but you can say, Vamos, now. Nadal never
did but he soon clinched the win.
I had fun, said Nadal. I had a
great experience playing with
friends, playing for a good cause. I
now understand more about poker,
and Ive changed my perception
about it. I now see that this is a
game in which you have the control,
in which strategy plays a role, as
does knowing your rivals.
Having witnessed Nadals
achievement in Prague, Cardalda
said Nadal could eventually have a
successful poker career, should he
get bored with the whole tennis
thing.
Rafa needs to be focused on a
daily basis on his [tennis], said
Associated Press; Agence France-Presse/Getty Images (top)
Cardalda. This has been good train-
ing for poker. On the other hand,
poker tournaments have also been
good mental training for his tennis
matches.
There wasnt much time for Na-
dal to bask in his success. He said
he was already thinking about the
2014 tennis season, which essen-
tially began for him at an exhibition
event in Abu Dhabi last week. To-
morrow morning I will be on court
at 9 a.m. practicing, Nadal said.
He didnt appear to be bluffing.
THE WALL STREET JOURNAL.
HEARD ON
THE PITCH
West Brom Says Anelka
Wont Repeat Gesture
West Bromwich Albion stopped
HEARD ON
short of issuing an apology on
Monday for a controversial goal
THE FIELD
celebration by striker Nicolas
Anelka over the weekend. Anelka
said he performed the quenellea
gesture that is widely regarded as
anti-Semitic in Franceas a tribute
to his comedian friend Dieudonn
Mbala Mbala.
The Club fully acknowledges
that Nicolas goal celebration has
caused offence in some quarters
and has asked Nicolas not to per-
form the gesture again, West
Brom said in a statement on its
website. Nicolas immediately
agreed to adhere to this request.
Anelka is under investigation by
the English Football Association,
which could suspend him for a
minimum of five games for racist
behavior. But for now he remains
available to play. The gesture, a
downward straight-arm salute, is
associated with Dieudonn, as he
is known. In recent years, he pub-
licly aligned himself with the
French far right. But he has often
said that the quenelle is antiestab-
lishment rather than anti-Semitic.
After the game, French sports
minister Valrie Fourneyron took to
Twitter to call Anelkas gesture
shocking and disgusting. Anelka
answered with a series of posts on
his verified Twitter account.
As for the ministers who give
their own interpretation of my
quenelle, he wrote on Sunday,
theyre the ones creating the con-
troversy without knowing what the
gesture really means! I ask people
not to let themselves be fooled by
the media. And of course, I am not
an anti-Semite or a racist and I
stand by my gesture.
Joshua Robinson
Five NFL Coaches Fired
Barely 12 hours after the NFL
season ended, five head coaches
were unemployed. Fired on Monday
were Washingtons Mike Shanahan,
Detroits Jim Schwartz, Minnesotas
Leslie Frazier and Tampa Bays
Greg Schiano. The Cleveland
Browns didnt even wait that long,
dismissing Rob Chudzinski on Sun-
day night after just one season on
the job. Schiano only got two years
with the Buccaneers. Shanahan,
who won two Super Bowls in Den-
ver in the 1990s, spent four sea-
sons with the Redskins. Frazier had
a little more than three seasons
with the Vikings and Schwartz
coached the Lions for five seasons.
One coach allegedly on the hot
seat was retained: Rex Ryan, who
has one more year on his contract,
is staying with the New York Jets.
Associated Press
Associated Press
Sacked Vikings coach Leslie Frazier
THE WALL STREET JOURNAL. Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 | 27

OFF THE WALL

Man Fights Machine on Speed Metal Beat

Subgenre Has Become So Fast That Few Drummers Can Keep Up; Running a Marathon While Screaming
BY NEIL SHAH going to lose the feeling if you try
Silver Spring, Md. to achieve [speed] in an artificial
way.

W
hen it comes to playing Rick Allen, Def Leppards
fast, few can beat Gene drummer, has found new feeling
The Human Drum Ma- in slowing down a little.
chine Hoglan. On New Years Eve 1984, he
There are young dudes com- lost his left arm after speeding
ing up behind me who want to and crashing his Corvette in Eng-
take my throne, but Im not going land. I remember saying, Im a
to give it up that easy, says Mr. drummer, and Ive lost my arm.
Hoglan, 46 years old, who warms Using a custom-made electronic
up with drum sticks twice as drum set, the then-21-year-old Mr.
heavy as usual, a trick he learned Allen was able to play the bands
from baseball that makes his nor- songs without hitting as fast or
mal sticks seem lighter. To tone hardand barely missed a beat.
his legs, crucial for foot-drum- The bands next record, 1987s
ming, he wears 1.4-kilogram ankle Hysteria, was one of the big-
weights. When he pops these off, gest-selling albums of the 1980s.
he can really fly. When singer Joe Elliott re-
Though he weighs about 135 ki- cently suggested performing
lograms and is, in his own words, Good Morning Freedom, an un-
really lethargic, Mr. Hoglan has released song from the bands ear-
been called one of the quickest Gene The Human Drum Machine liest days that zooms at 160
and most precise drummers in Hoglan, above, performed with thrash- b.p.m., Mr. Allen got nervous. I
Eva Roca (2)

heavy metal.
Ever since spinning out of rock
n roll in the 1970s, metal has got-
ten faster and faster. Like many
drummers of his generation, Mr.
Hoglan left the drum-pounding
abilities of his heroes in the dust,
fueling an arms race that has
sparked an unlikely crisis. Speed
metal, as this subgenre is called,
has become so fast that drummers
cant keep up. Instead, more bands
have quietly switched to using
computerized drum machines.
Mark Mynett, a British music
producer and lecturer at the Uni-
versity of Huddersfields Depart-
ment of Engineering and Technol-
ogy near Manchester, England,
says he once produced a whole
sometimes dont know that they
are being duped. Paradoxically, to
make drum tracks sound more hu-
man, metal producers deliberately
introduce mistakes into their own
programming. They cover it up,
Mr. Mynett says. The idea is to
make people think the virtuoso is
real.
Bands themselves dont deny
using machines. Kaizen, a French
metal band, forges its songs with
instrumental discipline and
devastating clockwork guitar
rhythmics, says its Facebook
page, but also taps a Clavia
tor of a gizmo called a Drumome-
ter that clocks drummers
speeds.
More metal-heads are bucking
the trend. Fenriz, the drummer of
Norways Darkthrone, a group
known for sounding like they are
recording in a garage with one mi-
crophone, says bands that overuse
computers are losers. Anything sound sterile. Theyre missing
that makes a bass drum sound
metal band Testament in November,
left, in Maryland. Mr. Hoglan says he
practices with heavy sticks to stay fast.
less bass-y is ridiculous, he says.
Some of metals elder states-
men are encouraging drummers to
slow down.
Dave Lombardo, former drum-
mer of Slayer, has removed the
parts of his drum set that once
helped him play superfast and
thinks todays metal drummers
Watch a video about speed-metal
the whole point, he says. Youre
was like, youre kidding. He
ended up removing beats so the
song didnt require him to play so
fast.
These days, for Mr. Allen,
drumming is more meditative
than manic. As soon as I start to
feel tension when Im playing, I
back off, he says. I think, Im
not ready yet. Then, I relax.
Online>>
drummers at WSJ.com/OffTheWall.

album where the drummer didnt
play a single bass-drum track on a
single song. He likens it to mag-
azines airbrushing models.
How did heavy-metal drum-
ming get so fast?
DOWNLOAD
ddrum4 module, a synthesizer
for drums. We are human, not
machines, so its good to use a bit
of technology to make better re-
cords, 30-year-old drummer Fa-
bien Rault explains.
This sleight of hand can cause
embarrassing missteps live, but

the wsj app

Some bands say they like
the cold, inhuman quality
of machine sounds.
Ian Christe, author of Sound
of the Beast: The Complete Head-
banging History of Heavy Metal,
says the genre speeded up in the
1980s, when drummers for bands
Metallica, Slayer and Testament
one-upped older groups by mak-
ing metal more about fast
rhythms than melody. Over the
next decade, grindcore and
death metal groups got even
more extreme. Musicians took to
wearing sweatpants on stage be-
cause the playing was so athletic,
Mr. Christe writes.
When new technologies ar-
rived, metal drumming standards
entered the realm of the physi-
cally impossible. Today, many
bands write songs using comput-
ers without even rehearsing them.
When an English band recently
came to Mr. Mynetts studio,
none of the musicians could play
the parts theyd written, he said.
The bands bass-drum tracksthe
foundation of metal songshad to
be digitally constructed.
Some bands say they like the
cold, inhuman quality of machine
sounds. But the trend raises hack-
les among purists, because metal
bands often rely on some com-
puter drum tracks for concerts,
tooespecially if performances
are recorded for a live album, says
producer Russ Russell, 44, from
Northamptonshire, in central Eng-
land. There are some live al-
bums where theres not that much
live on it.
Rick Magill, a 25-year-old
metal fan at Mr. Hoglans recent NEWS YOU CAN TRUST WHEREVER YOU ARE
sold-out performance with Testa-
ment here in Silver Spring, Md.,
was surprised to hear some metal
bands fake their drum tracks.
Maybe part of that comes from
the pressure to be perfect, he
says. People are like, if we cant
do it, well cheat.
To be sure, it isnt easy being a
fast drummer. It is like running a
marathon while screaming, says
Mr. Hoglan. Mr. Hoglans foot-
drumming, which involves stomp-
ing on pedals that hit bass drums,
is, he estimates, equivalent to run-
ning 24 kilometers a show, and his
top foot-speed is 240 beats a min-
ute.
Mike Mangini, the 50-year-old
drummer for progressive-metal
band Dream Theater, used to be
the worlds fastest drummer, with
a record for hand-drumming of
1,203 b.p.m.as fast as some
hummingbirds beat their wings.
He was beaten in Tennessee in
July by 23-year-old Tom Grosset
at the Worlds Fastest Drummer 2013 Dow Jones & Company, Inc. All rights reserved. 3WSJC1092

aficionados put a premium on au- competition, a contest in Nashville

thenticity and virtuosity, and founded by Boo McAfee, an inven-
28| Tuesday - Wednesday, Dec. 31, 2013 - Jan. 1, 2014 THE WALL STREET JOURNAL.

HEARD ON THE STREET

Email: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

Testing Tokyos Resolve Monte dei Paschis Denouement

To Continue the Party
One of the remarkable events of
the past year has been the economic
turnaround in Japan, driven by cen-
tral-bank stimulus and government
spending.
That has produced stunning re-
sults in the stock market: Japans Nik-
kei Stock Average has outperformed
every other developed market and is
among the top gainers in the world
for 2013. The Nikkeis 57% gain this
year has even put to shame the blis-
tering 38% gain for the Nasdaq Com-
posite Index through Friday or the
29% rise of the S&P 500-stock index.
But 2014 will determine if Prime
Minister Shinzo Abe has what it takes
to truly revitalize Japan, and so en-
sure the Japanese markets party
doesnt quickly wind down.
So far, Mr. Abes structural over-
hauls have been a disappointment.
They have focused on small-bore
measures such as allowing more high-
rise buildings in special economic
zones. Policies like these arent up to
the task of boosting the long-term
growth rate, which in turn is essential
to tackling Japans large public debt.
The net debt-to-gross-domestic-
product ratio stands at 144%, accord-
ing to the International Monetary
Fund. Thats the highest in the devel-
oped world after Greece. Japan has so
far managed to avoid a crisis thanks
to a huge pool of domestic savings.
But as its aging savers retire and
spend their savings, this pool is set to
slowly start draining.
Getting the economy to expand at
least 3% through some combination
of real growth and inflation is needed
to stabilize the ratio of debt to GDP
over the next decade, according to
the government. Over the past de-
cade, real growth has been about
0.9% a year, while nominal growth
has been negative due to deflation.
It wont be easy. Estimates for Ja-
pans potential real growth rate range
Reform Roll
Japanese net debt as a percentage
of gross domestic product*
Net debt to GDP Pre-Abenomics
baseline
170%
Incomplete
Abenomics
160 package
150 Complete
Abenomics
140 package
Forecasts
130
12 13 14 15 16 17 18 19 20 whose market value is about 2 bil-
*Based on IMF scenario forecasts
Source: International Monetary Fund
The Wall Street Journal
other hand, targeting price rises of
more than 2% risks letting inflation
spin out of control.
To boost the underlying growth
potential, Japan could do a couple of
things. One option is to increase the
supply of workers. This will be tough
while the working-age population is
shrinking by about 1% a year. Immi-
gration is a political nonstarter. Get-
ting more women to work has been
tried before. The other strategy is to
boost output per worker, such as by
introducing more competition to pro-
tected domestic industries.
On the domestic side, a new set of
overhauls is due in June. The last
round was a flop, prompting a sharp
selloff in Japanese stocks.
The yen will likely continue to de-
cline against the dollar, with the Bank
of Japan likely to expand its mone-
tary easing as the Federal Reserve
pulls back. In theory this should
boost growth by helping Japan Inc.s
export machine, but so far the coun-
trys trade balance has been negative
because of the need to import fuel
while nuclear reactors sit idle.
It is still too early to write off Mr.
Few banks survive for centuries
without the odd scrape. Banca
Monte dei Paschi di Siena, founded
in the 15th century, is certainly in
one now.
Nationalization looms over the
Italian bank following a weekend
shareholder vote to delay a 3 bil-
lion ($4.12 billion) rights issue until
May. The capital raising was a con-
dition of a 4.1 billion loan made
this year to Monte dei Paschi by the
Italian government. Absent a rights
issue before the end of 2014, that
loan will be converted to shares, ef-
fectively taking Monte dei Paschi,
trust that holds a third of its shares.
lion, into public ownership.
Monte dei Paschi Chairman Ales-
sandro Profumo is considering
whether to resign, according to a
person familiar with the matter. All
in all, this isnt the end to 2013, or
start to 2014, that Italy Inc. needed.
The rights-issue plan had seemed
a neat solution to Monte dei Pas-
chis problems. Along with a sharp
reduction in head count and bank
branches, it should have put the
bank on track to have a healthy core
Tier 1 equity ratio of 10% by 2017. It
also would have diluted the banks
main shareholder, the Monte dei
Paschi Foundation, a charitable
Tuscan Tempest
Banca Monte dei Paschi di Siena's share price
1.6
1.2
0.8
0.4
0.0
2009 10
Source: FactSet
other Italian banks looking to raise
That might have improved percep-
tions of the banks corporate gover-
nance.
Instead, the foundation has sty-
mied Monte dei Paschis plans by
leading the vote to delay the rights
issue. In grave financial trouble of
its own, the foundation wasnt ready
to back the deal. Unfortunately,
many of the investment banks who
had agreed to underwrite the capital
raising had set the end of January
as the deadline for the rights issue.
There isnt a guarantee they will
support Monte dei Paschi again
come May.
By then there could be several
11 12 13
The Wall Street Journal
capital. The European Central Bank
is carrying out an asset quality re-
view of the regions banks that
could find substantial holes in bal-
ance sheets.
Some banks already have already
gotten ahead of the process by rais-
ing capital in the second half of
2013. Monte dei Paschi also might
have enjoyed that advantage had it
been able to complete its rights is-
sue next month.
Instead, despite its vulnerability,
Monte dei Paschi could be just an-
other desperate European bank this
summer.
Andrew Peaple

WSJ.coms dynamic global

from 0.5% to 0.8%. Thus, even if the
Bank of Japan achieves its ambitious
target of 2% inflation, nominal GDP
growth would still fall short. On the
A Hard Lesson From Sanofi
With pharmaceutical stocks
riding high, investors could perhaps
use a reminder of the perils of drug
development.
The Food and Drug Administra-
Abes overhaul agenda. But if he fails
to deliver in 2014, investors would be
justified in once again losing interest
in Japan. Aaron Back
nance and markets blog.
Get the jump on market-moving news across the
globe and around the clock, our dedicated journalists
treatments like Biogen Idecs Tec-
fidera have had considerable success cover the biggest developments in markets, nance
in the multiple sclerosis market. and deal-making.
So, the contingent value rights
already have fallen to about 90

tion on Monday rejected multiple
sclerosis drug Lemtrada from
Sanofi. That is particularly bad
news for holders of the French
pharmaceutical companys contin-
gent value rights, securities created
during Sanofis takeover of Gen-
zyme in 2011. These paid out ac-
cording to milestones mainly related
to the success of Lemtrada.
Sanofi says it will appeal the de-
cision but expects to miss getting
Lemtrada approved by the end of
March 2014. The delay also makes it
less likely Lemtrada will hit subse-
quent sales-based milestones on the
securities, which could have been
valued at up to $14 for investors.
That was negotiated on top of the
$74-a-share cash purchase price
agreed to in February 2011.
The environment was looking
tough for Lemtrada in any case: Oral
wsj.com/moneybeat
cents each from about $2.50 in late
2011. They dropped a further 60%
Monday to about 30 cents.
Lemtrada wasnt central to Sanofis
reasons for buying Genzyme, which
established the French company in
the now-trendy area of developing
drugs for very rare diseases.
Another comfort: Sanofis view
of Lemtrada looks a good deal
closer to the mark than Genzyme
and its shareholders. During the
protracted takeover battle, Genzyme
argued the drug could reach $3.5
billion in sales, while Sanofi forecast
only about $700 million. Deutsche
Bank now predicts 600 million
($825 million) in sales by 2018.
Lemtrada may prove a flop in
terms of drug development, yet it
represents a tactical deal-making 2013 Dow Jones & Company, Inc. All rights reserved. 3WSJC1068
success for Sanofi.
Helen Thomas