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DJIA 25598.74 g 831.83 3.1% NASDAQ 7422.05 g 4.1% STOXX600 366.93 g 1.6% 10-YR. TREAS. g 4/32 , yield 3.221% OIL $73.17 g $1.79 GOLD $1,189.30 À $2.10 EURO $1.1520 YEN 112.26

Artist’s Poster Is Everywhere—His Beloved Portrait Vanished

i i i

A granddaughter teams up with an art-

loving sergeant to solve an old mystery

an art-loving police sergeant.Flagg’s granddaughter, Cathy

O’Brien, 73, has spent much ofher downtime researching andbuying her grandfather’s work.An accountant by day, Ms.O’Brien picked up the effort

where her mother,Faith Ives, left off.Ives died in 1997.

“Ever since mymother passedaway…I just becameso focused on keep-ing my grandfatherclose to me,” saysMs. O’Brien.

Flagg, born in1877, got his firstmagazine art as-signment at age 12.

His illustrations appeared inthousands of publications andon nearly four dozen wartimeposters. His works today reach

PleaseturntopageA10

Artist James MontgomeryFlagg is known today for his1917 “I Want You for U.S.Army” poster, with Uncle Sampointing his finger at theviewer. Lesserknown is that hewas also a frequentillustrator—and ro-mancer—of women.One of his prizedpossessions was hissensual nude paint-ing of his much-younger model-turned-muse, IlseHoffmann, whichmysteriously disap-peared from hisapartment after his deathnearly 60 years ago.

It was finally found late lastyear, after a long quest by hisgranddaughter and the help of

BY ALEXANDRA WOLFE

Find that painting

prove embarrassing for President Vladi-mir Putin, by illuminating a piece ofpost-Soviet history the Russian govern-ment has tried to erase.

After running out of funds to pay hisown lawyers, Mr. Glushkov, 68 years old,planned to represent himself, and hadamassed tomes on British law and fo-rensic accounting. “This case was hispurpose in life,” said Georgy Shuppe, afriend and former business partner. “Hewas not going to give up.”

On the eve of a preliminary courthearing, Mr. Glushkov stopped answer-ing his phone. When his daughter droveto his house to investigate, she found

him inside, strangled to death with adog leash. Later that night, dozens ofantiterror police cordoned off the houseand began digging holes in his yard.

In Russia, his death was portrayed bystate-controlled media as a homosexualtryst gone wrong. British police aretreating it as a murder investigation. InAugust, they posted video footage of ablack van seen near his home the nighthe was strangled, asking anyone with in-formation to get in contact.

Mr. Glushkov’s death has sent astrong message to Russia’s émigré com-munity. He was part of a trio of once-

PleaseturntopageA10

LONDON—Nikolai Glushkov, a Russianémigré, lived alone in a weather-beatenrow house in South London with an ag-ing dog and a cat named Braveheart. Itwas the waning days of March, and hewas readying himself for something big.

The onetime finance director of Rus-sia’s flagship airline, he was preparingfor a trial in a London court. He toldfriends it would prove his innocence oflongstanding financial charges by Rus-sian authorities and expose AeroflotRussian Airlines as a front for Russiansecurity services. The case could also

BY ALAN CULLISON

U.S. AccusesChineseOperativeOf StealingTradeSecrets

Trio of Putin FoesMeet Death in U.K.The last of them had a tale to tell about Aeroflot—until he was strangled with a dog leash.

dent Trump said “the Fed hasgone crazy.”

The Fed’s more-restrictivestance has joined with othersignals to unsettle investorseven as major U.S. indexesrose to new highs. The mar-ket’s worries aren’t allaligned—some investors areworried a strong economywill lead the Fed to rate in-creases that hurt stocks,while others on Wednesdaypointed to recent indicatorsin housing and autos thatsuggested the economy is los-ing steam. A shared concern,

PleaseturntopageA9

and Apple Inc. off 4.6%. Com-bined the three companiesshed nearly $120 billion inmarket value on Wednesday.

Selling accelerated towardthe end of the day and lossesspread well beyond techstocks; bank stocks werepummeled along with compa-nies exposed to global tradesuch as Caterpillar Inc.

Investors turned to sharesdeemed likely to do better intougher economic times, suchas utilities companies. Thatrotation out of tech and othergrowth stocks has beensparked in part by the recentjump in government bondyields and the Federal Re-serve’s interest-rate increases.

When asked about Wednes-day’s market decline, Presi-

The Dow industrials ex-tended their steepest Octoberretreat since the financial cri-sis Wednesday, posting an831-point decline that raisesfresh concern about thehealth of the nine-year-oldbull market for stocks.

The selling was led by thetechnology shares that havefueled much of the 2018 ad-vance in U.S. stocks, with Net-flix Inc. dropping 8.4%, Ama-zon.com Inc. declining 6.2%,

TALLAHASSEE, Fla.—Hurri-cane Michael roared ashoreWednesday as one of the mostpowerful storms ever to hitthe U.S., toppling houses, treesand power lines in its paththrough the Florida Panhandle.

The Category 4 storm,packing maximum sustainedwinds of 155 miles an hour,made landfall near MexicoBeach, Fla., in a regionrimmed with tourist beachesand fishing villages. After rap-idly intensifying over the Gulfof Mexico, Michael ranked asthe strongest storm to hit thePanhandle since at least 1851,when record-keeping began,according to the National Hur-ricane Center.

“As Hurricane Michael con-tinues its destructive paththrough the Panhandle andleaves our state, we are turn-ing 100% of our focus onsearch and rescue and recov-ery,” Florida Gov. Rick Scottsaid Wednesday evening. Heurged residents to be cautiousabout going outside, as flashflooding and tornadoes stillwere possible.

Panhandle residents facedPleaseturntopageA4

BY ARIAN CAMPO-FLORESAND JON KAMP

HurricaneMichael Slams Florida Panhandle

Boats were reduced to rubble as Michael passed through Panama City, Fla., on its way to Georgia and the Carolinas.

JOERAEDLE

/GETT

YIM

AGES

BY CORRIE DRIEBUSCH

Tech Rout Sends Stocks TumblingTrump blames centralbank for raising interestrates, declaring ‘theFed has gone crazy’

Index performance since the end of the second quarter

U.S. stocks have had their worst October since the financial crisis,and their worst start to a quarter since the beginning of 2016.

Source: Dow Jones Market Data THEWALL STREET JOURNAL.

10%

–5

0

5

July August September October

4th quarter

Dow Jones Industrial Average

S&P 500

Nasdaq

Russell 2000

� James Mackintosh: Best stocksswitch places with worst....... B1

� Investors’ new marketwagers are slowing.............. B12

An alleged Chinese intelli-gence operative arrested in Bel-gium has been brought to theU.S. and charged with conspir-ing to steal trade secrets fromGE Aviation and other compa-nies, marking a rare break forthe U.S. in its increasingly ag-gressive effort to target Chineseindustrial spying.

Prosecutors have previouslycharged Chinese governmentofficials with economic espio-nage and hacking-related of-fenses pointing to state-di-rected efforts to steal U.S.technology, but have never pub-licly identified anyone in cus-tody as a Chinese intelligenceofficer. The arrested man, Yan-jun Xu, made an initial appear-ance in federal court in Ohio onWednesday.

“This case is not an isolatedincident. It is part of an overalleconomic policy of developingChina at American expense,”John Demers, the head of theJustice Department’s national-security division, said in an-nouncing the charges.

A lawyer for Mr. Xu couldn’tbe identified. The Chinese Em-bassy didn’t respond to a re-quest for comment.

Mr. Xu was identified incourt papers as a deputy divi-

PleaseturntopageA8

BY ARUNA VISWANATHA

Saudi Jet LinkIn Turkey CasePlane controlled by Saudigovernment tied todissident’s disappearance... A9

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Easy toMove—Guaranteed SavingsCONTENTSBusiness News...... B3Crossword.............. A14Heard on Street. B12Life & Arts....... A11-13Management.......... B6Markets............. B11-12

Opinion.............. A15-17Sports....................... A14Streetwise................. B1Technology............... B4U.S. News............. A2-7Weather................... A14World News. A8-9,18

s 2018 Dow Jones & Company, Inc.All Rights Reserved

>

What’sNews

�Hurricane Michaelslammed ashore as one ofthe most powerful stormsever to hit the U.S., topplinghouses, trees and powerlines as it tore through theFlorida Panhandle. A1�An alleged Chinese intelli-gence operative arrested inBelgium was brought to theU.S. and chargedwith conspir-ing to steal trade secrets fromGEAviation and others.A1�Treasury officials issuedrules requiring all foreigninvestors in certain deals in-volving critical U.S. technologyto submit to national secu-rity reviews or face fines. A8�The jets Turkish officialssay ferried operatives whoapprehended and likely killeda Saudi journalist belong to afirm controlled by Saudi Ara-bia’s government, people fa-miliarwith thematter said.A9�U.S. lawmakers from bothparties are challenging theadministration’s support forGulf allies battling Iran-aligned fighters in Yemen.A9�Anactivistwhose quest forClinton emails dominated thelastmonths of his life struckup a professional relationshipwith Flynn as early as 2015.A6� China has retroactivelychanged the law to legiti-mize its detention of ethnic-minority Muslim Uighurs. A8� Taiwan’s presidentpraised the island as a bea-con of democracy and urgedChina to avoid conflict. A8� Sen. Grassley asked theFTC to investigate whethercontracts between insurersand hospital systems arelimiting competition. A3

The Dow extended itssteepest October retreat

since the financial crisis, post-ing a 3.1% drop amid a tech-led rout that raised freshconcern about the health ofthe bull market. The Nasdaqand S&P 500 lost 4.1% and3.3%, respectively. Trumpblasted the Fed. A1, B11� Lampert doesn’t plan tolend Sears money to repay$134million in debt dueMon-day, as the firmprepares for apotential chapter 11 filing thatcould comewithin days. B1� BlackRock and its CEOagreed to invest with private-equity firm Gallatin, part ofa push for a bigger role inalternative investments. B1� Top lawmakers of bothparties said Congress needsto take action to rein in bigtech companies, citing reve-lations about Google+.A4, B4� AT&T is set to launch astreaming-video servicenext year featuring films andTV shows it acquired from itspurchase of TimeWarner. B1� Justice Department anti-trust enforcers approvedCVS’s acquisition of Aetnaafter the firms took steps toease regulators’ concerns. B3�A judge issued a tentativeruling for a new trial on the$250million in punitive dam-ages levied against Bayer in aRoundup weed killer case. B3� China’s Huawei unveiledtwo new computing chipsaimed at powering artificial-intelligence applications. B4� Prosecutors chargedNewsweek’s ex-parent withcarrying out a fraud schemeas part of an effort to keep themedia organization afloat.B3

Business&Finance

World-Wide

A2 | Thursday, October 11, 2018 * * THEWALL STREET JOURNAL.

YouTube said it has “in-vested significantly in teamsand technology to combat” pi-racy via “stream ripping,” in-cluding disabling access of theinfringing tools or services tocertain YouTube features. ABusiness & Technology articleWednesday about music piracydidn’t include the company’sresponse.

HSBC denied the JusticeDepartment’s claims that itwillfully covered up risks asso-ciated with residential-mort-gage products from 2005 to2007. A Finance & Markets ar-ticle Wednesday about HSBC’sagreement to pay $765 millionto settle the Justice Depart-ment’s claims incorrectly saidthat HSBC neither admittednor denied wrongdoing. Also,according to prosecutors,

HSBC had told investors thatof the 25% of mortgages inloan pools to be reviewed forcredit and compliance risk,20% of the loans would be se-lected using a model thatranked them based on risk,and an additional 5% would beselected as a random sample.However, prosecutors saidthat in some cases HSBC’strading desk influenced whichloans were selected for the20% review, and in othercases, the bank’s random sam-ple was less than 5% of theloan pool or wasn’t random atall. The article incorrectlystated that prosecutors saidHSBC examined just 5% of thepools used to create securities.

Kepler Cheuvreux was in-correctly referred to as KeplerGroup LLC in a Business News

article Tuesday about FordMotor Co.’s marketing strat-egy.

A first round of tariffs af-fected $50 billion of Chinesegoods imported in the U.S.,the second round affected$200 billion of goods, and athird round of tariffs is ex-pected to affect $267 billionof goods. A chart with a U.S.News article Monday aboutthe tariffs incorrectly said thetariffs themselves totaledthose amounts.

North Korea’s Punggye-rihas been the site of six nu-clear-weapons tests. A Sept. 21World News article about theprospect of outside inspec-tions of the site incorrectlyput the number of tests atfive.

Readers can alert The Wall Street Journal to any errors in news articles by emailing wsjcontact@wsj.com or by calling888-410-2667.

CORRECTIONS � AMPLIFICATIONS

The operator of the limou-sine company involved in anupstate New York crash thatclaimed 20 lives has beencharged with criminally neg-ligent homicide, New YorkState Police said Wednesday.

Nauman Hussain, of Pres-tige Limousine, was arrestedafter a traffic stop in AlbanyCounty, police said. He wasset to be arraigned Wednes-day evening on a single countin the Cobleskill Town Court,state police said.

State police Superintend-ent George Beach said Mr.Hussain was issued writtenviolations that required the2001 Ford Excursion limou-sine involved in the crash betaken out of service and wastold that the man who droveit, Scott Lisinicchia, didn’thave the required certifica-tions to operate the vehicle.

“The sole responsibilityfor that motor vehicle being

BY JIMMY VIELKIND

U.S.WATCHECONOMY

Producer Prices RiseAfter a Slowdown

A gauge of U.S. businessprices showed signs of bouncingback in September after a slow-down over the summer.

The producer-price index, ameasure of the prices businessesreceive for their goods and ser-vices, increased a seasonally ad-justed 0.2% in September from amonth earlier, the Labor Depart-ment said.

The rise in September pricescame after two months of slug-gishness and was propelled by ahefty increase in transportationprices.

Prices excluding the often-vol-atile food, energy and trade-ser-vices categories were up 0.4% inSeptember, the largest monthlyincrease since January.

From a year earlier, overallproducer prices rose 2.6% in Sep-tember. Producer-price inflationmeasured on a 12-month basispeaked at 3.4% in June, but hassince weakened each subsequentmonth.

So-called core prices, though,have been stronger. Excludingfood, energy and trade, prices in-creased 2.9% last month fromthe year-earlier period after grad-ually moving upward this year.

—Sarah Chaney

FBI

Director DefendsKavanaugh Probe

FBI Director Christopher Wraysaid the bureau’s background in-vestigation into sexual-assault al-legations against Supreme CourtJustice Brett Kavanaugh hadbeen limited in scope, but headded that it was consistentwith previous such checks.

Testifying before the SenateHomeland Security and Govern-mental Affairs Committee, Mr.Wray distinguished a backgroundcheck conducted by the FederalBureau of Investigation from acriminal inquiry, and said the bu-reau’s only authority to investi-gate Justice Kavanaugh came atthe direction of the White House.

The FBI conducted an initialbackground check of Justice Ka-vanaugh as a routine part of aSenate nomination after he wastapped to fill a vacancy on theSupreme Court.

The background check wasthen reopened after ChristineBlasey Ford, a California psychol-ogy professor, alleged that Jus-tice Kavanaugh had sexually as-saulted her when they wereteenagers, which he denied. TheFBI’s renewed investigationfound no corroborating informa-tion for the alleged assault.

Mr. Trump said on Twitterthat he wanted the FBI “to inter-view whoever they deem appro-priate, at their discretion.” Mr.Wray said that the FBI and theWhite House had been in con-tact throughout the process.

—Byron Tau

THE WALL STREET JOURNAL(USPS 664-880) (Eastern Edition ISSN 0099-9660) (Central Edition ISSN 1092-0935) (Western Edition ISSN 0193-2241)Editorial and publication headquarters: 1211 Avenue of the Americas, New York, N.Y. 10036Published daily except Sundays and general legal holidays. Periodicals postage paid at New York, N.Y., and other mailing offices.Postmaster: Send address changes to The Wall Street Journal, 200 Burnett Rd., Chicopee, MA 01020.All Advertising published in The Wall Street Journal is subject to the applicable rate card, copies of which are available from the Advertising ServicesDepartment, Dow Jones & Co. Inc., 1211 Avenue of the Americas, New York, N.Y. 10036. The Journal reserves the right not to accept an advertiser’s order. Onlypublication of an advertisement shall constitute final acceptance of the advertiser’s order.Letters to the Editor: Fax: 212-416-2891; email: wsj.ltrs@wsj.com

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U.S. NEWS

on the road on Saturdayrests with Nauman Hussain,”Superintendent Beach said ata Wednesday news confer-ence.

Lee Kindlon, a lawyer for

Mr. Hussain, said his clientwasn’t guilty and that thecharges came as a surprise,given a continuing investiga-tion into the cause of thecrash.

Officials said the companyowned the limo and rented itto a group of 17 friends whowere going to Cooperstown,N.Y., on Saturday to celebratea birthday. The limo ran

through a stop sign in Scho-harie, a town about 40 mileswest of Albany, and struck aparked sport-utility vehicleat the Apple Barrel Cafe andCountry Store, officials said.The driver, all 17 passengersand two pedestrians werekilled.

Nauman Hussain, 28 yearsold, is the son of Shahyr Hus-sain, who owns Prestige Lim-ousine, according to Mr.Kindlon. Mr. Kindlon previ-ously said Nauman Hussainhelps run the company whenhis father is unavailable.Shahyr Hussain, also knownas Shahed, is currently inPakistan, according to Mr.Kindlon and the state police.

Mr. Kindlon said thatShahyr Hussain “runs theday-to-day operations,” evenwhen abroad. Mr. Kindlonsaid Nauman Hussain helpswith marketing and took thephone call on Saturday whenit was hired.

The cause of the crash re-mains under investigation bythe state police and NationalTransportation Safety Board.It was the deadliest transpor-tation accident to occur inthe U.S. since 2009, NTSB of-ficials said.

Operator of Limo Firm ArrestedNauman Hussaincharged with criminallynegligent homicide incrash that killed 20

Nauman Hussain of Prestige Limousine is taken to his arraignment on Wednesday in Cobleskill, N.Y.

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U.S. NEWS

lower the cost of, and increaseaccess to, health care for mil-lions across the country,” Sen.Grassley said in the letter.

He asked the FTC, whichsplits federal antitrust en-forcement with the Justice De-partment, to examine “howprevalent the use of such con-tractual provisions is in thehealth-care industry, whetherthere is anticompetitive use ofthese provisions, and whetherconsolidation in the market-place increases the potentiallyharmful impact of these provi-sions on competition.”

A spokesman for the FTCconfirmed the agency had re-ceived the letter and said, “Wetake letters from members ofCongress very seriously, butwe have no further comment.”

Spokeswomen for theAmerican Hospital Associationand America’s Health Insur-

ance Plans had no immediatecomment.

The cost of most medicalcare given to people with pri-vate insurance is set in secretnegotiations between insurersand health-care providers suchas hospital systems and doc-tors. The terms of their con-tracts aren’t generally re-vealed.

Health economists say thesecret provisions can help pro-tect health systems and otherproviders against efforts to re-duce costs. A report issuedearlier this year by the HealthCare Cost Institute said thatbetween 2012 and 2016, healthspending growth tracked in in-surer claims from employer-sponsored coverage “was al-most entirely due to priceincreases,” for services includ-ing emergency-room visits,surgical hospital admissions

and administered drugs. Thereport said that over the sameperiod, “utilization of mosthealth-care services remainedunchanged or declined.”

The Justice Department isalready suing Atrium Health,based in the Charlotte, N.C.,area, arguing that Atrium“uses its market power to im-pede insurers from negotiatinglower prices with its competi-tors and offering lower-pre-mium plans.” The Californiaattorney general is suing Sut-ter Health, a hospital operatorin Northern California, alleg-ing anticompetitive practicesin its contracting.

Atrium Health has said ithasn’t broken the law or devi-ated from accepted industrypractices in its contracting.Sutter has said the Californiaattorney general’s suit mis-characterizes its actions.

Senate Judiciary CommitteeChairman Chuck Grassleyasked the Federal Trade Com-mission to investigate whethercontracts between insurersand hospital systems are limit-ing competition and pushingup health-care costs.

The letter, sent Wednesdayby the Iowa Republican, citedan article in The Wall StreetJournal that documented se-cret contract terms that somehospital systems use. Thoseprovisions can require healthplans include costly hospitalsystems and prohibit steeringpatients toward less-expensiverivals. The contracts can alsoadd extra fees and prevent ex-clusion of doctors and hospi-tals based on quality or cost.

Such practices would “un-dermine Congress’s efforts to

BY ANNA WILDE MATHEWS

Grassley Seeks Probe of Hospital Contracts

In the latest sign of insur-ers’ improved fortunes in theAffordable Care Act business,Centene Corp. will start sell-ing ACA plans in four newstates next year and add newcounties in six others.

The announcement by Cen-tene, which said it is alreadythe largest enroller of ACA-plan customers, comes amidgrowing evidence that thehealth-law markets are steady-ing after years of turmoil, de-spite continued regulatorychanges and a major legalchallenge.

A number of insurers aremoving to expand their ACAexchange footprints after pre-vious industry pullbacks, andthey are in many cases imple-menting smaller rate increasesthan previous years—and evensome decreases.

Centene, which has around1.6 million ACA enrollees, upfrom 960,000 at the end of2017, will sell the health-lawplans in 20 states next year,adding Pennsylvania, NorthCarolina, South Carolinaand Tennessee. It will expandits markets in Florida, Geor-gia, Indiana, Kansas, Mis-souri and Texas.

Centene’s chief executive,Michael F. Neidorff, said he be-lieves the exchange business isstable, with a “lot of continu-ity” and a steady, balancedpool of enrollees. Rate in-creases will “decelerate, notaccelerate, going forward,” hesaid in an interview.

Though Centene has previ-ously made profits on its ACAbusiness, other insurers arenow seeing a financial turn-around after losses in earlieryears. According to the KaiserFamily Foundation, insurershad better results for the firstsix months of 2018 than theyrecorded in preceding years of

the ACA, and are returning tothe level of profitability theyachieved on individual insur-ance before major provisionsof the ACA took effect in 2014.

The improved results andmilder rate increases generallyreflect that, in many markets,sharp increases for the past

few years have brought insur-ers’ premiums more in linewith their costs, and in somecases overshot, leading to ratedecreases for 2019.

Still, insurers face somechallenges next year. Enforce-ment of the health law’s re-quirement for people to have

health insurance will end. Inaddition, the Trump adminis-tration is opening the door toalternative types of cover-age that insurers say couldpull healthy enrollees out ofACA plans.

Also, the law faces its latestpotential legal snarl in a Texasfederal court, where Republi-can officials from 20 states arechallenging it. The Justice De-partment joined them, askingthe court to invalidate keyplanks of the ACA rather thantossing out the entire law. InSeptember, the federal judgehearing the suit questionedclaims from some Democraticattorneys general who are de-fending the constitutionality ofthe health law.

Centene’s Mr. Neidorff saidhe thinks the St. Louis-basedcompany’s ACA business willsee little effect from the end tocoverage mandate penalties orfrom the availability of thetypically more-limited and in-

expensive short-term plans,which are set to be sold withlonger durations that may bemore appealing to consumers.About 90% of Centene’s ACAenrollees get federal subsidiesto help pay their premiums, hesaid, and he thinks they likelywill stick with the health-lawcoverage.

“I don’t think it’s going tobe as big a factor as peoplethink,” he said of the short-term plans. Centene isn’t offer-ing them and might considerdoing so in the future, but Mr.Neidorff said he is skeptical ofproducts that are underwrittenor sold based on customers’health status. He also said con-sumers may be disappointedwhen skinnier plans don’tcover all of their care.

The court challenge to theACA “will take a long time toplay out,” he said, and he be-lieves politicians recognizethat the ACA products are pop-ular with consumers.

BY ANNA WILDE MATHEWS

Insurers Expand in ACA Markets

After previous industry pullbacks, companies are showing confidence in Affordable Care Act business.

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The CEO of Centenesaid he believes thehealth-exchangebusiness is stable.

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U.S. NEWS

tion in the Gulf of Mexicowere shut down Wednesday,according to the federal Bu-reau of Safety and Environ-mental Enforcement. Facilitieswere set to be inspected afterthe hurricane passed, but thestorm’s eastward trajectorymeant it wasn’t hitting theheart of the U.S. offshore oilinfrastructure, and most rigswere expected to come backonline quickly.

While Hurricane Michael willhurt the Panhandle economy, itspared Florida’s large metro-politan areas and therefore willhave a much smaller economicimpact than Hurricane Irma didlast year, said Sean Snaith, di-rector of the University of Cen-tral Florida’s Institute for Eco-nomic Competitiveness.

Mr. Snaith predicted thearea’s tourism and real-estatesectors would take severalmonths to recover, but con-struction jobs should be plenti-ful, he said.

In Panama City Beach, apopular tourist destinationwith beachfront hotels andcondo towers, tourist-develop-ment tax collections hit recordsnearly every month this year,said Dan Rowe, chief executiveof Visit Panama City Beach,which promotes the area.

“We have been whacked afew different times,” he said,citing Hurricane Ivan in 2004and Hurricane Opal in 1995.“Each time, we recoveredquickly and stronger than ever.”

The hurricane was at Cate-gory 2 strength as the centermoved over southwest GeorgiaWednesday night. Michael isexpected to fall to tropical-storm strength before exitingback into the Atlantic Oceanlate Thursday or early Friday.Heavy rain was forecast overthe Carolinas, which are stillrecovering from extremeflooding brought by HurricaneFlorence.

The governors in both Caro-linas said they were concernedabout so much rain falling onstill-saturated ground and incommunities still recoveringfrom the damage wrought byFlorence. “There’s nowhere forthat water to go,” South Caro-lina Gov. Henry McMaster said.

In Georgia, where the worstof the storm had yet to be felt,Gov. Nathan Deal urged Geor-gians in the southwestern partof the state to seek shelter.

“It is unlike any storm wehave had in anybody’s mem-ory,” he said, speaking at thestate’s emergency operationscenter in Atlanta.

—Cameron McWhirter,Valerie Bauerlein,

Ben Kesling and Leslie Scismcontributed to this article.

TampaTampa

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New OrleansNew Orleans

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TallahasseeTallahasseePanamaCity

PanamaCity

GainesvilleGainesvilleApalachicolaApalachicola

F LOR I DAF LOR I DA

G EORG I AG EORG I AA LABAMAA LABAMAM I SS I SS I P P IM I SS I SS I P P I

L A .L A .

Gulf of Mexico

Oil platforms89 mannedplatformsevacuated asof noon Wed.(13% of total)

Michael’s path

Storm locationat 5 p.m. ET Wed.Storm locationat 5 p.m. ET Wed.

50 miles

50 km

1 dot = 500 peoplePopulation Swamp/marshWater depth

Shallow Deep

Kara Dapena, Renée Rigdon and Max Rust/THE WALL STREET JOURNAL.

Sources: NOAA (storm path, storm surge); Census Bureau (population); ESRI/GEBCO (water depth); Bureau of Ocean Energy Management(platform locations); Bureau of Safety and Environmental Enforcement (closed platforms)

Danger ZoneMichael made landfall as a Category 4 hurricane in the Florida Panhandle on Wednesday. The effectscould include life-threatening storm surge, flooding, power outages and decreased oil production due tothe evacuation of manned platforms in the Gulf of Mexico.

Areas along the Gulf Coast are particularly vulnerable tostorm surge because the continental shelf is relativelywide and gently sloping.

Steep slope

WindWind

Shallow slope

Stormsurge

A storm that strikes a shallow slope increasesthe likelihood for widespread inundation.

1

2

3

4

STORM

SURG

E

WIND A faster moving storm,such as Michael, ismore likely to producehigher storm surge atthe coastline.

Hurricane Michael’s storm surge

As winds from Michaelpush sea water towardFlorida’s shore, waterpiles up.

Shallower watersmake it easier forthe wind toelevate thesea surface.

Normal high tideNormal sea level

Storm tideInundation

People checked out what was left of a Panama City store after Hurricane Michael, packing maximum sustained winds of 155 miles anhour, hit the Florida Panhandle. In Port St. Joe, below, felled pine trees littered a yard. Power outages were mounting as the stormhammered the region, with about 429,000 electric customers offline, mostly in Florida, according to the Edison Electric Institute.

FROM

TOP:JOERAEDLE/GETTYIMAGES;DOUGLASR.CLIFFO

RD/TAMPA

BAYTIMES/ASSOCIATEDPRESS

the risk of life-threateningflooding, with the hurricanecenter reporting a storm surgeof nearly 8 feet above groundlevel in Apalachicola. The stormalso was expected to drench abroad region with heavy rain,with more than a foot expectedin parts of three states, raisingthe risk of flash floods.

At least one person died asa result of the storm. A treefell through a man’s home inGreensboro, Fla., crushing andkilling him, according to aGadsden County Sheriff’s Of-fice spokeswoman.

Officials issued orders urg-ing about 375,000 residents in22 Florida counties to evacu-ate ahead of the storm. ButMichael left some residentswith little time to prepare,surging from a tropical depres-sion off the Mexico coast to amajor hurricane in just twodays. By Wednesday morning,Mr. Scott warned people not totravel in the Panhandle.

President Trump said hewas receiving regular briefings,has talked with Mr. Scott andhopes to visit affected areasfollowing the storm. He addedthat he didn’t want to interferewith first responders’ efforts.

In Panama City, B. CodyShields rode out the storm inhis parents’ house with hiswife, relatives and six pets.The dwelling survived intact,but the storm ravaged thearea, ripping roofs off homesand leveling scores of pinetrees. One tree landed on histruck, cracking the windshield.A nearby house he and his wifewere remodeling was totaled.

“It looks like a war zone,”said Mr. Shields, 31 years old.He said the storm was terrify-ing and far worse than he ex-pected. “I had a full-blownpanic attack,” he said. “I lost

ContinuedfromPageOne

feeling in my body.”Power outages were mount-

ing as the storm hammeredthe region, with about 429,000electric customers offline,mostly in Florida, according tothe Edison Electric Institute, apower-industry trade group.Utility crews from at least 24states were heading to the re-gion to help, the group said.

Mr. Scott said state andfederal agencies had geared upfor a robust storm response.He said more than 1,000search-and-rescue personnelwere mobilized, as well as3,500 National Guard membersand hundreds of other stateagency staffers. About 19,000utility workers were in placeto respond to power outages.

As of Wednesday evening,about 6,000 people were in 80shelters in five states, includingsome 600 who are still in shel-ters as a result of HurricaneFlorence last month, a RedCross spokesman said. In Flor-ida, 5,000 people had arrivedat shelters by Wednesday af-ternoon, said Brad Kieserman,vice president of operationsand logistics with the RedCross. But he said he expectedthe shelter numbers to rise tosome 20,000 in the next twodays. “We will be in for a long-term sheltering mission,” he

said.Hurricane Michael was esti-

mated to potentially causemore than $10 billion in lossesfor insurers, according toWells Fargo Securities.

Offshore oil production infederal waters in the Gulf ofMexico region accounts forabout 17% of total U.S. crudeoil production, according tothe U.S. Energy InformationAdministration.

About 42.3% of oil produc-tion and 31.7% of gas produc-

HurricanePummelsFlorida

WASHINGTON—Top law-makers of both parties saidCongress needs to take actionto rein in big tech companies,citing revelations aboutGoogle+ as the latest exampleof questionable practices in-volving consumers’ private in-formation.

The Wall Street Journal re-ported this week that Googleexposed the private data ofhundreds of thousands of us-ers of its Google+ social net-work. The company, a unit ofAlphabet Inc., chose to notdisclose the issue earlier thisyear, in part because of wor-ries that news of the incident

would bring on regulatoryscrutiny and reputationaldamage, according to inter-views and documents.

At a Senate hearing Wednes-day, Commerce CommitteeChairman John Thune (R., S.D.)said it is increasingly clearfrom Google+ as well as Face-book Inc.’s earlier CambridgeAnalytica scandal that industryself-regulation is no longer suf-ficient to protect users’ privacy.

“A national standard forprivacy rules of the road isneeded to protect consum-ers,” Mr. Thune said. Hewarned that given previouscongressional struggles withthe issue, all sides must keep“open minds” about the con-

tours of a bipartisan bill.The Federal Trade Commis-

sion is probing an incident inwhich data of up to 50 millionFacebook users were trans-ferred to Cambridge Analytica,a data firm that worked forPresident Trump during the2016 campaign.

Google didn’t respond to arequest to comment onWednesday’s hearing. As partof its response to the incident,Google on Monday announced abroad set of data-privacy mea-sures that include permanentlyshutting down all consumerfunctionality of Google+. Thecompany also said it is curtail-ing the access it gives outsidedevelopers to user data from

smartphones that run on itsAndroid operating system andits Gmail service.

At the hearing, Democratsjoined Republicans in theircriticism of Google, includingthe news that it had effec-tively sought to keep its prob-lems quiet to avoid the samescrutiny Facebook received.

Sen. Richard Blumenthal(D., Conn.) said he would senda letter to the Federal TradeCommission urging an investi-gation of the Google+ incident.“I think this kind of deliberateconcealment is absolutely in-tolerable,” he said.

Sen. Mark Warner (D., Va.),speaking ahead of the meeting,said the latest controversy

raises serious doubt aboutwhether the FTC—now taskedwith policing privacy on the in-ternet—is up to the job givenits current regulatory powers.“It’s clear that Congress needsto step in,” Mr. Warner said.

Congressional legislationcould beef up data-privacyprotections for consumers,while handing much of thework of writing detailed rulesto a strengthened FTC. TheFTC currently lacks much rule-making authority when itcomes to online data privacy,and has limited ability to im-pose fines for violations.

For its part, the FTC said ittakes data privacy seriously,while it stopped short of say-

ing it is investigating theGoogle+ incident.

FTC Chairman Joe Simonssaid in a statement: “The FTCdoes not comment on specificincidents or companies. Whenwe see a significant breachthat puts consumers’ privatedata at risk, you can be assuredthat we will be looking into it.”

Meanwhile, German author-ities said they had started aninvestigation regarding theGoogle+ matter, sending ques-tions to Google’s headquartersin Hamburg.

—Sam Schechnercontributed to this article.

BY JOHN D. MCKINNON

Google Flub Stirs Lawmaker Calls to Act

Storm threatens theCarolinas, stillwaterlogged afterFlorence last month.

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U.S. NEWS

ent business deals came of the2015 meeting, the introductiongave Mr. Smith a contact whowould go on to become part ofMr. Trump’s inner circle. Anattorney for Mr. Flynn de-clined to comment.

Mr. Smith died in a Minne-sota hotel room in 2017 inwhat authorities ruled a sui-cide at the age of 81, weeks af-ter telling friends that he be-lieved he had finally obtainedthe missing emails, accordingto a person familiar with thematter. His death came 10days after describing his ef-forts to a Journal reporter.

How much of Mr. Smith’squest was undertaken withthe knowledge of anyone inMr. Trump’s orbit is a ques-tion investigators have beenprobing for more than a year.

The matter is under scru-

tiny by special counsel RobertMueller, who is investigatingRussian interference in the2016 election and possible col-lusion between the Trumpcampaign and Russia. Numer-ous people familiar with Mr.Smith’s quest have been ques-tioned by Mr. Mueller’s inves-

tigators, including at least onewitness who was called beforea grand jury, according to acourt document and people fa-miliar with the matter. Agrand jury subpoena describedto the Journal also has soughta range of documents con-cerning Mr. Smith’s activities.President Trump has deniedany collusion. The Russiangovernment has denied it in-terfered in the election.

People who knew Mr.Smith, including former WallStreet financier Charles Orteland freelance writer Tom Lip-scomb, say he believed Mrs.Clinton’s emails would reveal avast amount of incriminatinginformation. Mrs. Clinton de-scribed the 33,000 emails thather lawyers deleted from herpersonal server as relating toroutine matters such as yoga.

A California man whopleaded guilty to providingstolen bank-account informa-tion to Russian nationals wassentenced to six months inprison and six months of homedetention, the longest prisonterm to date stemming fromspecial counsel Robert Muel-ler’s inquiry.

Richard Pinedo, whopleaded guilty in February toidentity fraud, said in courtWednesday that he hadn’t un-derstood what sort of custom-ers he was dealing with, andthat his “quiet, anonymouslife” had been turned upsidedown by the case. The Rus-sians who bought the informa-tion from Mr. Pinedo havebeen accused of mounting abroad effort to interfere in the2016 election, the focus of Mr.Mueller’s probe.

From 2014 through Decem-ber 2017, prosecutors said, Mr.Pinedo sold anonymous custom-ers hundreds of bank accountnumbers belonging to real peo-ple to help them circumventPayPal security protocols.

“I was convinced the ser-vices I was offering didn’t hurtanyone,” Mr. Pinedo said,reading from a statement.

Among those who used hisservices were Russian nation-als who posted divisive social-media messages, invented fakepersonas and staged rallieswith the strategic goal of sow-ing discord in American poli-tics in 2016, prosecutors say.

At Mr. Pinedo’s sentencinghearing, one of Mr. Mueller’sprosecutors, Rush Atkinson,said the defendant had pro-vided “substantial” coopera-tion that went beyond whatothers facing similar chargeshave traditionally provided. Heprovided “pretty close to theunvarnished truth” in his firstinterview, Mr. Atkinson said.

BY ARUNA VISWANATHA

MuellerTarget Gets6 MonthsIn Prison

Mr. Smith reached out tobusinessmen as backers, in-cluding Maine real-estate de-veloper Michael Liberty, Flor-ida-based investor John “Jack”Purcell and Chicago financierPatrick Haynes. They werenamed in an email reviewedby the Journal as among agroup that pledged $100,000to the effort, plus $50,000 ofMr. Smith’s own money.

Messrs. Haynes and Purcelldidn’t respond to requests tocomment. An attorney for Mr.Liberty said his client neverdonated but may have beenasked. The Journal couldn’tdetermine the identity of afourth name in the email.

Mr. Lipscomb said he be-lieves Mr. Smith was solicitingmoney from friends, includinghimself, under false pretenses,and that he was a “deludedold man.”

Beyond his connection withMr. Flynn, Mr. Smith alsoclaimed ties with the antise-crecy website WikiLeaks, andhe solicited money to assistfounder Julian Assange withlegal support, according to Mr.Ortel and an email Mr. Smithsent in December 2016 thatwas reviewed by the Journal.In the email, he told support-ers his team had come across“multiple individuals” in pos-session of the Clinton emailsand that he had directed oneor more of those people tosend the emails to WikiLeaks.

WikiLeaks, which neverpublished any of the allegedmaterial, was the main con-duit for the dissemination ofembarrassing Democraticemails that U.S. investigatorsconcluded were stolen by Rus-sian hackers. No evidence hasemerged that hackers ever ob-tained Mrs. Clinton’s emails,and the FBI didn’t find evi-dence that her personal serverhad been compromised.

WikiLeaks didn’t respond toa request to comment. Mr. As-sange has repeatedly deniedthat the group obtained anyhacked Democratic materialfrom Russian sources.

—Rebecca Ballhauscontributed to this article.

A veteran Republican activ-ist whose quest to obtain Hil-lary Clinton’s emails fromhackers dominated the finalmonths of his life struck up aprofessional relationship withLt. Gen. Michael Flynn, the for-

mer national security adviserto President Trump, as early as2015, and told associates dur-ing the presidential campaignthat he was using the retiredgeneral’s connections to helphim on the email project.

The late Peter W. Smith, anIllinois financier with a longhistory in Republican politics,met with Mr. Flynn in 2015,according to people familiarwith the matter. At the time,Mr. Flynn had recently left hisjob as head of the Defense In-telligence Agency.

Mr. Flynn was a top adviserto Mr. Trump during the cam-paign. He served briefly as na-tional security adviser in Mr.Trump’s administration beforebeing forced to resign andpleading guilty to a charge oflying to authorities about hisconversations with a Russianambassador. He is scheduledto be sentenced in December.

Additionally, in an email re-viewed by The Wall StreetJournal, one of Mr. Smith’sformer associates wrote to afriend last week, “As you areaware Peter started a businessrelationship with Gen. MikeFlynn in November 2015. Wespoke with him on the day heleft for his trip to Moscow.”The associate, John Szoboc-san, sent the email as theJournal was preparing an arti-cle on Mr. Smith and was at-tempting to reach Mr. Szoboc-san. He didn’t respond torequests to comment.

The Journal reported in2017 that Mr. Smith implied hehad connections to Mr. Flynn,but the email and people fa-miliar with the matter indicatethe two men were in contactand did in fact have a workingrelationship. Though no appar-

By Shelby Holliday,Byron Tau

and Dustin Volz

Email Links Operative to Flynn

The 2015 meeting between Peter W. Smith, below, and Michael Flynn, seen here in 2017, gave Mr.Smith a contact who would go on to become part of President Trump’s inner circle.

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THEWALL STREET JOURNAL. * * Thursday, October 11, 2018 | A7

create an integrated system.The U.S. Geological Survey

system, called ShakeAlert,which can give up to a min-ute’s notice that a temblor isabout to hit, has been de-ployed in parts of the countrysince 2006, but remains onlyabout half complete, federal

officials say. A major reason isdelays of up to two years ingetting the needed permitsfrom various agencies.

Mr. Zinke gave directors ofagencies including the Bureauof Land Management, NationalPark Service and U.S. Fish andWildlife Service 30 days to

identify and help remove regu-latory impediments to puttingin the alert sensors.

The move comes as much ofthe West Coast remains underthreat of a catastrophic earth-quake scientists say could hitat any time. “We’re trying tosay, look, this is an opportu-nity to safeguard our people,”Austin Ewell III, the InteriorDepartment’s deputy secretaryfor water and science, said inan interview Wednesday.

The sensors are designed topick up the shock waves sentout after an earthquake hits,so an alert can be sentthrough cellphones and otherelectronic devices notifyingwhen they will reach a popu-lated area. That gives time toshut down infrastructure suchas gas lines and commutertrains, while alerting people toget out of elevators and fordoctors to suspend surgicalprocedures, Mr. Ewell said.

Similar technology has been

credited with saving lives inearthquakes in Japan andMexico.

Bills to increase funding fora system estimated to costabout $40 million to set upand $30 million annually tooperate have been passed inWashington, D.C., and Sacra-mento. With about half of the1,675 sensors needed to com-plete the network in place, thebiggest shortfall is in PacificNorthwest cities like Portlandand Seattle, USGS officials say.

The ShakeAlert system forthe San Francisco Bay Area isalmost done, while in South-ern California it is undergoingfurther tests. Los AngelesMayor Eric Garcetti said ear-lier this year the city plannedto deploy a quake warningsystem by the end of 2018.

Federal officials didn’t havea timetable for when the sys-tem will be fully operational.“The hope is it’s sooner ratherthan later,” Mr. Ewell said.

The Trump administrationhas ordered accelerated de-ployment of earthquake-detec-tion equipment on federallands to help West Coast citiesprepare for a seismic disasterexperts say is near-certain tohit in the coming years.

Under an Oct. 5 order by In-terior Secretary Ryan Zinkeobtained by The Wall StreetJournal, federal permittingregulations for the equipmentare being streamlined so it canbe rapidly installed in nationalparks and Bureau of LandManagement properties nearpopulation centers from SanDiego to Anchorage, Alaska.The order also applies to vol-canic-activity monitoringequipment in Hawaii.

The sensors on federalproperty like San Francisco’sGolden Gate National Recre-ation Area work in concertwith state and local efforts to

BY JIM CARLTON

Earthquake Sensors Get PriorityFederal efforts to improve earthquake detection will benefit volcanic-activity monitoring in Hawaii, where a park was closed in May.

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Red tape will be cutso more of the planned1,675 devices can bedeployed in the West.

clude a 3.9% increase on prior-ity mail express and a 5.9% in-crease on priority mail.

The Postal Service’s board ofgovernors said they “believethese new rates will keep thePostal Service competitivewhile providing the agencywith needed revenue.”

Some of its highest pro-posed increases are for a ser-vice called Parcel Select, whichlarge shippers like Amazon aswell as carriers like United Par-cel Service Inc. and FedExCorp., use to deliver packagesthe last leg of a trip to the cus-tomer’s door. The so-called lastmile is typically the most ex-pensive part of an online or-der’s journey.

The agency proposed a 9.3%increase on Parcel Select pack-ages weighing over 1 pound anda 12.3% increase on lighterpackages shipped using thatservice. Under that service, theshippers deposit sorted pack-ages into the Postal Servicenetwork and pay a fee to havethem delivered to doorsteps.

The agency also proposedexpanding the types of pack-ages that are subject to dimen-sional weighting, which consid-ers the size of the packagesinstead of just the weight todetermine rates. The pricingmethod, already used by FedExand UPS and on some PostalService products, makes itmore expensive to ship bulky,but lightweight, goods like dia-pers and paper towels.

The quasigovernmentalagency proposed the price in-creases on those products aspart of broader increases sub-mitted to regulators for ap-proval. The prices will be re-viewed by postal regulatorsover the next few weeks. Theyare proposed to go into effectJan. 27, 2019.

The U.S. Postal Service pro-posed raising the price of afirst-class stamp by 10% to 55cents and increasing rates on apopular option used by Ama-zon.com Inc. and other shippersby more than 12% as the agencyseeks to shore up its finances.

The increase on first-classstamps would be the largest ona percentage basis in more thanthree decades.

The Postal Service said theincrease across all mailing prod-ucts, which include stamps forletters and postcards, totalsabout 2.5%, because it cut otherprices, including what it charges

for each additional ounce.The Postal Service has come

under scrutiny from PresidentTrump, who has chastised theagency as Amazon’s “deliveryboy” and called for it to chargemore competitive prices.

Price increases on someproducts are limited by theconsumer-price index. Lastyear, the Postal RegulatoryCommission granted the PostalService permission to raiserates on a class of productsthat includes first-class mail byup to 2 percentage pointsabove inflation. That proposalstill hasn’t been finalized.

The Postal Service proposedmore aggressive price increaseson its parcel business, where itis allowed to adjust prices asthe market demands. Those in-

BY PAUL ZIOBRO

Stamp PriceTo Rise 10%Under Plan

55 centsU.S. Postal Service’s proposednew price of a first-class stamp

PAID ADVERTISEMENT

The Wall Street Journal news organization and advertising department were not involved in the creation of this content.

Beijing Municipal Commission of Tourism Development commissioned this content.

Traditional Chinese festivalshave become popular allover the world in recentyears. Many supermarketsin the United States are

selling mooncakes, allowing moreAmericans a taste of this traditionalfestival delicacy. To celebrate theMid-Autumn Festival, or also knownas the Chinese Moon Festival, theEmpireStateBuilding inNewYorkhelda lighting ceremony to celebrate thereunion-themed traditional Chinesefestival last yearOn September 25th, the New York

City Council held the “Full Moon inNew York” celebration with BeijingculturalelementstocelebratetheMid-AutumnFestival.TheBeijingMunicipalCommissionofTourismDevelopment(BMCTD) and the Sino-AmericanFriendship Association decoratedthe New York City Hall with culturallyrich Beijing elements. More than 300people from the U.S. Departmentof Commerce, the New York CityGovernment, international andAmerican travel organizations, andU.S. travel business representativesattended the event, while New YorkGovernor Andrew Mark Cuomo andNew York City Mayor Bill de Blasiosent congratulatory letters.Friendly exchanges between

the two cities has run for 38 yearsas Beijing and New York becamesister cities in 1980. In 1994, atelevision drama called “A Native OfBeijing In New York” became a hitin China, boosting many Chinese,especially Beijingers’ understandingand interest for the city. In the lastdecade, a growing number of NewYorkers have taken a keen interest inChinese and Beijing tourism culture.Statistics show that in 2017, 673,000American tourists visitedBeijing,withremarkable interest in the Chinesecapital’s imperial culture, folk culture,food culture and traditional Chinesemedicine.Beijing has been committed to

promoting relevant tourism policy

measures and providing convenienceand support for Americans to travelto Beijing.A 144-hour transit visa-freepolicy has been in place in Beijingand its surrounding areas of Tianjinand Hebei since December 28, 2017.This year, the BMCTD invited U.S.companies to join the“BeijingTourismGlobal Partnership” program, which

already has six tour companies, suchas the Pacific Delight Tours, becomeBMCTD’s official partners. With athorough review of the latest Beijingtourism products in Beijing, thesecompanieswill accordinglydesignandprovide travel service products in linewithAmerican tourists’preferences.As an ambassador of Beijing

tourism promotion, renowned pianistLang Lang introduced the city’straditionalandnewtourismresources,whileMonacoartistCarolineBergonzispotlight Beijing’s unique cultureand city landscape. A Beijing photoexhibition highlighted local imperialculture, folk culture, food culture,traditional Chinese medicine, and

other new tourism spots, while afeast of delicious mooncakes offeredattendeesatasteof theChineseMoonFestival.Many Americans now enjoy to

travel to Beijing, drawn not only bythe increasinglyconvenientvisapolicyand safe and friendly environment,but also the culture integration ofEast andWest, which makes it easierfor communication between theAmerican and the Chinese people.For example, in addition tohis identityas an international piano master,Lang Lang is also a United Nationsmessenger of peace and Beijingtourism ambassador. Passionateabout public welfare, Lang Lang haslaunched initiatives like the "LangLang InternationalMusicFoundation"and is committed to using music toconvey love. This talented and caringtourism ambassador profile boostsBeijing’s image in the hearts of moreAmericans.In recent years, the BMCTD has

launched several tourism promotionactivities in the United States andintroduced a string of friendly andconvenient tourism policies. Theyare also constantly innovating waysand means of overseas tourismpromotion. Instead of pitching theirown tourism resources in a singularstyle, they are now more willing tolearn about the local people's travelhabits and preferences,stayingopen-minded to the local travelagents’ advices. All these will helpthemdesignquality andpersonalizedtravel products tailored for globaltravelers.Just likehowChristmasisbecoming

popular in China, traditional Chinesefestivals are gaining fans across theworld,a signof the increasing culturalexchanges and understandingbetween China and the rest of theworld. Culture crosses nationalboundaries while the moon shineslight on all. A festival highlightingfamily reunion is certain tobepopularamongAmericans and beyond.

Love for Chinese Festivals: New York CelebratesChinese Moon Festival with a Touch of Beijing

CoreyJohnson, theSpeakerof theNewYorkCityCouncil, isdeliveringa speech at the event.

Beijing TourismAmbassador LangLang is introducingBeijing’s tourismresources.

Group photo of the BMCTD delegation and guests attending the Chinese Moon Festival event

U.S. NEWS

NY

A8 | Thursday, October 11, 2018 * * THEWALL STREET JOURNAL.

tative said the Chinese officialtargeted a former GE Aviationemployee and that the impactto the company was minimal.“For months, GE Aviation hascooperated with the FBI investi-gation,” the company said in astatement, adding that “no sen-sitive information relating tomilitary programs was targeted

or obtained.”U.S. officials echoed those

assertions, saying GE Aviationcooperated in the investigation,no defense-related informationwas removed and internal con-trols protected the company’sproprietary information.

Mr. Xu allegedly concealedthe “true nature” of his employ-ment and identified himself as

affiliated with a provincial Chi-nese entity called the JiangsuScience & Technology Promo-tion Association, according tocourt papers filed against him.

Mr. Xu was arrested by Bel-gian authorities in April after acriminal complaint was filed infederal court in Cincinnati. Hewas extradited to the U.S. onTuesday, the Justice Depart-ment said. GE Aviation is basedin Evendale, Ohio, outside Cin-cinnati.

The development is the lat-est in an accelerating series ofcases that prosecutors havebrought against foreign intelli-gence officers for behavior thegovernment alleges is criminaland outside the bounds of tra-ditional espionage. Last weekthe U.S. unsealed the indict-ment of seven Russian intelli-gence officers, charging themwith persistent efforts to hackinto the networks of agenciesthat expose their misdeeds.

Prosecutors have alsobrought a number of cases ac-cusing Chinese nationals ofstealing proprietary informa-

Justice officials announcing the case in Cincinnati on Wednesday.

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The case suggests astepped-up U.S.effort to target foreignintelligence officers.

President Tsai Ing-wen, center, on Wednesday described Taiwan as a democracy standing on the front line of China’s expanding interest.

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tion on sophisticated technol-ogy to benefit Chinese competi-tors. Officials said the theft oftrade secrets costs the U.S. hun-dreds of billions of dollars ayear, and that China and Chi-nese companies are the leadingoffenders.

Previous defendants have ei-ther not been caught or havebeen identified only as privateChinese individuals.

“It’s unprecedented to layhands on them and declaretheir intelligence role,” saidChristopher Ott, a former fed-eral prosecutor of cybercrimesand other offenses. “That’s anexpression of confidence in theevidence, and that they won’thave to reveal actual intelli-gence assets to convict thisguy.”

Joseph Campbell, a formerFBI official now with NavigantConsulting, said the arrestcould also provide the U.S. witha window into Beijing’s opera-tions in the U.S. to target sensi-tive technology, either throughMr. Xu’s own cooperation orthrough devices he had withhim at the time of his arrest.

“This is an opportunity togain much more current infor-mation about China’s efforts,”Mr. Campbell said.

Mr. Xu particularly soughtinformation about compositematerials GE Aviation used inthe manufacturing of fan bladesand fan-blade encasements,prosecutors said.

Earlier this year, Mr. Xu al-legedly continued to press theemployee to provide informa-tion about the application of re-search data to engine produc-tion and asked him to meet inEurope. Mr. Xu was arrested inBelgium as he sought to holdthat meeting.

—Thomas Grytacontributed to this article.

sion director in a department ofChina’s Ministry of State Secu-rity, the country’s intelligenceagency. Prosecutors allege thathe worked from 2013 throughthis year with others associatedwith the ministry and severalChinese universities to obtainsensitive and proprietary infor-mation from U.S. aviation andaerospace companies. They saidhe worked in part by recruitingU.S. employees to travel toChina for what was character-ized as an exchange of ideas.

The case emerges amidgrowing tensions between theU.S. and China on severalfronts. On Monday, the top U.S.and Chinese diplomats, Secre-tary of State Mike Pompeo andForeign Minister Wang Yi, ex-changed testy words over tradeand other issues.

Trade talks between the twocountries have made little prog-ress, as have military discus-sions. And Vice President MikePence accused China last weekof working against U.S. inter-ests in various ways, includingby interfering in U.S. elections.

Also on Wednesday the U.S.Treasury Department issuednew rules requiring all foreigninvestors in certain deals in-volving critical U.S. technologyto submit to national-securityreviews, a move designed to ad-dress U.S. concerns about aspate of Chinese technologydeals in Silicon Valley.

A General Electric represen-

ContinuedfromPageOne

AllegedChinese SpyIn Custody

ern forces, and that any at-tempt at Taiwan independencewas doomed to fail.

“The speech will only ag-gravate relations between thetwo sides and bring Taiwan toan even more perilous situa-tion,” he said.

Beijing has increased pres-sure on Ms. Tsai since herelection as Taiwan’s presidentin 2016. The two governmentsare heirs to antagonists fromChina’s civil war last century.Ms. Tsai’s Democratic Progres-sive Party has traditionally

supported independence.Beijing has tried to under-

mine her government politically,by peeling away a handful of itsdwindling band of diplomaticpartners, and economically, bywooing Taiwanese to move andwork in the mainland.

In her speech, Ms. Tsai ac-cused China of trying to chal-lenge the status quo—a refer-ence to the renewed efforts byBeijing to poach Taiwan’s dip-lomatic partners. She said Tai-wan’s vibrant democracy wouldensure international support.

King’s College London.Maya Wang, a senior China

researcher at Human RightsWatch in Hong Kong, said thedetentions were arbitrary andwithout due process. “Xinji-ang’s regional government isnot empowered under China’sconstitution to legalize deten-tion in the political educationcenters,” she said.

Mr. Zenz, the researcher,said the newly detailed expla-nation of how to carry out re-education suggests the Chi-nese government plans to staythe course, despite the inter-national backlash.

“Overall, this clearlystrengthens the legal basis forthe type of re-education thathas essentially been admittedby the state, indicating thatthe state is determined to pro-ceed with the current cam-paign,” he said.

—Kersten Zhangcontributed to this article.

have said. China has declinedto say how many people are inthe centers. Human-rightsgroups estimate that up to onemillion have been detained.

The amendments also ap-pear partly aimed at reining inthe worst excesses of the re-education campaign.

New rules say education-center operators are responsi-ble for running them safely,with a goal of reintegratingthe detainees into society—though no mechanism is laidout for holding officials ac-countable for breaches.

Human-rights activists saidthe revision was a retroactiveattempt to legally justify thecamps.

“If there is a claim this islawful, however thin a claim,I’m afraid that can only en-courage more detentions andan expansion of these centers,”said Eva Pils, an expert in Chi-nese law and human rights at

Xinjiang is driven mainly byheavy-handed policing, tightrestrictions on religious activi-ties, and one of the world’smost intensive electronic sur-veillance systems. They sayChina paints a broad brush to

define extremists, includingpeople engaged in religiousactivities.

The campaign has swept upelderly Uighurs in poor healthand residents with no criminalrecord, say family members in-terviewed by The Wall StreetJournal. Some people havedied in the camps, these people

rights situation” in China, par-ticularly the country’s massinternment of Uighurs andother minorities. The U.N.panel in August found that Ui-ghurs were being held for ex-tended periods without chargeor trial “under the pretext ofcountering terrorism and reli-gious extremism.”

The U.S. State Departmentis considering sanctionsagainst China over the issue.

The Xinjiang CommunistParty Committee didn’t re-spond to a request to com-ment late Wednesday.

China began the mass de-tentions about two years agoas part of a drive to snuff outan occasionally violent Uighurseparatist movement that Bei-jing says has links to foreignjihadists. Some Uighurs havejoined Islamic State in Iraqand Syria.

Rights groups and Uighuractivists abroad say unrest in

tional centers.The new rules appear to

mark the first time China hasacknowledged its use of voca-tional centers to detain Xinji-ang residents for “transforma-tion through education.”Senior Chinese officials havemaintained—including beforea United Nations panel in Au-gust—that the centers taughtvocational skills to petty crim-inals. It had disputed reportsthe centers were used for “po-litical re-education.”

The new regulations “estab-lish a much more direct linkbetween re-education and vo-cational skills training,” saidAdrian Zenz, a researcher onthe Xinjiang camps at the Eu-ropean School of Culture andTheology in Germany.

Criticism is growing overChina’s mass detention of Ui-ghurs. A U.S. congressional re-port released Wednesdaywarned of a “dire human

BEIJING—China has retro-actively changed the law to le-gitimize its detention of hun-dreds of thousands of MuslimUighurs in a campaign thathas sparked an internationaloutcry over human-rightsabuses against the ethnic mi-nority.

The amended counterter-rorism regulations, adoptedTuesday in the northwest Xin-jiang region where most Ui-ghurs live, say that authoritiescan use “vocational skillstraining centers” to “deradi-calize” people suspected of ex-tremism. The previous rulesmade no reference to voca-

WORLD NEWS

ChinaAcknowledgesRe-EducationCampsRetroactive change inlaw links ‘vocationalskills training centers’to deradicalization

Beijing has refused to diplo-matically recognize any nationthat recognizes Taiwan sincethe split after the civil war,and vice versa.

“Taiwan’s democracy willshine on the world,” she said.“When the world sees Tai-wan’s beauty, Taiwan will notbe lonely.”

Ms. Tsai’s repeated refer-ences to Taiwan’s democracyis likely to reinforce concernsin Beijing that support fromWashington is emboldeningTaipei in its resistance. Mr.Pence lauded Taiwan lastweek, saying its “embrace ofdemocracy shows a betterpath for all Chinese people.”

Kao-cheng Wang, dean of thecollege of international affairsat Taiwan’s Tamkang University,said Ms. Tsai’s speech amountedto a call for support from theU.S. and other countries. “She ispresenting the differences be-tween Taiwan and the main-land,” he said. “That includesthe value of democracy.”

President Trump hasshifted the U.S. toward moreovert support for Taiwan. Hebroke with decades of protocoldesigned to assuage Beijingwhen, as president-elect, hespoke with Ms. Tsai by phone.A law passed in March encour-ages high-level official visitsbetween the U.S. and Taiwan.

The U.S. approved a $330million arms sale to Taiwan inlate September, drawing a warn-ing from Beijing that bilateralcooperation would be affected.

—Yang Jiecontributed to this article.

BEIJING—Taiwan PresidentTsai Ing-wen praised the islandas a beacon of democracy andurged China to avoid conflict,in a speech Beijing criticized.

In a National Day address onWednesday, Ms. Tsai called onlike-minded nations to supportTaiwan, which she described asa democracy standing on thefront line of China’s expandinginterest. She pledged to in-crease military spending andensure the position of Taiwan’shigh-tech industry in the globalsupply chain.

The best way to defend Tai-wan, she said, is to “make itindispensable and irreplace-able to the world.”

Though her tone was typi-cally cautious—and she saidher government would take norash actions to provoke Bei-jing—the address was filledwith direct and indirect criti-cisms of China’s policy towardthe self-governed island. Bei-jing asserts that Taiwan mustreunite with the mainland oneday and has sought to isolatethe island diplomatically.

Some Taiwan media seizedon that to draw comparisonsto a speech Vice PresidentMike Pence gave last weekcriticizing China across theboard for trying to undermineU.S. interests.

Ma Xiaoguang, spokesmanfor the State Council’s TaiwanAffairs Office, issued harshcriticism of the speech lateWednesday, saying it revealedthe “evil intentions” of West-

BY EVA DOU

Taiwan’s President Criticizes Beijing, Courts Support

BY EVA DOU

Human rightsactivists say Beijing’srevision is an effort tojustify the facilities.

to believe that many deals in-volving important U.S. tech-nology were flying under thecommittee’s radar. They havebeen particularly concernedabout a spate of Chinese tech-nology deals in Silicon Valley.The new, temporary rules takeeffect in a month and will besuperseded by permanent reg-ulations some 15 months later.

A February 2017 report bythe Defense Department’s De-fense Innovation Unit, whichwas influential in the craftingof the Cfius measure, mappedout various ways Chinese in-vestors participate in U.S.technology deals in the valley,including through investmentsmade by Chinese venture-capi-tal and private-equity firmsand by Chinese tech giantsBaidu Inc., Tencent HoldingsLtd., Alibaba Group HoldingLtd. and JD.com Inc.

“This significantly changesthe importance of Cfius forforeign investors because it isnow a mandatory process for abroad swath of technologicalacquisitions,” said Nova Daly,an adviser at law firm WileyRein LLP and a former Trea-sury official who once ran theCfius process.

The rules mean foreign in-vestors who made early-stageinvestments in areas such asartificial intelligence and au-tonomous driving in SiliconValley without having to filefor reviews could be requiredto do so for future deals, saidIvan Schlager, who runs thenational security practice atlaw firm Skadden, Arps, Slate,Meagher & Flom LLP.

Treasury officials issuedrules requiring all foreign in-vestors in certain deals involv-ing critical U.S. technology tosubmit to national security re-views or face fines as high asthe value of their proposedtransactions.

The new regulations, whichimplement a recently passedlaw to tighten foreign-invest-ment reviews, are more expan-sive than some had advo-cated and are likely to bringan unprecedented number oftransactions under the pur-view of the Committee on For-eign Investment in the U.S.,known as Cfius.

The Treasury-led inter-agency committee will now re-quire foreign investors to alertit to all deals giving them ac-cess to critical technologyacross 27 industries—includ-ing semiconductors, telecom-munications and defense—thatthe committee believes couldthreaten U.S. national securityand technological superiority,according to Cfius officials.

Previously, Cfius focusedmore narrowly on deals whereforeigners took controllingstakes in U.S. businesses, andfiling for reviews was op-tional.

Investors had incentives tofile and seek Cfius approvalbecause, if they didn’t, thecommittee might choose to re-view their deal anyway andrecommend the presidentblock or unwind it.

In recent years, however,lawmakers and officials came

BY KATE O’KEEFFE

Foreign InvestmentsFace Tougher Rules

THEWALL STREET JOURNAL. * * * * Thursday, October 11, 2018 | A9

Yemeni fighters in September held positions in an area of Hodeidah linking the city to the capital San’a.

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WORLD NEWS

Some of the buying centeredon consumer-staple compa-nies, which investors tend tofavor for their durability dur-ing tough economic condi-tions and the generous divi-dends they pay. General MillsInc. and J.M. Smucker Co.both added 1.5%, while Camp-bell Soup Co. rose 0.5%.

For most of 2018, the beton tech- and growth-stockbets served investors well.Even with the recent draw-downs, Amazon shares are up50% so far this year, whileNetflix has risen roughly 70%and Apple is up nearly 30%.

biggest losses on a percentagebasis since Feb. 8.

All sectors in the S&P 500slumped Wednesday, withtechnology stocks downnearly 5%. Other growth sec-tors including consumer-dis-cretionary and communica-tions shares posted bigdeclines as well.

The tech-heavy NasdaqComposite dropped 4.1%, ex-tending its declines for themonth to 7.8%. The index issuffering its worst start to afourth quarter since 2008,when it fell 21%.

The selloff continued early

Thursday in Asia. Japan’s Nik-kei Stock Average was down3.5%, while Hong Kong’s HangSeng Index was down 3%.

Traders and portfolio man-agers said trading duringWednesday’s declines waslargely orderly and thatphones weren’t ringing offthe hook with upset clients.Even so, some on tradingfloors were struggling to rec-oncile the strong financial re-sults of large tech firms withthe day’s heavy selling.

“It really doesn’t make anysense to me that some ofthese stocks are getting

beaten up as much as theyare,” said Mark Stoeckle, chiefexecutive of Adams Funds.

Some Vanguard customers,though, had problems loggingon to their accounts onlineand by phone. Some took toTwitter to complain about thetechnical issues.

“Vanguard today experi-enced periodic network con-nectivity issues,” a spokes-woman said in a statement,adding the technical issuesweren’t a result of more peo-ple trying to log on to theiraccounts.

Possibly exacerbating the

decline for tech stocks is theabsence of one of their big-gest buyers: the companiesthemselves. In the weeksleading up to reporting theircorporate results, companiestypically don’t repurchasetheir own shares due to regu-lations. Analysts have said re-cord stock buybacks have un-derpinned the stock market’srecent gains, and some trad-ers said the elimination ofthis support could be worsen-ing the selloff.

On Wednesday, just 17stocks in the S&P 500 rose, orabout 3% of the broad index.

Rocky Start for Fourth QuarterInvestor angst has been gathering this month as interest rates rise. On Wednesday, major U.S. indexes tumbled,led by a tech retreat and a volatility spike.

Sources: Dow Jones Market Data (indexes, stocks); Tullett Prebon Information (Treasury) THEWALL STREET JOURNAL.

Dow Jones Industrial Average

Cboe Volatility Index Yield on the 10-year Treasury note Stock performance Wednesday

Change in the first eight trading days of each quarter

S&P 500 Nasdaq Composite Russell 2000

3.25%

2.25

2.50

2.75

3.00

2018

40

0

10

20

30

2018

Facebook

Apple

Amazon.com

Netflix

Alphabet

–4.1%

–4.6

–6.2

–8.4

–4.6

6%

–12

2016 ’17 ’18

–6

0

2016 ’17 ’18 2016 ’17 ’18 2016 ’17 ’18

WORLDWATCH

Trump Swipes atFed After Selloff

President Trump put theFederal Reserve at the middleof Wednesday’s stock-marketselloff just minutes after theWhite House issued a state-ment playing down the dropby pointing to solid economicfundamentals.

“The Fed is making a mis-take,” Mr. Trump told report-ers in Erie, Pa., after stockmarkets suffered their big-gest decline in more thanseven months. “I think theFed has gone crazy.”

Mr. Trump has for weeksgrumbled about the centralbank’s campaign to graduallylift short-term rates, which ithas been doing to guardagainst inflation.

Of the stock market, hesaid, “Actually, it’s a correctionthat we’ve been waiting for,for a long time. But I reallydisagree with what the Fed isdoing, OK?” A Fed spokes-woman declined to comment.

—Vivian Salamaand Nick Timiraos

however, is that trade ten-sions between the U.S. andChina appear to be worsen-ing, and that a slowdown inthe Chinese economy couldspill over into global markets.

Chinese authorities havestepped up their efforts tokeep money flowing in theworld’s second-largest econ-omy amid concerns about theramifications of a yearslongincrease in Chinese debt issu-ance.

The result: A simultaneousselling of 2018’s biggeststock-market winners in theU.S.

Heading into the fourthquarter, investors were pilinginto many of the same trades,particularly in large U.S. techstocks, said Andrew Slimmon,senior portfolio manager withMorgan Stanley InvestmentManagement. “If everyone ison one side of the boat andthey suddenly realize this, ev-eryone would scramble.”

The shift has come as theyield on the benchmark U.S.Treasury note has risen toseven-year highs. It settled at3.221% Wednesday, up from3.055% at the end of Septem-ber.

The S&P 500 tumbled 3.3%Wednesday, its fifth consecu-tive session of declines andlongest losing streak in nearlytwo years. The Dow Jones In-dustrial Average dropped 3.1%to 25598.74, falling 4.6% fromits record high notched Oct. 3.Both indexes registered their

ContinuedfromPageOne

tration fears is that the civiliancasualty concerns in Yemenwill compel enough U.S. law-makers to support proposals tocut off military aid to theSaudi-led coalition.

The U.S. currently providesSaudi Arabia and the UnitedArab Emirates with modestmilitary support, includingaerial refueling of jet fighters

carrying out airstrikes in Ye-men, limited battlefield intelli-gence, and billions of dollars inweapons. The three nationswork closely together in a par-allel fight against al Qaeda andIslamic State militants who areusing lawless sections of Ye-men as sanctuary.

Saudi Arabia and the U.A.E.have been unable to extricate

themselves from the war in Ye-men, the location of what theU.N. calls the world’s worst hu-manitarian crisis.

Over the past three years,according to the U.N., theSaudi-led coalition has killedthousands of civilians in Ye-men, most of them in air-strikes that have fueled con-cern in Washington.

The senators, led by commit-tee Chairman Bob Corker (R.,Tenn.) and ranking memberSen. Bob Menendez (D., N.J.), re-quested that the president initi-ate an investigation under theGlobal Magnitsky Human RightsAccountability Act. Under theact, the president must deter-mine whether a foreign nationalis behind an extrajudicial killing,torture or other human-rightsviolation of someone exercisingfreedom of expression, and if so,sanction the violator. The presi-dent, under the law, must reportthe investigation findings toCongress within 120 days.

Turkish investigators havefocused on a pair of Gulfstream

that Saudi Arabia and theUnited Arab Emirates weretaking meaningful steps tominimize civilian casualties inYemen and that they were fol-lowing the law when usingweapons sold by the U.S. Thecertification was the first byMr. Pompeo under a new lawthat requires him to certify toCongress every six monthsthat the Gulf nations are doingall they can to minimize civil-ian casualties in Yemen.

State Department officialsdidn’t respond to requests tocomment.

The letter is part of an ex-panding effort in Congress tochoke off American support forthe two Gulf allies trying tocontain a threat posed byHouthi fighters. The Saudi-ledcoalition has been trying to re-install the head of the interna-tionally recognized govern-ment, forced into exile whenHouthi fighters seized Yemen’scapital in 2015.

One of the major adminis-

WASHINGTON—U.S. law-makers from both parties arechallenging the Trump admin-istration’s support for Gulf al-lies battling Iran-aligned fight-ers in Yemen, putting newpressure on the U.S. presidentto scale back ties with SaudiArabia during an especiallysensitive time.

A bipartisan group of sena-tors plan to demand answersfrom Secretary of State MikePompeo after he backed SaudiArabia and the United ArabEmirates over the objections ofmost of his Yemen experts.

In a letter delivered to Mr.Pompeo on Wednesday, thelawmakers, led by Sens. ToddYoung (R., Ind.) and JeanneShaheen (D., N.H.), write thatthey have “significant con-cerns” with his support for theGulf allies.

“We find it difficult to rec-oncile known facts” with thedecision to officially certify

BY DION NISSENBAUM

Lawmakers PressTrump Over Yemen

Journal show planes with thetail numbers released by Turk-ish authorities landing in Is-tanbul on the day Mr.Khashoggi went missing.

One Sky Prime jet, whichcarried tail number HZSK2,landed in the wee hours ofOct. 2 with nine alleged Saudioperatives on board, accordingto the officials. The six othermembers of the 15-stronggroup arrived on commercialflights.

A second Gulfstream oper-ated by Sky Prime also landed inIstanbul on Oct. 2. It couldn’t bedetermined who was on board.

The two Gulfstream jets leftIstanbul later in the day, carry-ing the alleged team, except onemember who took a commercialflight, the Turkish officials said.The planes reached Riyadh onOct. 3 after making layovers,one in Dubai and the other inEgypt, according to trackingservices.

Turkish authorities have re-frained from commenting pub-licly on the case.

Turkish President RecepTayyip Erdogan has said hewould wait to hear the resultsof a criminal police investiga-tion before formally namingsuspects for Mr. Khashoggi’sdisappearance.

jets to expose Saudi involve-ment, Turkish officials say.

The planes are owned byaviation firm Sky Prime Avia-tion Services Ltd., which wasseized by the Saudi govern-ment, in the wake of last year’sroundup of Saudi businessmen,royalty and government offi-cials as part of what PrinceMohammed called an anticor-ruption drive, the people said.Prince Mohammed, the day-to-day Saudi ruler, now controlsthe company, the people said.

Reached by phone Wednes-day evening, Sky Prime’s vicepresident declined to comment.

Flight-tracking serviceschecked by The Wall Street

tion into Mr. Khashoggi’s disap-pearance. Officials didn’t re-spond to requests to comment.

Mr. Khashoggi, a Washingtonresident living in self-imposedexile, was in Istanbul to obtaindocuments to marry his Turkishfiancée when he disappeared,sparking a diplomatic crisis be-tween Turkey and Saudi Arabia,two influential regional rivalsthat are both U.S. allies.

President Trump saidWednesday he had spoken toSaudis “at the highest level”about Mr. Khashoggi andplanned to find out what hap-pened to him.

The White House said thatother top administration offi-cials—national security ad-viser John Bolton, senior ad-viser Jared Kushner andSecretary of State MikePompeo—pressed Saudi CrownPrince Mohammed bin Salmanabout the issue by phone.

“This is a bad situation,”Mr. Trump told reporters. “Wecannot let this happen. To re-porters, to anybody.”

“We’re going to get to thebottom of this,” he added.

Members of the Senate For-eign Relations Committee wrotea letter to Mr. Trump demand-ing an investigation into the dis-appearance of Mr. Khashoggi.

The Gulfstream jets thatTurkish officials say ferriedoperatives who apprehendedand likely killed a dissidentSaudi journalist in Istanbul be-long to a company controlledby Saudi Arabia’s government,people familiar with the mat-ter said.

Turkish authorities also re-leased on Wednesday thenames and photographs of the15 men they say were involvedin Jamal Khashoggi’s suspectedkilling in the kingdom’s consul-ate in Istanbul on Oct. 2 beforereturning hours later to SaudiArabia. They included a foren-sics expert and a man who in2017 was pictured wearing aSaudi Royal Guard uniform.

Saudi officials have deniedinvolvement and say they areassisting the Turkish investiga-

Suspected Killers Used Saudi JetTurkey builds case forwhat it says is Saudiinvolvement in deathof dissident journalist

Jamal Khashoggi speaking at a London conference in late September.By Rory Jones

in Dubai,MargheritaStancati in Riyadhand Summer Said

in London

FROM PAGE ONE

Stocks FallAmid TechRetreat

UNITED KINGDOM

Court Says Bakery CanReject GayMan’s Order

Britain’s top court upheld theright of a bakery to refuse a gayman’s order for a cake decoratedwith the message “Support GayMarriage” on the grounds thatforcing the bakers to make thecake would have impinged ontheir rights to free speech.

Following a yearslong legalcase, the court ruled the casewasn’t about discrimination butboiled down to a different issue—that people can refuse to promotemessages they disagree with.

In May 2014, Gareth Lee or-dered a cake from Ashers, a bak-ery in Northern Ireland, for anevent organized to campaign forsame-sex marriage. In NorthernIreland, unlike the rest of the U.K.,same-sex marriage isn’t currentlylegally recognized. The owners ofAshers declined to make the cakeon the grounds they didn’t wantto endorse same-sex marriagebecause it was against their reli-gious beliefs.

British judges found in thebakers’ favor on the grounds thatthey weren’t discriminatingagainst Mr. Lee for being gay butwere objecting to putting a mes-sage they didn’t agree with onthe cake.

—Max ColchesterEconomy ReboundedOver the Summer

U.K. economic growth pickedup over the summer, aided bystronger retail sales and house-building in response to warmer-than-usual weather. The Officefor National Statistics said eco-nomic output in the three monthsthrough August was 0.7% higherthan in the three months throughMay, equivalent to annualizedgrowth of 2.8%. However, therewere signs the economy was los-ing momentum toward the end ofthe period, with output flat in Au-gust compared with July.

—Paul Hannon

SYRIA

Rebels Pull HeavyWeapons From Zone

Rebel groups in Syria havewithdrawn most of their heavyweapons from a planned demilita-rized zone in the northwest, localactivists and the Turkish Ministryof Defense said, a move that couldforestall an offense by the Assadregime, but falls short of a lastingpolitical settlement in the area.

Russia and Turkey agreed lastmonth to create a buffer zone be-tween opposition and governmentforces in Idlib province in an at-tempt to avert a fight that the U.S.and United Nations warned wouldcause a humanitarian disaster.

—Sune Engel Rasmussen

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A10 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

other was finding the paintingof Hoffmann. When her motherdied, Ms. O’Brien decided, “Iwill get her back, I promise.”

Then in September 2017, Ms.O’Brien was on the website forHeritage Auctions, looking for awatercolor painting her grand-father had done. The Hoffmannnude appeared on her screen,estimated at $15,000 to$25,000.

“I almost fell off my chair,”she says.

Ms. O’Brien called up the

New York Police Departmentprecinct closest to Flagg’s oldapartment. An officer suggestedshe speak to Sgt. Mark Amund-son, 39, a field intelligence offi-cer who had a reputationaround the precinct. “Theyknew I liked looking at stuff thatwould be obscure,” he says.

Growing up in New York City,the sergeant had a Bob Rosspaint set and a fondness for vanGogh. He didn’t think he had thetalent to be an artist, so he fol-lowed in the footsteps of both

Flagg with his portrait of Ilse Hoffmann in 1941.

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up to about $75,000 at auction,says Will Haydock, head ofAmerican art at Christie’s.

Flagg’s personal life was thestuff of movies. He frequentedsociety events and had a fond-ness for the models whose por-traits he painted. In “Roses andBuckshot,” his 1946 autobiogra-phy, he writes, “Many of thosegirls were so beautiful; and art-ists are such fools!”

Still, in his book, he callsHoffmann the real love of hislife. Hoffmann wanted to marryFlagg, who was more than twiceher age, but he refused, hewrites. He was still married tohis second wife, Ives’s mother,who had been institutionalizedwith mental illness. In themid-1930s, Hoffmann left.

She came back to him in themid-1940s, but soon after, Hoff-

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mann killed herself one night bydrinking a martini laced withcyanide, Flagg writes.

Devastated, Flagg kept hisnude portrait of Hoffmann,measuring 27 by 48 inches, nearhis desk for the rest of his life.He even included it in his lastknown self-portrait.

Flagg died in May 1960 atage 82. A few months later, 11works from his apartment andstudio in Manhattan were dueto be shown in a memorial ex-hibition. Only 10 showed up atthe warehouse. A friend, artistEverett Raymond Kinstler, no-ticed that it had gone missingfrom the apartment at somepoint, too. No one knew exactlywhen it disappeared—and noone could understand how sucha large painting could havebeen taken from his building,staffed with doormen.

Flagg’s daughter filed a re-port with the police, but wastold they were unlikely to findthe painting. Over the rest ofher life, she collected notes andresearch about her father, in-cluding letters about the paint-ing. Ms. O’Brien says writing abiography about Flagg was oneof her mother’s great goals. The

his grandfathers and became apolice officer.

Ms. O’Brien sent him some ofher mother’s research to proveher connection to the painting.Sgt. Amundson was taken withthe story, and with the artwork.

However, he couldn’t stop thesale of the painting without apolice report showing it hadbeen reported missing. Trackingdown the file in the archiveswas a long shot. Sgt. Amundsondidn’t know what precinct thereport was filed in, or when itmight have been filed.

Sgt. Amundson pressed on.Bidding was scheduled to startSept. 22. He had less than twoweeks to find the report.

He spent two full days scan-ning nearly 6,000 reports from1960. At the end of the secondday, he finally caught sight ofIves’ name. He had found the re-port, giving him grounds to askHeritage Auctions to put thesale on hold. “What were theodds?” he says.

After talking to Heritage Auc-tions, he discovered that theperson who had put it up forsale was the widow of the su-perintendent who had workedin Flagg’s building. The widow,

in her 90s, told the auctionhouse she thought that Flagghad given the painting to herhusband. “The widow, we be-lieve, in good faith signed awarranty saying she had cleartitle” to the painting, says GregRohan, president of HeritageAuctions. Attempts to reach thewidow were unsuccessful.

Sgt. Amundson could do nomore. Ives had listed the paint-ing as “lost” on the police re-port. To be criminally investi-gated by the police, the paintinghad to be reported stolen.

Ms. O’Brien was able to getthe painting back. She coveredthe $1,400 shipping fee.

She remembers the Decem-ber day that the truck with thenude pulled up to her house.Another large portrait Flagg haddone of Hoffmann already hungin Ms. O’Brien’s dining room.She moved the clothed “Ilse #1”to the living room to make roomfor the nude “Ilse #2,” as shecalls them.

That night, as she got upfrom her living room sofa tomake tea, she found herself cry-ing as she looked from one Hoff-mann to the other. “I thought,‘She’s home!’ ” she says.

powerful Russians who, afteramassing fortunes during Rus-sian privatizations, helpedbuild the political system thatbrought Mr. Putin to the presi-dency. After falling out of fa-vor, the trio fled to Englandand tried to mount oppositionto their former protégé, only tosee their efforts disrupted byuntimely deaths and costly liti-gation.

Their leader, Boris Bere-zovsky, was found hanged in abathroom of his house in Berk-shire, England, in 2013, in adeath that was initially called asuicide but now police are in-vestigating anew. Mr. Bere-zovsky’s longtime security as-sistant, former Russiansecurity officer Alexander Lit-vinenko, was killed in 2006 bya fatal dose of the radioactiveisotope polonium-210, a mur-der the U.K. blamed on Russia.Another partner, Badri Patar-katsishvili, died of a heart at-tack in 2008, in what policehave deemed natural causes.

Mr. Glushkov, Mr. Bere-zovsky’s right-hand man, wasthe last alive.

His death happened oneweek after the nerve gas poi-sonings of a former Russianspy and his daughter in Salis-bury, England—an attack theBritish and American govern-ments have pinned on two al-leged Russian agents. TheKremlin denied any involve-ment in this and other assassi-nation attempts and the mensay they were innocent tour-ists.

The central issue in theGlushkov case was Aeroflot’sclaim that the Russian and hispartners, after gaining a foot-hold in Aeroflot managementduring privatizations, looted$120 million from the company.

A ‘fraudster’In written statements, Aero-

flot spokesman Andrey Sogrinsaid Aeroflot “is not today, norwas it ever, a ‘paymaster forRussia’s security services.’ ”

He called Mr. Glushkov a“fraudster” who was convictedin Russia “of an elaboratescheme to divert huge sums ofAeroflot’s foreign currency intothe Swiss bank accounts ofcompanies he controlled.”

Mr. Sogrin said that Aeroflothad nothing to do with hisdeath, adding that “if he hadlived” Mr. Glushkov “wouldhave faced a substantial civiljudgment in England, as well.”

Mr. Glushkov maintainedthat Aeroflot’s claim againsthim was absurd and that theentire case, which wound itsway through the Chancery Di-vision of London High Courtfor years, was a pretext forRussian authorities to harasshim.

The pretrial court filings, in-cluding a 51-page witnessstatement viewed by The WallStreet Journal, show he in-tended to respond by reopen-ing chapters of 20-year-oldRussian history that are sensi-tive for the Kremlin and Rus-sia’s security services.

Over the years, the Kremlinhas reshaped the story of Mr.Putin’s rise to power, stressinghis role as a disciplined KGB

ContinuedfromPageOne

careerist who rescued thecountry from oligarchic billion-aires who looted the nationalwealth after the Soviet Unioncollapsed.

Through government-con-trolled news outlets and filmdocumentaries, Moscow haslargely erased suggestions thatMr. Putin was helped to powerby anyone more powerful thanhimself—such as Mr. Bere-zovsky, Mr. Glushkov’s businesspartner, who helped promoteMr. Putin and knew him per-sonally.

A former mathematician,Mr. Berezovsky built a fortunein the final years of the SovietUnion through an auto dealer-ship called Logovaz. After thecountry’s dissolution in 1991,he gained control of Soviet-eraindustries through tainted pri-vatization auctions and politi-cal influence, amassing a finan-cial empire that spannedautomobiles, oil, media, andAeroflot, the national airline.

He set up his Moscow head-quarters in a Tsarist-era palaceknown as the Logovaz man-sion, where high-level govern-ment officials waited to meethim in the anterooms.

In 1996 Mr. Berezovskyteamed up with other oligarchsto bankroll the successful cam-paign of incumbent PresidentBoris Yeltsin so he could facedown a challenge from Russiancommunists. In 1999, when Mr.Yeltsin anointed Mr. Putin ashis successor, Mr. Berezovskyand his allies helped vault himfrom virtual obscurity to na-tional prominence by providingfawning coverage of his presi-dential campaign on ORT, thetelevision network Mr. Bere-zovsky once controlled, andcobbling together a politicalparty, Unity, which served asMr. Putin’s springboard.

Rivals accused Mr. Bere-zovsky of funding his politicalprojects by siphoning billionsof dollars from companies he

gained control of during privat-ization, a charge Mr. Bere-zovsky denied. Through mostof the 1990s, Mr. Glushkov wasknown as Mr. Berezovsky’sright-hand man in managingthese enterprises, including thecountry’s largest auto maker,AvtoVAZ, and the national air-line, Aeroflot.

Mr. Putin soured on the oli-garchs as he built the top-downpolitical system that he domi-nates today, joining forces withsecurity-service allies to takeover key businesses. Maria Lit-vinenko, widow of the poisonedMr. Litvinenko, said in an inter-view her husband believed Mr.Berezovsky’s takeover of Aero-flot ultimately destroyed himand his allies because he madeso many enemies in the secu-rity establishment.

The airline, Ms. Litvinenkosaid her husband told her, wasa centerpiece of the Russianspy services, which since So-viet days had used its global

network of offices and airroutes to provide payroll for itsagents around the world, aswell as shipping clandestinecargoes. “Aeroflot was the cen-ter of it all,” she said—an alle-gation that Mr. Glushkov alsointended to air in court.

Mr. Glushkov told his side ofthe story in a witness state-ment and other documents re-lated to the court case viewedby the Journal.

When he joined Aeroflot, itwas flying toward obsoles-cence. Its fleet of Soviet-madeaircraft were too noisy anddirty for Western capitals. Ayear earlier, one of Aeroflot’spilots had allowed his 16-year-old son to sit at the controls ofa Hong Kong-bound plane,which crashed in southern Si-beria, killing everyone onboard.

Financial reviewMr. Glushkov launched a re-

view of the company’s finances,and found headquarters hadlittle control over revenues.Money from ticket salesdrained into hundreds of bankaccounts controlled by about150 regional offices, Mr. Glush-kov said in a witness state-ment. About 3,500 of the com-pany’s 15,000 employeesworked undercover for one ofthe branches of Russian intelli-gence services, he said.

Mr. Shuppe, his former col-league, said Mr. Glushkovwanted to mold Aeroflot into anational airline like Germany’sLufthansa or British Airways,with a centralized payments of-fice located outside Russia toreduce its tax burden. In early1996, he called a meeting ofAeroflot’s representatives fromaround the world with an eyeto channeling revenue intocompanies in Switzerland.

Reaction from the securityservices was swift, he said inhis witness statement. In hisoffice, he said, he received callsdaily over a special telephoneinstalled for talking with secu-rity-service chiefs. One ofthem, Alexander Korzhakov, aformer KGB general and Presi-dent Yeltsin’s bodyguard saidhe would “screw my head off”and “put me in jail…if I contin-ued to violate the rights of theFSB,” Mr. Glushkov said in hiswitness statement.

Mr. Korzhakov, reached bytelephone in Russia, deniedthreatening Mr. Glushkov, butcalled the former Aeroflot di-rector a thief who stole “tensof millions” from the company

on behalf of Mr. Berezovsky.In 1997, Russian prosecutors

opened a criminal investigationinto financial irregularities atthe airline. Mr. Berezovsky fledthe country after the electionof Mr. Putin as president in2000 and prosecutors said he,too, was a suspect in the Aero-flot criminal case. Mr. Glushkovremained in Russia but, sens-ing he might be arrested soon,gave an interview to Russia’sKommersant newspaper, de-fending his work.

‘Simple nonsense’“What prosecutors are say-

ing is simply nonsense,” hesaid, noting that investigatorssaid he was suspected of mis-appropriating nearly $700 mil-lion—more than half of thecompany’s revenues while heworked there.

He was arrested the follow-ing month on charges of moneylaundering and illegal businessactivity, and was confined inMoscow’s Lefortovo Prison, afacility reserved for high-pro-file political prisoners andcriminals.

In Switzerland, officialsfroze assets of companies hemanaged, and eventually sent$52 million back to Russia.

Mr. Glushkov said conditionswere dire in prison. His healthworsened, and he collapsed atone court appearance. In 2004,a judge sentenced him to timeserved, and after his release hemade his way to London,where he joined his erstwhilepartners who had moved therein exile.

They welcomed him backand put him in a mansion inthe upscale London suburb ofBerkshire with an 11-acre pondand servants. But Mr. Glushkovhad difficulty adapting to hisnew surroundings, his friendssaid.

Aeroflot, back under Russiangovernment control, hired theU.K. law firm Pinsent Masonsand sued Messrs. Glushkov andBerezovsky in a London court,seeking $120 million. At first,Mr. Berezovsky paid the legalbills but soon he, too, began torun out of money. His longtimepartner, Mr. Patarkatsishvili,died suddenly of a heart attack

in 2008. Mr. Berezovsky lost alawsuit against another Rus-sian oligarch, leaving him withhefty legal bills. In 2013, Mr.Berezovsky was found hangedin his bathroom in his homeoutside London.

Mr. Glushkov’s own fortunessank along with those of hispartners, and to save money hemoved out of his estate, even-tually landing in a rented rowhouse, where he planned his le-gal strategy against Aeroflot.

In death, Mr. Glushkov en-joyed some measure of vindica-tion. After the airline droppedthe case in April without expla-nation, Judge Rose orderedAeroflot to pay more than £3million ($3.9 million) to com-pensate Mr. Glushkov’s estateand other defendants for theircourt costs. She said the airlinehad apparently folded its handbecause “Aeroflot and its ad-visers realized that their casewas doomed to fail in its en-tirety.”

A former KGBgeneral threatened to‘screw my head off,’Mr. Glushkov said.

AnotherPutin FoePerishes

Mystery ofThe LostPainting

Nikolai Glushkov, shown below on his way to trial to face fraud charges in Russia, was murdered earlier this year in South London.

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Aeroflot’s BumpyFlight Path

1923 Aeroflot’s predecessor, theVoluntary Air Fleet, begins thefirst passenger service betweenMoscow and Nizhnynovgorod.

1932 Officially named Aeroflot,the company supports domes-tic industry by acquiring Soviet-made aircraft.

1940s Aeroflot becomes a

backbone for Soviet forcesfighting the invasion by NaziGermany, ferrying troops intobesieged battlefronts.

1950s through 1970s Duringthe Cold War, Aeroflot aggres-sively expands domestic and in-ternational service, opening uproutes to five continents.

1990 The Guinness Book ofWorld Records names it thelargest airline in the world.

1991 With the fall of the Soviet

Union, the company downsizesdrastically as former Sovietstates inherit Aeroflot’s aircraftand routes.

1992 Boris Berezovsky acquiresminority stake during privatiza-tion and inserts managers.Nikolai Glushkov serves from1996 through 1998.

2018 Still 51% owned by thegovernment, Aeroflot reportsgrowing revenues after acquir-ing domestic competitors, oper-ating across 51 countries.

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chandise and prepackagedfoods in 1979, and in 2013raised the price cap on mostitems from $5 to $10.

It isn’t just low demandthat discourages newsstandsfrom devoting more space toperiodicals. Operators saythey earn just 5 cents on a $1tabloid compared with 80cents on a $1 bottle of PolandSpring and 65 cents on a$1.25 Snickers bar.

So why do they bother of-

fering papers at all? Opera-tors say it’s a service for theirvaluable regulars. Not tomention the fact that city lawstill requires newsstands tosell newspapers, periodicalsor magazines. The New YorkCity Department of ConsumerAffairs says it inspects news-stands to ensure they comply.

Despite the challenges,newsstands are enjoying a mi-nor revival. Robert and MaxBookman, a father-and-son le-

gram starting in February, fol-lowed by an unpaid 12-month pi-lot program, in which the firmscould test their technologies onthe transit system. Transit TechLab officials haven’t announcedhowmany companies will be se-lected for the accelerator.

“There’s a real interestfrom the business communityin helping contribute to thetransit solutions because it’sso close to the future of thecity,” Ms. Haot said.

head the Transit Tech Lab pro-gram. “The long-term benefitof developing this lab is thefresh perspective we wouldget on these issues,” she said.

A committee of MTA spe-cialists and business leaderswill evaluate the proposalssubmitted by companies beforeNov. 30. The panel will look forproven technologies that are atprototype stage, Ms. Haot said.

Selected companies will enteran eight-week accelerator pro-

ship, a nonprofit created thisyear by the MTA and the Part-nership for New York City, abusiness group. The Partner-ship provided $1.5 million tolaunch TIP, which was formedto help tackle issues facing theregional transit system.

The accelerator program isexpected to generate potentialtransit solutions continuouslygoing forward, according toRachel Haot, the executive di-rector of TIP, who also will

The program is a “cus-tomer-centric approach” toaddress some of the mostcommon complaints about thetransit system, said MTA Pres-ident Pat Foye. The first labprojects will focus on reducingsubway delays and increasingbus speeds on congested citystreets. “We’re proud to be thefirst transit tech lab in the na-tion,” Mr. Foye said.

The lab is a product of theTransit Innovation Partner-

The Metropolitan Transpor-tation Authority is looking forcompanies that could help theagency improve New YorkCity’s bus and subway service.

The MTA and the Partner-ship for New York City an-nounced Wednesday the launchof the Transit Tech Lab, an ac-celerator program that worksto identify private partnersand test new technologies.

BY MENGQI SUN

MTAWill Tap Tech Firms to Tackle Transit Problems

GREATER NEWYORK

one person was seen on anoutpatient basis. Health offi-cials have said that the ages ofthose stricken range from 40to over 80 years old.

The city has inspected 20cooling towers and ordered 11of them to be immediatelycleaned, officials said.

Cooling towers are knownto be a major source of out-breaks. The bacteria can growin the towers’ water systems.

Legionnaires’ disease istransmitted to humans whenpeople inhale mist of the in-

fected water.Oxiris Barbot, the acting

commissioner of the New YorkCity Department of Health andMental Hygiene, said the cityis taking “very aggressivesteps to respond to the clus-ter.”

“The risks to residents re-main very low,” Dr. Barbotsaid.

This community cluster ofLegionnaires’ disease cases isthe second to emerge in theWashington Heights area innorthern Manhattan.

An outbreak in July sick-ened more than two dozenpeople and caused one death.That cluster was traced to acooling tower at a New YorkCity Housing Authority apart-ment complex in the Sugar Hillsection of Manhattan.

In August, health officialssaid the outbreak had ended.

Dr. Barbot said the city haslooked at every single tower inthe area of the second clustertrying to establish where ithad originated. Health officialsbelieve that the recent hot

weather may have played arole in this outbreak, she said.

Legionnaires’ is commonand readily treatable, anddoesn’t pass from person toperson, Dr. Barbot said. Peoplewho become infected with thedisease have pneumonia-likesymptoms, including fever,chills, headache, fatigue andconfusion. Those with lungdiseases, compromised im-mune systems and smokers, aswell as older people, are mostat risk.

The rate of Legionnaires’

disease has been rising in theU.S. for years, according to re-searchers from the Centers forDisease Control and Preven-tion.

In New York City, Legion-naires’ disease clusters aren’tunusual. In 2015, 16 peopledied and 138 people were sick-ened in a large outbreak in theSouth Bronx.

In October 2017, at least adozen people were strickenwith Legionnaires’ disease inthe Flushing neighborhood ofQueens.

One person has died of Le-gionnaires’ disease in a clusterof 16 cases in the Manhattanneighborhood of WashingtonHeights, New York City healthofficials confirmed onWednesday.

The city’s Department ofHealth and Mental Hygienesaid in a phone call with re-porters that seven people re-main hospitalized due to theoutbreak, seven have been dis-charged from the hospital and

BY MELANIE GRAYCE WEST

Legionnaires’ Kills One and Sickens 15

No longer an independent,former New York City MayorMichael Bloomberg announcedWednesday that he will voteas a Democrat.

In a tweet showing a NewYork state voter registrationform, Mr. Bloomberg explainedhis decision in historicalterms, saying that “one of thetwo parties has served as abulwark against those whothreaten our Constitution.”

Mr. Bloomberg said that formost of his life he has been aDemocrat. “We need Demo-crats to provide the checksand balance our nation sobadly needs,” he wrote.

Taking a party affiliationmay be a sign that Mr.Bloomberg, 76 years old, isgearing up for a possible 2020presidential campaign.

The billionaire businessmanand philanthropist contem-plated an Oval Office bid in2008, and considered runningas an independent candidatein 2016. He later endorsedDemocrat Hillary Clinton.

Mr. Bloomberg is thefounder of Bloomberg LP,which owns the financial-newsservice company. HisBloomberg Philanthropies isone of the largest foundationsin the U.S., with some $6.5 bil-lion in assets.

Earlier this month, Mr.Bloomberg said he would do-nate $20 million to a political-

action committee supportingSenate Democrats. So far, hehas dedicated $100 million to2018 races, according to anadviser to Mr. Bloomberg.

In recent weeks, Mr.Bloomberg has traveled insupport of some of his founda-tion’s biggest areas of interest,including climate change andgun safety. Mr. Bloomberg re-cently did fundraising forSteve Sisolak, the Democraticnominee for governor of Ne-vada. Earlier this month, Mr.Bloomberg was in South Flor-ida for a gun-control rally andto support Andrew Gillum, thestate’s Democratic gubernato-rial candidate.

Mr. Bloomberg won his firstmayoral election in 2001 andhis second election in 2005,running as a Republican. In2007, and for his third may-oral term, Mr. Bloomberg ranas an independent, unaffiliatedwith any party.

BY MELANIE GRAYCE WEST

BloombergIs OnceAgain aDemocrat

The move may be asign he is gearing upfor a presidentialcampaign in 2020.

METRO MONEY | By Anne Kadet

Read All About It…But Not at NewsstandsFor months,

the sidewalknewsstandaround thecorner frommy home fre-

quently displayed just twopublications—the BrooklynHeights Press and a single,faded copy of the NewYorker. But last weekbrought a seismic shift. Thetattered New Yorker was re-placed by an equally wornNovember 2017 issue of Su-per Lawyers magazine.

The magazines aren’t forsale, said newsstand operatorMohammed Afrahim. Theyserve as a cushion for his lot-tery-card reader. He sells alot more lottery tickets thannewspapers these days. “Nowit’s Lotto, candy, soda, water,water, candy, water, chips,phone card, phone card,phone card,” he says.

All over New York City,our 333 sidewalk newsstandsnow function primarily assnack stands. You can buyRed Bull, Cheetos and Skit-tles, but good luck findingyour favorite magazine. AbeHamame, who has tended astand at the southeast cornerof Lexington Avenue and86th Street in Manhattan for20 years, says he used to sellmore than 200 copies of theNew York Times every day.Now it’s five to 10. “DailyNews, same thing,” he says.

The New York Times de-clined to discuss its termswith vendors. The Daily Newsdidn’t respond to a requestfor comment.

Dan Pisark, vice presidentof retail services for the 34thStreet Partnership and aself-described “newsstandwatcher for many years,”says that at some of the 20-odd stands in his district,“it’s 99% candy, soda, um-brellas and tchotchkes. Youcan’t find a newspaper.”

The transformation camegradually. In the 1950s, thecity’s 1,500 sidewalk stands,restricted to peddling peri-odicals, served as a primarynews source for many. Eventhen, selling news was atough business. In the 1960s,the city agreed to let news-stands sell cigarettes. It al-lowed sales of general mer-

gal duo representing the NewYork City Newsstand Opera-tors Association, say the num-ber of sidewalk newsstandshas rebounded from a low of280 10 years ago thanks to awave of immigrants from Pak-istan and Bangladesh wholaunched stands in Queens,Brooklyn and the Bronx.

While operators typicallyearn about $30,000 a year, it’san easy startup requiring lit-tle investment. “Newsstandsremain a good opportunityfor those who can’t rent astore,” says Max Bookman.“My phone is ringing regu-larly with people interested ingoing into this business.”

Change may be afoot. MaxBookman says operators arein talks with a local bakery,for example, to offer pre-packaged, fresh pastries. Butthe operators’ strategy isjust half the story. The city’snewsstands also function asmini billboards, displayingads for brands such as RalphLauren and United Airlines.

JCDecaux Group, a globaladvertising company based

in France, pays the city $56million a year for the rightto sell ads on nearly everynewsstand, along with thecity’s 3,500 bus stops and sixpay toilets. Under the termsof a 20-year deal, the firmalso is responsible for build-ing and maintaining all thestreet furniture. Any profitsare split 50/50 with the city.

Alas, the company says it’slosing money on the deal. Inan effort to at least breakeven, JCDecaux says it mayask the city for permission toinstall cellphone serviceboosters in the newsstands,which would add another rev-enue stream.

Whether it’s croissants, Wi-Fi or both, I’m betting thequest for profitability will pro-duce some interesting newstrategies. Robert Bookman,in fact, offers an idea I heart-ily endorse. With a minorchange in the law, he suggests,we instantly could have 333more businesses in the cityselling coffee.

anne.kadet@wsj.com

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Mike and Frank Patel work in their newsstand on the northeast corner of 42nd Street and Fifth Avenue in Manhattan. Below, anewsstand on the intersection’s southwest corner in June 1973. These days, newsstands primarily function as snack stands.

NY

A10B | Thursday, October 11, 2018 * * THEWALL STREET JOURNAL.

The restaurant even has astaff of fishing guides to helpyou land the “big” one. Andwhen you do, they stand readyto pound a drum in your honor.

Mr. Collins didn’t need anyassistance. If anything, he wasready to take over for the staffand was a bit mystified as towhy we were given bits ofsalmon as our bait. It wouldwork for some of the fish inthe first-floor tank that servedas our, um, hunting ground,but not for the bulky salmonthat Mr. Collins deemed ourpreferred catch. Fish will eattheir own, but salmon justdon’t care much for salmonmeat, he explained.

But that was only a smallpart of the challenge. The largerone? The salmon were far out-numbered by the trout andbass, which also seemed to bethe more aggressive ones in the

tank. “There’s a whole bunch ofhungry fish,” said Mr. Collins ashe surveyed the scene andgrabbed the small pole pro-vided by the restaurant.

Mr. Collins quickly devel-oped his own technique to suitthe situation. There is no cast-

in that way the Zauo owner-ship says it is being respectfulof the fish, responding to thePETA argument. If anything,they make the case that such adining concept gives custom-ers a better understanding ofthe source of their food.

Mr. Collins and I tried ourtrout two ways—sashimi-styleand fried in a tempura batter.We both agreed the fish had aclean, even slightly sweet taste.“This is delicious,” he declared.

There is a catch of sorts atthis catch-your-own restau-rant, however. That is, the fisharen’t particularly cheap. Thetrout run $38, with no sidedishes. And that is among theleast expensive offerings, withother fish costing as much as$110 each. It is enough tomake you want to head to theopen water. Provided you canbait your own hook, of course.

ing allowed at Zauo, but ourpro dangled the pole as faraway as possible from the edgeof the tank: The idea being thefish wouldn’t see him and pickup on his movements. That al-lowed him to target the fewsalmon better, moving the baitup and down with the gentlestmovement of his wrist. Butfive minutes into the process,a nimble trout announced itsown plan and grabbed the bait.Game over for the pro.

When it was my turn, Mr.Collins guided me with theconfidence that we were duefor some salmon. Sure enough,another trout came from outof nowhere and put an end tothat idea.

The real end at Zauo isn’twhen you catch your fish. It iswhen the restaurant’s cookingstaff prepare it, giving you thechoice of several options. It is

Restaurant to Diners: Go FishThere’s a catch at a soon-to-open Japanese spot in Manhattan—patrons must grab a pole and cast about for their food

Fishing pro Eric Collins, left, caught his own meal at Zauo, with help from an employee. Rainbow trout sashimi is served at the restaurant.

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GREATERNEWYORKWATCH

NEWARK AIRPORT

Work Is Under WayOn New Terminal A

Newark Liberty InternationalAirport’s smallest and most anti-quated terminal is getting a ma-jor upgrade. A $2.7 billion projectat the Port Authority of NewYork and New Jersey-operatedfacility is building a new terminalto replace 45-year-old Terminal A.

Aviation and public officialsheld a groundbreaking at thesite on Wednesday.

The terminal was designed tohandle 9 million passengers ayear, but currently sees 11 million.That is about a quarter of theairport’s total yearly traffic.

Several new gates will beadded to the terminal’s threegates. Terminal A is expected tobe fully opened by the end of2022.

—Associated Press

CRIME

Ex-Researcher AvoidsPrison in Theft Case

A former prominent neurologi-cal researcher at Yale Universityin Connecticut and New York Uni-versity avoided prison for stealingresearch funds, but a judge sayshe must play piano for indigentelderly people to make amends.

The unusual sentence for Al-exander Neumeister was handedout Wednesday by U.S. DistrictJudge Analisa Torres. The Man-hattan jurist said Dr. Neumeistermust play piano for an hour atleast twice weekly at group facili-ties in the Connecticut communi-ties of Bridgeport, New Haven,Hartford and Waterbury.

In June, Dr. Neumeisterpleaded guilty to theft of gov-ernment funds. He admittedstealing $87,000 from New YorkUniversity and various grant pro-grams from 2012 to 2014.

A tearful Dr. Neumeister apol-ogized for “unbelievable short-sightedness and poor judgment,”and said his November 2017 ar-rest led him to confront his ownpsychological demons.

—Associated Press

At manyNew York Citydining anddrinking hotspots, you be-gin by asking,

“What’s the catch?” Because ifa place is this popular, you fig-ure you are surely going tohave a pay a price to enter.

But at Zauo, the highly an-ticipated restaurant that is setto open in Chelsea later thismonth, the question could beasked in the most literal sense.

This is an establishmentwhere customers go fishing fortheir supper. Zauo provides thepoles, the bait and, most impor-tant of all, the huge tanks filledwith rainbow trout, salmon,striped bass and assorted othercreatures of the sea and stream.

In other words, the “catch”is the whole point of the con-cept, which is imported fromJapan, where there are 13Zauo locations.

I got to put the concept tothe test during a Monday after-noon preview. Knowing myfishing skills are such that Itypically ask my long-sufferingwife to bait my hook wheneverwe attempt the sport, I broughtalong a true pro with me: EricCollins, who helps run CapitolFishing Tackle Company, a Mid-town Manhattan store.

Admittedly, there is some-thing tacky, if not heartless,about fishing in such a man-ner. People for the EthicalTreatment of Animals, orPETA, the animal-rights or-ganization, has voiced its op-position to Zauo, saying in aletter to the restaurant, “Ex-ploiting fish in order to lure incustomers is a cruel gimmick.”

At the very least, it is fair tosay that in the open water, a fishhas a fighting chance. At thetwo-floor Zauo, which looks likea cross between an upscale Jap-anese restaurant and an overlycutesy theme-park dining spot,it is obvious who is going to winthe man-vs.-sea beast battle.

BY CHARLES PASSY

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THEWALL STREET JOURNAL. Thursday, October 11, 2018 | A11

LIFE&ARTS

remove most bacteria, plaque and tartar.While there are plenty of chew toys that

claim to help with dental health, Dr. de Jongsays to be cautious of those that are toohard, like antlers or cow hoofs. He alsosteers patients away from the more esotericproducts on the market.

“When there are claims made of a newspray or powder that will suddenly makeyour dog’s teeth miraculously better, don’tbuy into it,” he says. He encourages dogowners to speak to their vet before puttingtheir pet on a diet created specifically tohelp promote dental health. As a rule ofthumb, he says, “dry foods are best because

the grinding action helps clean the surfaceof the teeth,” where bacteria and plaque thatcause bad breath can build up.

Dr. de Jong says that there is no panaceafor preventing a dog’s bad breath, so seeinga vet regularly is paramount. “I had a cou-ple who let their dog go for years without acleaning, and we had to put the dog undergeneral anesthesia to assess his issues,” Dr.de Jong recalls. By the end of the proce-dure, he had removed 12 teeth. “I did a fol-low-up the next week and they told me that,for the first time in years, the dog couldsleep between them and they weren’t dyingfrom his breath.”

BY HEIDI MITCHELL

THE TERM “dog breath” has long been as-sociated with a stinky odor emanating fromthe mouth—not just of canines, but humans,too. But halitosis isn’t normal for dogs. Oneexpert, John de Jong, president of the Amer-ican Veterinary Medical Association and apracticing veterinarian in Newton, Mass., ex-plains canine oral health, including why ant-lers are an enemy to man’s best friend.

After 33 years of practice, Dr. de Jong re-mains smitten with the scent of a puppy’sbreath. “It’s a sweet, delicious smell,” hesays. Once dogs are slightly older, theirmouths smell neutral, though not unpleas-ant. If a caninestarts nosingaround in garbageor animal carcasses,it might temporar-ily emit similar-smelling odors, butnot for more than afew days.

Dr. de Jong saysthat most seriousoral problems he has witnessed in canineshave been among smaller breeds. “I do notsee many German shepherds or golden re-trievers with bad dental health, but Dachs-hunds, Yorkshire terriers and other smallbreeds have far more oral disease in gen-eral,” the vet says. He attributes this in partto generations of breeding less-than-optimalgenetics, as well as a tendency by owners totreat small-breed pets with “a lot of peoplefood and soft foods that aren’t as effectiveat preventing poor dental health as dryfoods,” he says.

More often than not, a dog’s bad breathcomes from periodontal disease, tooth de-cay or a continuing lack of dental care, hesays. Plaque buildup, loose or broken teethor cavities are other causes of stinky

breath. In addition, chewing on somethingvery hard, like an antler, can cause brokenteeth or tears in the oral cavity that mightlead to a localized infection.

“Along with an offensive smell, that lacer-ation may be accompanied by bleeding fromthe mouth, signs of pain, excessive droolingor pawing at the side of the face,” Dr. deJong says. Those can be treated through acouple of visits to a veterinarian, who willdo a thorough cleaning and advise on anynecessary extractions or medications.

An infection in the oral cavity can lead tosecondary problems, says Dr. de Jong. “Ifbacteria get under the gums and into thebloodstream, they can impact different or-gans that can cause conditions like bacterial

endocarditis, kidneydisease, gastrointesti-nal disease, diabetes,a lot of things,” hesays. If your dog’sbreath is unbearablefor more than a fewdays, “make an ap-pointment with yourvet,” he adds.

A dog should get afull physical, including a thorough dentalcleaning, if it is often stricken with a smellymouth, at least once a year. Pay attention towhat your dog’s breath smells like after aveterinary cleaning to find a good baselinefor how it should always smell.

If your dog has a clean bill of health,maintain oral cleanliness through regularbrushing, Dr. de Jong says. He advises dogowners to use a human toothbrush, but dog-specific toothpastes flavored with poultry orother treats that dogs like. “Give them thetoothpaste first as a treat—that way, whenyou put it on the toothbrush, they enjoy it,”says Dr. de Jong. He also recommends usinga rubber finger brush to get all the way tothe back teeth. Two minutes of brushing ev-ery other day may be sufficient, he says, to

One vet advises dog owners tobrush their dog’s teeth with ahuman toothbrush and specialpoultry-flavored toothpaste.

clients to identify road warriors,evaluate their value to the com-pany and rearrange travel policy tomake their travel easier.

Among the recent actions Topazhas seen: companies looseningminimum-savings requirements. In-stead of insisting on booking aflight that might be $5 cheapereven though it’s terrible, some cli-ents have given employee as muchas $600 in leeway so they can bookpremium-economy options.

“They’re proactively looking atwhether they can increase satis-faction for these employees, al-lowing them to do their jobs bet-ter and easier,” says Topazchairman Bradley Seitz.

He says one big company To-paz audits decided to waive air-line contract restrictions for roadwarriors who live in hub cities ofother airlines. That way they canget nonstop flights instead of al-ways making a connection. A se-nior sales executive living in Dal-las had to fly United. Now thecompany lets him take Americannonstops, even if he spends moreon tickets.

The strong economy has helpedcompanies loosen their pursestrings. That trend could quicklyreverse if the economy slows. ButEgencia says more of its clients

have recently begun making busi-ness class more available to em-ployees. Some have tailored thatperk to employees who travelmore than 10 times a year on longflights, says Virginie Pouget,Egencia’s head of global consult-ing.

The toll travel takes on em-ployees can be significant. In a

study of 742 frequent travelers tobe released on Thursday, 25% ofthe road warriors, who’d spent atleast 35 nights away from homein the past 12 months, said theyare significantly or extremely af-fected by jet lag. Almost half inthe study said they hoped totravel less in the next two years.

The survey found road warriorsride in coach 80% of the time.

Many may have top-tier airlinestatus. But they no longer getmany free upgrades because air-lines are selling more first-class

seats and industry consolidationhas swelled the ranks of elitetiers and left upgrades for onlythe tip of the top.

The two most important reme-dies to reduce friction, accordingto road warriors: booking busi-ness class on flights of at leastsix hours, and reducing personaltime spent on company travel.

“That wears on them,” saysScott Gillespie, head of analyticsat ARC. “Sleep is a really impor-tant issue for these people.”

A few companies, includingpharmaceutical giant AstraZeneca,have tried to address that byscheduling meetings involvingtraveling employees in the after-noon, Mr. Gillespie says. Instead offlying in the night before, a trav-eler might be able to catch a flightin the normal workday morning.

TripActions, a Palo Alto, Calif.,corporate travel managementcompany, claims 1,000 customers,mostly medium-size and smallercompanies, including Dropbox,Lyft, SurveyMonkey and a chainof chicken restaurants.

The booking service specializesin customizing corporate travelpolicies for different employeeswithin a company.

The company gets to dictatethe policy, but TripActions uses

machine learning to identifyfrequent travelers and their indi-vidual preferences for certainflights, specific airlines, typesand price of hotels.

“If you fly once a month,you’re flying coach. If you fly ev-ery week, you should be in busi-ness class,” says Ariel Cohen, Tri-pActions CEO and co-founder.

Box, a data-management com-pany based in Redwood City, Ca-lif., abandoned a traditionaltravel-management company andswitched to TripActions in part toreduce friction when storms orairline cancellations leave em-ployees stranded and angry.

Instead of a call center where atraveler may be stuck on holdtrying to reach a travel agent,TripActions has a chat functionbuilt into its app that allows in-stant texting with an agent to getfaster rebooking.

THE MIDDLE SEAT | By Scott McCartney

Your Case for Business Class atWorkCorporate travel departments are getting less stingy with travel perks for employees who travel constantly—at least for now

Imagine a corporate policywhere the C-suite executivewho flies only a couple oftimes a year rides in coachand the sales and engineering

road warriors get the first-classand business-class tickets.

Some companies are start-ing to make changes in thatdirection to reduce what’sknown as traveler friction—the burnout that saps produc-tivity and leads to low moraleand job turnover.

This is an old point of ten-sion in corporate travel depart-ments. But it’s gotten worse as air-lines have made coach morebruising and frequent travelershave been asked to do more andmore at the expense of sleep, homelife and job satisfaction. It’s be-come a hot topic in the corporatetravel world because companiesnow have the technology and themoney to fix this problem.

“Many companies are experi-menting,” says Rob Greyber, presi-dent of Egencia, Expedia’s corpo-rate travel unit.

In the long run, for many indus-tries where talented labor is in highdemand, easing travel friction cansave money. Losing employees andrecruiting and training replace-ments can be far more expensive.

And company travel policieshave become a competitive benefitfor workers. Prospective hires of-ten now want to see travel plansalong with compensation, healthand retirement benefits.

Corporate travel policies histori-cally have given the best perks tothe highest earners. Those withhigher rank get the private jets,first or business class, car serviceand premium hotels. The rest ofthe workforce often faces rigidrules: Fly coach only on the one ortwo airlines designated by com-pany contracts, even if that meansnasty connections. Stay only in ho-tels below a certain price. Fly busi-ness class only if the flight is eighthours or longer.

Now travel booking services likeTripActions and Egencia can tailora company’s travel policy with dif-ferent rules for different employ-ees. In the past, such segmentationwas considered a bureaucratic has-sle for travel departments. Theytypically wanted everyone bookingwith the same system under thesame rules.

Topaz International, a firm thataudits airfare spending for compa-nies, has launched a program for

TOMASZWALE

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n Allowing business-class seat-ing on flights over six hours: 31%

n Using less personal time forbusiness trips: 30%

n Higher-quality or moreconvenient hotels: 26%

n Getting or keeping premiumeconomy seating on flights under6 hours: 25%

n Help getting more exerciseand/or healthier meals whiletraveling: 25%

n Help getting better sleepbefore and during trips: 24%

n Getting more nonmonetaryappreciation from a manager fortravel: 21%

n Help generating more positiveattitudes and emotions whiletraveling: 18%

Source: Survey of 742 U.S. based road warriorsconducted May 2018, designed by tClara andadministered by MMGY Global. Sponsored byAirlines Reporting Corp., Delta Air Lines, Flight-Global and tClara.

What RoadWarriorsWant

Frequent business travelers wereasked which two factors wouldmost encourage them to staylonger with their current employer.The most popular choices:

Keeping frequenttravelers happy can beless expensive thanreplacing them.

A12 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

IN THE NEW MOVIE “First Man,”Janet Armstrong, played by ClaireFoy, approaches her husband Neil,who has just returned to Earth fromhis historic spaceflight to the moon.

They watch each other througha window, and no words are spo-ken. None are needed.

Delivering eloquent silence hasbecome something of a specialtyfor Ms. Foy, who put that qualityto formidable use as Queen Eliza-beth II in the Netflix series “TheCrown.” The performance not onlywon her this year’s Emmy for bestactress in a drama series, it caughtthe eye of directors who wantedher to be that still center of theaction on their screens, too.

Damien Chazelle chose her toplay Ms. Armstrong in “FirstMan,” which opens Friday withRyan Gosling as Mr. Armstrong.Mr. Chazelle said he was skepticalthat any British actress could playthe quintessentially American partof an astronaut’s Midwestern wifein the 1960s, but after seeing Ms.Foy’s audition, he couldn’t imagineanyone else in the role.

“She’s got this incredibly ex-pressive face. She’s got these eyesthat just record every flutter ofemotion,” said Mr. Chazelle, whowon an Oscar for directing with“La La Land.” “It’s like watching agreat musician. She’s able to dothese explosive scenes and to veryquickly dial it back in.”

Next month, Ms. Foy appears asthe action hero Lisbeth Salander in“The Girl in the Spider’s Web,”

BY ELLEN GAMERMAN

UP NEXT

ALEC BALDWIN HAS SOMEQUESTIONS

NORA EPHRON once wrotethat there were times, wheninterviewing people, whenshe wanted to say: “Me! Me!Me! Enough about you. Whatabout me?”

For Alec Baldwin, it’s moreor less the inverse. In 2011,he started a podcast withWNYC, “Here’s the Thing,” sohe could interview people theway he wanted to be inter-viewed—“where they feelcomfortable and there’s no

judgment,” he says.“And eventually,” he adds,

“when you don’t appear to bemanipulating them and try-ing to take something fromthem, they give it to you any-way. If you don’t pressurethem, they’re much morecomfortable and amenable.”

Now ABC is mining thatformat for television. On“The Alec Baldwin Show,”starting Sunday, Mr. Baldwinwill be in conversation withboldface names like RobertDe Niro, Kim KardashianWest, Chris Christie and the

Who’s Roger Daltrey.Rob Mills, the network’s

senior vice president for al-ternate series, specials andlate night, likens the new se-ries to ABC hits like “DancingWith the Stars” or even theBBC’s “The Great BritishBake Off”: easy-to-watch TVwith a “deceptively simplepremise.”

“Whether it’s things like‘Shark Tank’ or Alec’s showor ‘Dancing With the Stars’and ‘American Idol’ and ‘TheBachelor,’” he says, “they’reall kind of, sort of, one-line

premises that actually rundeeper than what you’re see-ing in the promo.”

Mr. Baldwin won an Emmylast year for his PresidentTrump cameos on “SaturdayNight Live,” and he isn’t op-posed to political debate onhis show. “With people that Idon’t have any agreementwith politically, it dependson: Can we have a good con-versation?” he says.

“The Alec Baldwin Show”airs Sunday, 10 p.m. ET, onABC.

BY CHRIS KORNELIS

LIFE & ARTS

FILM

Claire Foy’sMomentThe actress known for delivering eloquent silence in ‘The Crown’ stars in ‘First Man’ and ‘The Girl in the Spider’sWeb’ this fall

based on a novel in the series thatbegan with Stieg Larsson’s “TheGirl With the Dragon Tattoo.” Com-pared with previous “Dragon Tat-too” movies, the character of Lis-beth is even more prominent thistime, said director Fede Alvarez.

He needed an actress who couldcarry the movie with a subtle per-formance, not a showy one. “Youreally need someone who can bewhat only the best actress can be,which is without too much styleand without too much action, theycan emote a lot,” he said.

People contain themselves inreal life, Ms. Foy said, so that’show she plays them.

“As soon as someone makes meangry, I’m not like, ‘I’M ANGRY,’ ”Ms. Foy said, raising her voiceand feigning a furious look. “A lotof people learn that at some pointin their life, your emotions are tobe controlled.”

But the 34-year-old native ofnorthern England, who has a 3-year-old daughter and earlier thisyear announced her separationfrom her husband, actor StephenCampbell Moore, sees problemswith keeping calm and carryingon, her coping method in the past.

“There’s a lot that I can shoul-der, really, but I am very aware ofjust perpetually doing that,” saidMs. Foy.

Screenwriter Josh Singer builtthe “First Man” script around thedeath of the Armstrongs’ 2-year-old daughter Karen. Yet Mr. Arm-strong, who died in 2012, re-mained the quiet, composedcharacter he had always been.

“For us it was very much like,

how do we get at what’s going onbeneath the surface?” said Mr.Singer. “The answer, over and overagain, was Janet.”

Ms. Armstrong died of lung can-cer in June. Ms. Foy, who neverspoke with her, had hoped theywould meet. “I was very shaken byit,” she said.

One of the two Armstrong sons,Mark, calls Ms. Foy’s performance“better than any eulogy I couldever write.”

The actress has said she has anunremarkable face that has allowedher to live in London mostly unno-ticed. As a teenager, she underwentsurgery for a benign orbital tumorin one eye, requiring her to wear apatch—something she credits withjolting her out of what could’vebeen a vain young adulthood.

“I’m incredibly grateful, weirdly,that it happened to me at thatpoint,” she said. “Like all teenag-ers, I was massively self-conscious,and it taught me the importance ofliving and not taking things forgranted and, ultimately, it doesn’tmatter what you look like.”

After studying at the OxfordSchool of Drama, she workedsteadily, landing the role of AnneBoleyn in the 2015 BBC miniseries“Wolf Hall.” She was five monthspregnant when she auditioned for“The Crown” and to her surprisegot the role.

She won’t appear in the seasonsof “The Crown” now being filmed.Olivia Colman (who plays anotherqueen in the new movie “The Fa-vourite”) steps into the role of theQueen in the 1960s and 1970s.

After a producer of “TheCrown” revealed earlier this yearthat Ms. Foy was paid less thanco-star Matt Smith, who playedPrince Philip, the actress foundherself in a corner.

“I was deeply shocked andpretty upset about it,” she said.“There was a level of embarrass-ment and there were also a lot ofquestions about, ‘Am I just upsetabout this because people are dis-cussing my net worth, which I hateand makes me feel deeply uncom-fortable, or am I deeply upset bythis because I’m not equal tosomebody that’s my dear friend?’And I was like, ‘I don’t know.’”

Her new celebrity, Ms. Foy said,means reckoning with such mo-ments. “If life throws these thingsat you and people are looking atyou, then you’ve got to genuinelythink about where you stand andhow you feel.”

Netflix and a spokeswoman forMs. Foy declined to comment. Arepresentative for the show’s Brit-ish production company didn’t re-spond to requests for comment.

The actress adopts a Swedishaccent for Lisbeth Salander, with“The Girl in the Spider’s Web”marking her first major actionrole. She didn’t want to take onthe part after admiring the perfor-mances of the previous Lisbeths,Rooney Mara and Noomi Rapace.

Then Ms. Foy spoke with Mr. Al-varez and learned how eager theyboth were to approach the charac-ter from a psychological, not justan action, point of view.

“Oh dear,” she recalled thinking,“I’m going to have to do it.”

HEIDIGUTM

AN/A

BC

The actor Robert De Niro will be one of the first guests on ABC’s ‘The Alec Baldwin Show,’ which starts on Sunday.

Claire Foy in, from above left, 2011’s ‘Season of the Witch’; ‘The Girl in the Spider’s Web,’ opening in November; and Netflix’s ‘The Crown.’ She plays Janet Armstrong, below, in ‘First Man.’

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THEWALL STREET JOURNAL. Thursday, October 11, 2018 | A13

executive director, Faye Jensen.Matters once left unmentioned

now come to the fore. On the firstfloor, for example, an excised rect-angle of stucco exposes an array ofbricks bearing marks of humanhands. The building’s 947,000bricks were probably made on aplantation owned by the building’scontractor, whose 147 slaves in-cluded skilled bricklayers.

Introductory panels also intro-duce us to the eloquence of the so-ciety’s first president, James LouisPetigru (1789-1863): “Time, the de-stroyer of the works of men, givesthem History in return for what ittakes away.” Later we return to Pe-tigru, who served as the state’s at-torney general and in its House ofRepresentatives. An ardent Union-

Despite a city crowded with me-morials and exhibitions—and downthe street from the impressive Gib-bes Museum of Art, where localhistory and art history inter-twine—this is still a welcome sur-vey. But how could it have no ac-count of the Jim Crow era? Thisabsence is, strangely, a sign of acontinued presence.

Such tensions, reflectedobliquely inside the museum, ap-pear more explicitly just outside.In the adjacent WashingtonSquare is a 1904 monument toConfederate Gen. Pierre Beaure-gard, beneath which someone hasleft flowers. At the park’s centeris an 1891 reduced reproductionof the Washington Monument in-scribed with the names of battlesfought during the “War Betweenthe States.” And a 1901 park mon-ument, to Henry Timrod(1829-1867)—Charlestonian au-thor of poetic paeans to the Con-federacy—pays tribute to thewar’s dead: “Sleep martyrs, of afallen cause.”

—Mr. Rothstein is the Journal’sCritic at Large.

LIFE & ARTS

white elite woulddress in antebel-lum outfits andperform spiritu-als, unaware ofjarring ironies.

Other artifactsand images arefound through-out, on touch

screens and in vitrines: a powderhorn used by Francis Marion(1732-1795)—the “Swamp Fox” ofthe Revolutionary War; an 1860broadside selling 27 slaves “accus-tomed to the culture of rice, cot-ton and provisions” at Ryan’sMart nearby, now the location ofthe Old Slave Mart Museum; a 6-by-8-foot secession banner underwhich South Carolina’s declarationwas made. There are accounts ofwar, Reconstruction, and an earth-quake in 1886 after which 40,000people lived in tents. We glimpsethe 1920s-30s Charleston Renais-sance in which art celebrated thecity’s beauty and its past. The ex-hibition ends by honoring thestate’s preservation and conserva-tion movements.

ist, after secession he predictedchaos, saying that South Carolinawas “too small for a republic andtoo large for an insane asylum.”Such sentiments didn’t affect hisclose friendship with a federaljudge, Andrew Gordon Magrath(1813-1893), who tore off his robesin disgust after Lincoln’s electionand then served as Confederategovernor. We see a gold snuff boxMagrath gave Petigru.

Tensions and peculiarities likethis are latent throughout the exhi-bition. A film about early 20th-century Charleston culture, for ex-ample, shows the Society for thePreservation of Spirituals in con-cert. Founded in 1922, its purposewas to preserve songs of the plan-tations. Members of the city’s

EXHIBITION REVIEW

AHistorical SocietyGrapplesWith the PastAt the newmuseum of the South Carolina Historical Society, matters onceleft unmentioned now come to the fore, while other episodes remain missing

Charleston, S.C.UP NORTH, political correctnessoften shapes historical exhibitions,sometimes revealing once-over-looked contours of the landscape,sometimes obscuring them in tan-gled thickets. But history growsdifferently here in Charleston,where at times and to a fault yousee hints of Southern nostalgia,decorous allusions to the LostCause, a recalcitrance—that hasonly begun to lift in recent de-cades—to fully acknowledge slav-ery’s central importance to thiscity’s culture and history.

At the Confederate Museum, forexample, Charleston’s UnitedDaughters of the Confederacy dis-play artifacts as almost magic rel-ics: a lock of Robert E. Lee’s hair,another from Jefferson Davis,swatches of Confederate flags rentby bullets, a scrap of cedar gath-ered at Appomattox. And the CivilWar—which in the North is pre-sumed to have made possible a ful-fillment of the Americanidea— is here associatedwith catastrophe andloss. The estimableCharleston Museum isabout to unveil a newsection about the warwith a more dispassion-ate perspective, butthere is no doubt abouthow radically the wartore apart the antebel-lum world. The after-shocks continue todaywith the toppling ofConfederate monuments,debates about the Con-federate flag, andan official “apol-ogy” by the city ofCharleston in Junefor its role in theslave trade. In2020, the Interna-tional AfricanAmerican Museumis expected toopen here, nearthe harbor whereat least 40% ofAmerican slavesentered the U.S.

So it is of somenote that theSouth CarolinaHistorical Society,the state’s oldestand largest privaterepository for his-torical artifacts,opened a new museum in its head-quarters last month after a $6.8million restoration. Its 1826 “Fire-proof Building” was designed andbuilt by Robert Mills, the designerof the Washington Monument. Therenovation by the architect GlennKeyes preserved small vaulted gal-leries on the second floor in whicha modest 3,000 square feet havebeen used to chronologically re-count the state’s history, drawingartifacts from the society’s 10,000maps and plats, 30,000 photo-graphs and images, along withthousands of books, documentsand artworks. HealyKohler Designcreated the main exhibits. CortinaProductions developed interactivemultimedia displays, and the proj-ect was overseen by the society’s

BY EDWARD ROTHSTEIN

The ‘Fireproof Building’that houses the newmuseum, left; powder horn(c. 1770) belonging toFrancis Marion, a SouthCarolina hero of theRevolutionary War, aboveleft; photo from the 1886earthquake, above

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Washington Square with the South Carolina Historical Society on the left in the background (top) and inside the building (above right); a Bible (c. 1658) thatbelonged to the Rev. Archibald Stobo, a Scottish Presbyterian minister who arrived in Charleston in 1700 (above left)

A14 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

SPORTS

WeatherShown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.

City Hi Lo W Hi Lo W City Hi Lo W Hi Lo WToday Tomorrow Today Tomorrow

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Anchorage 54 44 pc 51 41 rAtlanta 79 51 r 75 54 sAustin 78 60 s 83 64 sBaltimore 79 55 r 64 46 sBoise 58 36 s 62 37 sBoston 72 61 r 65 45 pcBurlington 71 51 r 55 40 cCharlotte 78 53 r 75 52 sChicago 50 34 s 48 32 pcCleveland 66 46 r 54 42 pcDallas 71 57 s 72 60 pcDenver 47 31 r 59 34 cDetroit 58 39 pc 53 37 pcHonolulu 84 72 pc 84 72 shHouston 82 60 s 81 66 sIndianapolis 56 37 s 54 36 pcKansas City 53 36 s 46 34 rLas Vegas 77 64 pc 80 64 sLittle Rock 69 46 s 64 50 pcLos Angeles 72 59 pc 81 62 pcMiami 90 78 t 89 77 tMilwaukee 49 34 pc 47 32 pcMinneapolis 41 28 c 44 34 pcNashville 69 43 s 65 45 sNew Orleans 83 61 s 80 65 sNew York City 76 61 r 62 49 pcOklahoma City 61 48 s 67 42 sh

Omaha 48 36 s 46 35 rOrlando 90 71 t 89 65 sPhiladelphia 79 57 r 64 47 pcPhoenix 82 66 pc 80 65 shPittsburgh 71 43 r 52 39 cPortland, Maine 59 54 r 62 39 pcPortland, Ore. 70 44 s 70 46 sSacramento 79 48 s 84 50 sSt. Louis 59 40 s 50 37 rSalt Lake City 55 36 r 58 37 sSan Francisco 68 52 s 74 56 sSanta Fe 65 41 s 66 40 cSeattle 63 46 pc 63 48 sSioux Falls 42 27 c 47 33 pcWash., D.C. 79 57 r 66 49 s

Amsterdam 72 57 pc 70 59 pcAthens 74 62 pc 71 62 tBaghdad 100 75 pc 99 74 pcBangkok 91 76 c 92 78 cBeijing 65 38 s 68 40 pcBerlin 73 52 s 73 53 pcBrussels 74 57 pc 73 60 pcBuenos Aires 61 51 c 63 47 cDubai 102 81 s 101 80 sDublin 60 51 r 62 52 rEdinburgh 65 47 r 62 49 r

Frankfurt 72 52 pc 74 52 pcGeneva 70 51 pc 72 51 pcHavana 87 72 pc 87 71 pcHong Kong 84 73 sh 84 75 pcIstanbul 69 61 sh 70 62 shJakarta 93 77 t 93 77 cJerusalem 74 59 pc 72 58 sJohannesburg 86 61 s 86 57 pcLondon 70 55 r 68 61 pcMadrid 71 53 t 73 53 pcManila 90 79 t 90 77 pcMelbourne 68 46 s 72 50 sMexico City 72 58 t 73 58 tMilan 66 56 r 74 55 pcMoscow 53 36 s 57 41 sMumbai 94 77 pc 96 79 sParis 78 56 t 76 59 pcRio de Janeiro 81 74 r 83 76 pcRiyadh 100 72 s 97 72 sRome 74 62 c 76 60 pcSan Juan 87 77 sh 87 77 shSeoul 59 43 pc 62 45 sShanghai 71 56 s 71 59 pcSingapore 87 75 t 85 78 tSydney 62 59 sh 64 59 cTaipei City 74 70 r 75 71 rTokyo 78 65 c 70 58 cToronto 69 42 c 51 39 cVancouver 57 45 pc 58 43 sWarsaw 68 47 s 70 45 sZurich 69 49 pc 73 48 pc

Today Tomorrow

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s...sunny; pc... partly cloudy; c...cloudy; sh...showers;t...t’storms; r...rain; sf...snow flurries; sn...snow; i...ice

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14 15 16

17 18 19

20 21 22

23 24 25

26 27 28 29

30 31 32 33 34

35 36 37

38 39 40 41 42

43 44 45

46 47 48

49 50 51 52

53 54 55 56 57 58

59 60 61

62 63 64

Across1 Flax feature

5 Microscopelens

10 Exchange

14 Most of its981-mile courseforms stateborders

15 “Knowledge isthe food of thesoul” speaker

16 You, before youwere born

17 Owl’s hoot,perhaps

18 Flying Pan

19 Bring in

20 Isaac’s match invirtuosity?

Previous Puzzle’s Solution

23 They may takebows

25 Bare

26 Reinforcedshipping box?

30 Enter the draft,say

31 Kathryn of“Oz”

32 Office pool pick

35 Anaphylaxistreatment, forshort

36 Decoration on amilitary uniformsleeve

37 Bar brew

38 Cubby holes?

40 Cut

41 Around

43 Swiss state withlots of landfills?

46 God of theafterlife

48 Birthplace ofraisin bran andthe Reubensandwich

49 Ocean organismswho protect theirturf?

53 Olympic glider

54 “Immature poetsimitate; maturepoets steal”writer

55 Intellectualunderstanding

59 Friedman’s field:Abbr.

60 Cologne nicety

61 Maltese money

62 Nick’s cousin

63 React to theBeatles, perhaps

64 Enjoy London,say

Down1 Greet thevisitors

2 Unit symbolizedby an omega

3 Rough position

4 Want dearly

5 Stand up to

6 Made one’s case

7 “Toodles!”

8 Followers’suffixes

9 At bay

10 Crock’s kin

11 Incredulous cry

12 Houston hockeysquad thatbecame the IowaWild in 2013

13 Tubular fare

21 Other, inAndalusia

22 Tel. no. addition

23 Search with thehands

24 Affecting

26 Ready fordecanting

27 Kishke casing

28 Bond player

29 Grab ___ (eat)

33 Major metalmaker

34 Close-fisted

36 Olympic gliders

39 Portraitist ofTeddy Rooseveltand WoodrowWilson

41 Hunting garb, forshort

42 Risky way to act

44 Pants problem

45 “The Third Man”star

46 Looked like alecher

47 Zest provider

50 “There oughtabe ___!”

51 Baja boy

52 Signing simian

56 Wish undone

57 Suggestionfrom a CPA

58 1-Across, e.g.

s

Solve this puzzle online and discuss it atWSJ.com/Puzzles.

B A G P E P S T P A I ND O U R D A L E E L I D EI N G A F R U I T S A L A DS M U S H C O Z I L YC O R P O R A T E L A D D E RS T Y T I N I O W A

L O G A N H E R D E DR O M A N G L A D I A T O R SS H A P E S P U T T YV O L E M C S A G TP H I L A D E L P H I A Z O O

P R I C E S T R A W LL A D I E S R O O M A L E EA R E N A U N U M B E S TD R E S S S E T S S A T

PUTTINGONWEIGHT | By Lewis Porter

Teams are embracing the futureIn recent years, even as NFL teamsembraced passing the ball more,one thing never changed: They stillran the ball more than they threw iton first down.

This season, teams are passing theball 51.7% of the time on first downin 2018. That makes this year thefirst since 1991 with predominantlypass plays on first down, accordingto Stats LLC. (Stats doesn’t havefirst-down data going back further,but considering that throwing theball has only become more popularover time, this is very likely truesince the advent of the forward pass.)

Brees’s record-breaking throw issimply an example of somethingthat has always been true: Throw-ing the ball on first down exploitsan inefficiency. For decades, teamshave averaged more passing yardson first down than any other down.Teams this year are averaging 7.5yards per pass on first and 6.8yards per pass on second, third andfourth downs.

This isn’t the only way teams arewaking up to adopt modern logic.They’re also going for 2-point con-versions more often—on 11.3% oftouchdowns versus 7% a year ago.It’s a strategy shift that quants haveencouraged for years.

Teams are 27-for-48 on 2-point

option. This season, teams like theChiefs, who are second in the NFLin scoring with quarterback PatrickMahomes, have more heavily incor-porated spread concepts into theiroffenses—and it’s working.

“They’re putting these quarter-backs who played in spread offensesin systems they feel comfortable withand have been running their wholelife,” said Texas Tech coach KliffKingsbury, Mahomes’s college coach.

A golden age of quarterbacksThe start to this season has brokennearly every passing record. Thefirst five weeks have set new highsfor passer rating, touchdownpasses, completion percentage andpassing yards.

The league-wide success standsin deep contrast to a year ago,when the league was riddled withan alarming number of quarterbackproblems. Some stars went downwith injury: Aaron Rodgers, CarsonWentz and Deshaun Watson, wereamong the notable ones. AndrewLuck missed the entire year.

Other teams simply lacked prom-ising options. The Browns playedthree quarterbacks who threwnearly twice as many interceptionsas touchdowns while they went0-16. The Jets started journeymanJosh McCown—who also went

FOOTBALL

The NFL’s Scoring ExplosionAs rule changes increasingly favor the offense, the start to the 2018 season has been record setting

DREW BREES MADE HISTORY onMonday night with a 62-yard touch-down pass that gave the New Or-leans Saints quarterback the NFLrecord for most career passingyards. The same play also helps ex-plain another groundbreaking trendin the league this year: a huge in-crease in scoring.

Brees’s record-setting comple-tion to Tre’Quan Smith came onfirst down. That’s notable because,for the first time this year, NFLteams are passing the ball on firstdown more than they are runningit. And that—along with some of-fense-friendly rule changes, otherstrategic evolutions and a newcrop of quality quarterbacks—ishelping NFL teams pile up pointsat a record rate.

Teams are averaging 24 points pergame. That’s not just an all-timehigh. It’s an increase of 2.3 points, or10.6%, over a year ago. It’s also anabrupt reversal from a dismal offen-sive season in 2017, when scoring fellby a full point, its biggest drop inmore than two decades.

What changed? Here’s a break-down of the key factors that haveproduced a scoring bonanza likenever before:

BY ANDREW BEATON

down with injury. There was eventhe time the Bills benched theirstarter, Tyrod Taylor, for NathanPeterman, who managed to throwfive interceptions in one half.

This year, there has been onlyone devastating quarterback injury:San Francisco’s Jimmy Garoppolo.And, across the league, that hasbeen overshadowed by the emer-gence of tantalizing options.

Baker Mayfield, the No. 1 overallpick in the draft, has led Clevelandto wins in two of its last threegames. The three other quarterbackstaken in the top 10—the Jets’ SamDarnold, the Bills’ Josh Allen and theCardinals’ Josh Rosen—also startedlast week and won their games, too.

While those players give teamshope for the future, others haveemerged as bona fide stars in thepresent. Mahomes, who spent mostof his rookie season in 2017 on thebench, leads the league in touch-down passes. The Rams’ Jared Goffhas built on a successful 2017 andhas the most passing yards.

At the same time, the veteranswho have ruled the league for solong—Rodgers, Brees and TomBrady—give the league unusualdepth at the game’s most importantposition.

“You’ve got this merger of great-ness and up-and-coming super-stars,” said Troy Vincent, the NFL’sexecutive vice president of footballoperations.

Rule changes help the offenseIt has also helped that the rulebookis more favorable than ever to of-fenses. Specifically, officiating in2018 helps teams pass the ball.

There were two rule changes thisoff-season. In one overhaul, the NFLclarified the much-maligned catchrule after years of players and fansalike growing frustrated over an ab-struse definition that left manyplays that appeared to be catchesruled as an incompletions.

In the other change, the NFL im-plemented a new safety rule to penal-ize players from using their helmetsas a weapon. While this theoreticallyapplies to players on both offenseand defense, it was a major headachein the preseason when it was con-stantly whistled against defensiveplayers during tackles.

Meanwhile, a new emphasis be-fore the season on roughing thepasser has resulted in some head-scratching penalties as defensiveplayers come to grips with what itmeans to tackle a quarterback with-out putting all of their body weighton him. This has been a force fromthe season’s first week, whenBrowns defensive lineman MylesGarrett was flagged when he hitSteelers quarterback Ben Roethlis-berger, extending a drive that re-sulted in a Pittsburgh touchdown ina game that ended in a tie.

All of this adds up to somethingclear: Offensive players, and in par-ticular quarterbacks, are receivingmore protection from officials thanever. And it’s another reason whyscoreboards are lighting up acrossthe league.

New Orleans Saints quarterbackDrew Brees became the NFL’s all-time leading passer on Monday night.

CHUCKCO

OK/R

EUTE

RS

conversions this year—a higherthan 50% conversion rate, whichmeans they’re getting more ex-pected points out of going for twothan taking the high likelihood ofone point.

Embracing modern logic alsocomes down to Xs and Os. Teamslike last year’s Super Bowl cham-pion Philadelphia Eagles openly es-poused successful concepts fromthe college game, like the run-pass

Source: Pro-Football-Reference

*as of Oct. 10

League-wide scoring is an all-time highwith teams averaging 2.3 more pointsper game than last season.

On the Rise

25 points

0

5

10

15

20

20001990 2010

2018*24.0

THEWALL STREET JOURNAL. Thursday, October 11, 2018 | A15

OPINION

Watch Your Kids, Not Your Phone

O n a sparkling, 70-degreewinter day in Arizona,my 2-year-old son and I

raced around the park. Heloves to run and for me tochase. Another toddler boyjoined in, and off we went,easily running a half-milefrom where we started. I keptlooking forward at my son andback at the little one followingus. His mother was nowherein sight. I felt responsible forthis child I’d never seen.

We returned to the sandboxarea, and I yelled out, “Whoselittle guy is this?” His motherlooked up from her cellphoneand said: “Mine. Why?”

“He was running off withus to the other side of thepark.”

She looked surprised andstarted to scold him: “You haveto stay in this area and notleave.” She then returned tostaring at her phone. Whatevershe was reading was morecompelling than her son.

I told the story to a neigh-bor, and she recounted a timeshe watched in horror amother who was too busy onher cellphone to notice hertoddler’s hand getting stuck inan elevator door.

Everywhere I turn thesedays, people are paying atten-

tion to their phones instead oftheir kids. Recently my sonand I were playing basketballat our local community center.We were there for almost twohours running and throwing aball around. A woman ap-proached me and said: “Youare a good mother.” I askedwhy. “I’ve been watching youplay with your son while I’vebeen working out, and you arereally paying attention to him.The days are long, but theyears fly by quickly.”

Everyone wants attention.Kids especially need it. Puttingmy phone away is a win-win.I’m more aware of my sur-roundings, and every day myson shows me new aspects ofhimself—stringing togethersentences with new words,helping trees when their

branches have fallen off (his so-lution is to tape them back on).These precious moments arefleeting and easy to miss.

Like most people, I’m ad-dicted to my phone, but I domy best to stay focused onwhat really matters. Thosemoments I waste mindlesslyscrolling through social-mediafeeds and emails can never begotten back.

Maybe it is time we all gotoff our damn cellphones andfocused on our children.They’re worth our attention.They don’t wait to grow up,and if you miss these mo-ments, they’re gone forever.

Ms. Siegel is a freelance re-porter who covers interna-tional affairs, business andtravel.

By Masada Siegel

They’ll never grow upagain, so don’t letyourself be distracted.

M any Republicans cele-brated Justice BrettKavanaugh’s swearing-

in Monday as the end of a bit-ter confirmation battle. Butthe game isn’t over. GOP candi-dates’ success in the midtermelections may depend on thenarrative that emerges fromthe Kavanaugh showdown.

Consider two recent sur-veys released before the Sen-ate voted Saturday to confirmJustice Kavanaugh. After theriveting Judiciary Committeehearing on Sept. 27, an NPR/PBS NewsHour/Marist pollasked: “If there is still a doubtabout whether the charges aretrue, do you think Brett Ka-vanaugh should be con-firmed?” Respondents said noby 52% to 40%.

A Harvard-Harris poll re-leased Oct. 1 asked: “If the FBIreview of these allegationsfinds no corroboration of theaccusation of sexual assault,should Brett Kavanaugh be con-firmed?” Sixty percent said yesand 40% no, with 86% of Re-publicans, 58% of independentsand even 40% of Democratssupporting confirmation.

The 20-point swing be-tween these two survey ques-tions shows public opinion ismalleable. One-fifth of Ameri-cans are up in the air. Wherethey land Election Day coulddepend on whether they feeldoubts remain about the Ka-vanaugh allegations or areconvinced there’s no corrobo-ration for them.

Next Month the People Vote on KavanaughThat’s why Democrats are

attacking the Federal Bureauof Investigation’s report as “acomplete coverup” (Sen. JeffMerkley), “not a search for thetruth” (Sen. Kamala Harris)and “a whitewash” (Sen. Rich-ard Blumenthal). Expect this tocontinue.

Still, Republican candidatescan win the argument. Thisconfirmation was ugly, raw, di-visive and hurtful for America.Sen. Dianne Feinstein is respon-sible for the mess. By holdingMs. Ford’s letter for six weeksrather than immediately turn-ing it over to the FBI to investi-gate privately, the senator de-stroyed Ms. Ford’s anonymity,damaged Judge Kavanaugh’sreputation, and created a na-tional circus. Democrats delib-erately blew up the process totry to stop a conservative fromjoining the court.

Second, the FBI’s back-ground check—the seventh ofJustice Kavanaugh’s career—was legitimate and thorough.Agents interviewed the threepeople Ms. Ford said werepresent at the high-schoolparty where she purportedlywas assaulted, along with twoother friends of Mr. Kavanaughat the time who might have

knowledge of the incident. Itcould not find corroborationfor Ms. Ford’s accusation. Italso interviewed two Yaleclassmates Deborah Ramirezalleged were eyewitnesses tolewd conduct by Mr. Ka-vanaugh. It again found nocorroboration.

Democrats say the FBIshould have interviewed Ms.Ford and Judge Kavanaugh, butboth had already testified forhours under oath before theSenate Judiciary Committee.Ms. Ford said at the time shehad nothing to add to her testi-mony. Lawyers for both Ms.Ford and Ms. Ramirez—backedby Senate Democrats—also de-manded the FBI interviewscores of other individuals. Butthis was transparently a delay-ing tactic: No one on their listscould possibly corroborate anyof the claims, and none havestepped forward to do so.

GOP candidates can rightlysay this mess shows Congressis broken and pledge to changeWashington by working acrossparty lines to tackle America’sreal issues. They can thenpivot to their stump speeches,pointing to the strong econ-omy, the rebuilding of the mili-tary and the halt in needlessfederal regulation.

They can also join PresidentTrump in pounding the Demo-crats’ left wing. With cries of“Medicare for All,” many Dem-ocrats want to end privatehealth insurance in favor of a$32 trillion government pro-gram, paid for by doubling in-come taxes, that would lead to

long waiting lists and ration-ing. Many Democrats also sup-port abolishing Immigrationand Customs Enforcement,thereby allowing violent illegalaliens to remain in Americancommunities. Others back Sen.Bernie Sanders’s “free college”and “job guarantee” proposals.Every Democrat should have toaccount for these wacky posi-tions of their party’s left flank.GOP candidates can force themto choose sides and eitheralienate independents or dis-appoint their bases.

Republicans can also askswing voters if they reallywant the endless investigationof Justice Kavanaugh promisedby Rep. Jerry Nadler—chair-man of the Judiciary Commit-tee if Democrats take theHouse—or the impeachmentresolutions Mr. Nadler’s loud-mouth colleagues are alreadyoffering.

The president can help rallythe GOP base by stumping inred states. But only Republi-can Senate and House candi-dates in swing districts cangive independents and softRepublicans the reassurancethey need about the Ka-vanaugh confirmation. To win,these candidates must beready to litigate the issuewhenever it comes up, rightthrough Election Day.

Mr. Rove helped organizethe political-action committeeAmerican Crossroads and isthe author of “The Triumph ofWilliam McKinley” (Simon &Schuster, 2015).

GOP candidates mustbe ready to repudiateDemocratic talkingpoints on the trail.

By Karl Rove

At a timewhen it’s saidthat anythingis possible inAmerican pol-itics, the im-possible justh a p p e n e d .Hillary Clin-ton hasaligned her-self with Don-

ald Trump’s view of the Dem-ocratic Party.

Mr. Trump has been usinghis political rallies to denounce“the radical Democrats” as “anangry mob.” On Tuesday, Mrs.Clinton told CNN: “You cannotbe civil with a political partythat wants to destroy what youstand for, what you careabout.” You cannot be civil. Be-hold the Trump sun and theClinton moon in a moment ofpolitical eclipse.

It’s hard to pick out exactlywhen in the past month theDemocrats shifted the nationalfocus away from Mr. Trumpand onto their own behavior.I’d say it was the Senate’s finalvote Saturday on Brett Ka-vanaugh’s confirmation.

Democrats had thrown ev-erything at Judge Kavanaugh,and it was over. But not in theSenate gallery. On cue, liter-ally, spectators started shriek-ing at the senators on thefloor. Guards moved towardthe chamber’s doors, and thevote stopped while thescreamers were removed.

During Ronald Reagan’spresidency, the U.S. ambassa-dor to the United Nations was

‘You Cannot Be Civil’Jeane Kirkpatrick, whoin some ways was atemplate for Nikki Ha-ley’s U.N. tenure as anunapologetic defenderof America’s interests.At the Republicans’1984 national conven-tion, Kirkpatrick deliv-ered a speech memora-ble for one phrase—“the San FranciscoDemocrats.” The ideabehind “the San Fran-cisco Democrats” hasnever died. It stands for aparty of the unelectable left.That year, Reagan defeatedWalter Mondale by 525 to 13electoral votes.

Democrats will complain itis beyond chutzpah for DonaldTrump to brand them as divi-sive or radical after he hasspent his presidency polariz-ing the electorate with hisrhetoric and Twitter account.Maybe, but that was then.Whatever else was at issue inthe midterm elections, it hasbeen overtaken by the Ka-vanaugh nomination, whichtransfixed the nation forweeks.

The Democrats were in OKshape through phase one ofthe Kavanaugh hearings, asometimes intense back-and-forth about his judicial beliefs.But it was phase two—theChristine Blasey Ford weeks,brought forth by Sen. DianneFeinstein and DemocraticParty activists—that definedthe battle lines for the Novem-ber elections.

The hearings began as a fa-miliar narrative—Republicansare hostile to women. But thatspun out of control intobroader issues of fundamentalfairness and due process.

In conversations I’ve hadrecently with Democrats, oncepast the Kavanaugh argu-ments, most express a desirefor more political civility. This

is wishful thinking. The partyhas a problem: The San Fran-cisco Democrats are back.

There are policy types onthe left who would rather con-test campaigns over healthcare and income disparities.But the Kavanaugh episodeshows that the party is beingtaken over by what I wouldcall the Code Pink Left.

The professional networkof the Code Pink Left, typifiedby the George-Soros-fundedwoman who trapped Sen. JeffFlake in an elevator, has virtu-ally no interest in substantivepolicy goals.

The Code Pink Left special-izes in creating political storylines or “frames”—such as thatconservatives are weak on sex-ual abuse—which it promoteswith theatrical protests, dis-tributes on social media, anddepends on mainstream mediafor constant repetition. This issomething familiar. It is calledagitprop.

The goal is to make thebroader electorate nervousand doubtful. It worked. Manyvoters are now nervous aboutthe Democrats’ street-fightingmen and women. Every Repub-lican from Donald Trumpdown to dogcatcher is runningagainst the Democrats’ “angrymob” of Senate screamers andrestaurant marauders.

What about the alt-right’srole in the new incivility? Good

question. The answer is,they’re gone. The mostvisible face of conserva-tism through the Ka-vanaugh fightwas . . . Sen. ChuckGrassley.

A valid criticism ofDonald Trump is thathe hasn’t expanded hisbase into a broader co-alition. But his luck inattracting self-destruc-tive opponents is as-tonishing.

The Democrats are con-tracting whatever coalition Ba-rack Obama left them into adelimited activist resistance,whose “rage” is mostly a prac-ticed act.

Democrats are becomingtoo taken with their own tac-tics. They’ve turned Twitterinto basically a 24/7 open-micnight. Look how cool andclever we are. Kamala Harrisand Cory Booker are mostlymilking this niche audience forapplause. It’s all so rote andtheatrical.

Here’s Eric Holder at a cam-paign event in Georgia: “Mi-chelle [Obama] always says,‘When they go low, we gohigh.’ No. No. When they golow, we kick them.”

Maybe it’s historical deter-minism. The constant-protestleft captured the DemocraticParty in the late 1960s andfrightened the country intoRichard Nixon’s overwhelmingwin against George McGovernin 1972. Four-and-a-half de-cades later, another generationof Democratic politicians is an-swering the same old radical si-ren song, “You can’t be civil.”

For a time, Jimmy Carterand Bill Clinton, governorsfrom the American South,taught them that won’t win.One thing never changes withthe American left: It alwaysgoes too far.

Write henninger@wsj.com.

Donald Trump andHillary Clinton agreeon the current state ofthe Democratic Party.

WONDERLANDBy DanielHenninger

Hillary Clinton

CNN

The MirageOf EmpireLords of the DesertBy James Barr(Basic, 454 pages, $35)

BOOKSHELF | By Bartle Bull

I n August 1953, the CIA operative Kermit Roosevelt Jr.paid a visit to Winston Churchill in London. A fewdays before, Roosevelt had been in Tehran to welcome

the Shah of Iran, after successfully engineering a coupagainst Mohammad Mosaddegh, the country’s nationalistand pro-communist prime minister. “Had I been a fewyears younger,” said the 78-year-old Churchill, thenrecovering from a stroke, “I would have loved nothingbetter than to have served under your command in thisgreat venture.”

As the British historian James Barr writes in hisexcellent “Lords of the Desert,” an account of British andAmerican relations in the Middle East during the yearsfollowing World War II, Churchill’s daydreaming about asupporting part was “a metaphor for the role reversal thatwas well underway.” Britain was in a slow and painfulretreat from its post-World War I dominance of the region,and the United States was ascendant. Over the nextquarter-century, Washington and London would frequentlybe at odds but also quite often work together. The

relationship did much todefine today’s Middle East.From the immediate

aftermath of World War IIthrough the British retreatfrom Aden in 1967—theresponse to an uprising inwhat is now Yemen againstBritain’s residual colonialpresence—the two membersof the special relationshipfaced a series of high-stakescrises across the Middle East,and Mr. Barr draws on a richand varied trove of sources to

knit a sequence of dramaticepisodes into an elegant whole. Great

events march through these pages: Israelistatehood in 1948; Mosaddegh’s nationalization of theAnglo-Iranian Oil Co. in 1951 and the coup two years later;the Suez crisis of 1956; the fall of the Iraqi monarchy in1958 and the country’s subsequent 1963 Baa’thist coup.

Late in World War II, the British had led somethingcalled the Middle East Supply Center, which they hoped toconvert into an international super-agency of sorts,managing the regional economy out of Cairo with U.S.money. The center’s main sponsor, Lord Moyne—“hecollected yachts, fish, monkeys and women,” according toa contemporary—was also charged with propagation ofthe Fertile Crescent Scheme, an ambitious diplomaticventure that would have unified the Hashemite kingdomsin Syria and Jordan and added to them Lebanon andPalestine. The plan was nixed by Ibn Saud, the Saudi king,in an early example of the importance during these yearsof the ancient Saudi-Hashemite rivalry.

Already, by 1946, the question of Palestine and the Jewswas intensely vexing. The Jewish vote had become importantin key American cities, Mr. Barr explains, providing afoundation for the book's fairly familiar narrative of a pro-Zionist U.S. clashing with more pro-Arab elements in White-hall. It’s no criticism of Mr. Barr to say that his storytellingbogs down amid this diplomatic history. What is greatly tohis credit here, as elsewhere in the book, is the total absenceof moral posturing and ideological partisanship.

When Mr. Barr comes to describe the 1953 coupagainst Mosaddegh, his book reads like a page-turningspy thriller. Mosaddegh is a darling of contemporaryhistorians, partly because he was very cultured and partlybecause he stood up to the Anglo-Saxon imperialists.Politically he seems to have been well on his way to beinglittle more than a well-bred “Papa Doc” Duvalier inpajamas, albeit one with genuine communist sympathies.Either way, Mr. Barr simply tells his story and lets usarrive at our own conclusions.

Appearing amid the big set-pieces are numerousepisodes that even dedicated Middle East watchers mayhave forgotten. The building of the Tapline pipeline fromthe Saudi oilfields across Jordan to Lebanon’sMediterranean coast, which began operating in 1950,brought the U.S.-allied House of Saud into new lands,enriched the Saudis spectacularly and deepenedAmerica’s interests in the region considerably. In 1956and 1957, the U.S. plotted coups in Syria, where theSoviets were building an air-defense network andthreatening U.S. allies in Turkey and Iraq.

The towering figure at the heart of the book is Egyptianstrongman Gamal Nasser, whose seizure of the Suez Canalin July 1956 became the ultimate statement, at the time,that the days of Western imperialism in the region wereover. Now Nasser was the imperialist, and when he tried totake over the Yemen, his Russian-supplied bombersrepeatedly were used to deploy chemical weapons. TheBritish fought him alongside the local royalists, rathersuccessfully and, for a while, clandestinely.

Early on, we read from President Dwight Eisenhower’sdiaries of Churchill’s “almost childlike faith” in the trans-Atlantic relationship. Throughout the period, the struggleagainst communism was one thing that London andWashington had in common. But, as Kermit Rooseveltnoted in a 1949 book, if there was any place on earthwhere an expanding global power and a defensive onewould find their interests conflicting, it was the MiddleEast.

In this context, two subtle bookends in Mr. Barr’schronicle are worth noting. In late 1945, British PrimeMinister Clement Attlee arrived in Washington “cap inhand,” as Mr. Barr aptly puts it, asking for a loan of$3.75 billion to help build Britain’s welfare state. Adecade after Attlee’s visit to Washington, the entireBritish budget for the Middle East was a mere £15million. In 1964, as the British gave up Aden, then thesecond or third busiest port in the world, they werereducing their defense budget by 16%—at the height ofthe Cold War. “Empire,” writes Mr. Barr (although theword was by then an exaggeration) “would have to besacrificed for welfare.”

Mr. Bull’s next book is a history of Iraq.

In the years after WorldWar II, the rivalry andsometime partnership between the U.S. andBritain would shape the modern Middle East.

A16 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

Time to Move Beyond the Elite Law SchoolsHeather Mac Donald highlights an

aspect of the Kavanaugh hearings thatseems not to have troubled any of thesenators, commentators or other ob-servers of the process (“Tomorrow’sElite Lawyers Disavow Due Process,”op-ed, Oct. 5). That is the assumptionthat attendance at Yale, Harvard orother Ivy League schools indicates su-perior intelligence and promise. Thisignores the achievements of studentsfrom across the country from a rangeof institutions. While criticizing theactions of law students at Yale andHarvard, Ms. Mac Donald nonethelessincludes them under the banner ofthe elite, destined for high-leveljudgeships and other positions. Howrefreshing it would be to see a nomi-nee who attended a state university,or at the very least a college in a dif-ferent part of the country, perhaps af-

ter a stint working or pursuing a lessdirect path to success. As someonewho earned an undergraduate degreeat Stanford, I’m tired of the notionthat someone is smart just becauseshe or he attended a certain univer-sity. Let’s get a little more educationaldiversity in future nominations.

MARY CLOSMANN KAHLEAustin, Texas

Every one of those Harvard andYale law students protesting Brett Ka-vanaugh’s appointment should havetheir names written down and kept incase they want to be a judge someday.At that point their college-age recordcan be used to show that they don’tbelieve in due process and shouldn’tever be considered for the bench.

JAN GRAHAMImperial, Neb.

LETTERS TO THE EDITOR

Letters intended for publication shouldbe addressed to: The Editor, 1211 Avenueof the Americas, New York, NY 10036,or emailed to wsj.ltrs@wsj.com. Pleaseinclude your city and state. All lettersare subject to editing, and unpublishedletters can be neither acknowledged norreturned.

“Talk about climate change —my kids just moved back home.”

THEWALL STREET JOURNAL

Maybe the Hearings Will Be a GOP WaterlooThe suggestion in Allen Guelzo’s

“Kavanaugh May Be the Democrats’Waterloo” (Oct. 6) that the Brett Ka-vanaugh confirmation will have anegative effect on the “much-hypedNovember blue wave” disregards therage that many women feel at beingsilenced, yet again. We will vote inNovember because this was a rush toa judgeship that wound up tramplinga woman whose sense of civic dutyhas gained her nothing but humilia-tion and ridicule by the president. Wewill vote because we will not be si-lenced.

CAROLINE TAYLORPittsboro, N.C.

Prof. Guelzo makes a point thatvery well may come true. The Demo-crats fumbled the information Chris-tine Blasey Ford had sent to them re-garding her alleged sexual assault. Heis correct that as soon as the infor-

mation arrived at Sen. Dianne Fein-stein’s office, the rest of the JudiciaryCommittee should have been in-formed and the FBI called. However,his rationale as to whether or not thisunfortunate event is a Waterloo forthe Democrats is suspect. If we are tobelieve what we read, there still is alevel of speculation about the scopeof the investigation of Judge Ka-vanaugh’s alleged behavior. More im-portant and central to Prof. Guelzo’stheme is the energy that may be gen-erated by Judge Kavanaugh’s appoint-ment to the Supreme Court. If col-lege-educated women voters decidethat Dr. Ford and the other accusersof Judge Kavanaugh didn’t get a fairchance to have their stories investi-gated, the midterm elections may bejust the opposite—a Waterloo for theRepublicans.

SHELDON L. STONEBirmingham, Mich.

The Senate Has Flexibility on ConfirmationsIn his letter of Oct. 8, Robert de

Porres-Ras correctly cites the provi-sions of Article II, Section 2, Clause 2as calling for prompt action by theSenate to approve or disallow a nom-ination for presidential nominee ap-pointments to proceed. However,there is no comparison with JudgeMerrick Garland’s nomination and theappointment of John Marshall. Jus-tice Marshall was appointed to acourt that, up to that time, had notestablished itself as the final arbiterof congressional legislation or presi-dential powers. It wasn’t until the de-cision in Marbury v. Madison (1803)that the Supreme Court assumed thatrole and the powers that have sinceaccrued to it.

President Rutherford B. Hayesnominated Stanley Matthews in Janu-ary of 1881 and the Senate took noaction on his nomination until Presi-

dent James Garfield renominated himafter taking office three months later,thereby establishing the precedentcited by Sen. Mitch McConnell.

The most recent iteration of theSenate’s interpretation of this “rule”was Sen. Chuck Schumer’s July 2007statement that the Democrats wouldnot consider a Supreme Court nomi-nee in the last year-and-a-half ofGeorge W. Bush’s administration.Once Justice Marshall’s court estab-lished its role interceding in a politi-cal dispute, the road to our currentpolitical fight over the courts wasopen. We have a genie that won’t bestuffed back into the bottle.

THOMAS M. MICHAELS JR.Naples, Fla.

The Boston Bees Never GotBeantown’s Full Attention

Bob Greene captures a nugget ofbaseball history with “When BostonWas Bee Town” (op-ed, Oct. 5) onthe Boston Bees. I saw my first base-ball game at Braves Field, when MaxWest hit two home runs. Mr. Greenemight have added that the ownersalso changed the name of the field tothe Bee Hive, and hired two manag-ers—Bill McKechnie and a crazy guynamed Casey Stengel.

The real problem was that Bostonwas always an American Leaguetown. When the Braves won a pen-nant some years later, the Red Soxstill outdrew them. Owner Lou Perinihad no choice but to move the teamto Milwaukee.

KENNETH ROMANNew York

Pepper ...And Salt

Hoax Articles in AcademicJournals Cry Caveat Reader

Jillian Kay Melchior leaves out themajor benefit of hoax articles sub-mitted to and published by academicjournals (“Fake News Comes to Aca-demia,” op-ed, Oct. 6). You can saythat hoaxes are unethical, that aca-demic journals rely on the honesty oftheir authors and that deception un-dercuts the trust that professionalcommunities need to operate. Oneacademic journal laments that ittook years to build a credibility nowdamaged.

It is the deceived readers of aca-demic journals, not the editors, whodeserve our sympathy.

As far as we know, not one aca-demic journal has gone back over thehistory of its publications to identifyand report on the inadvertent hoaxesin its pages. Not one has improvedits editorial process to prevent inad-vertent hoax articles from beingpublished.

Deliberate hoaxes alert the readerto be skeptical—a great benefit.

JORDAN ROSENBERGSan Francisco

Is it any wonder that the seconddefinition of the word “academic” inmost dictionaries is: “Of no practicalimportance”?

LEO GORDONLos Angeles

Democracies Can Disagree:No Culture War in ‘1984’

Regarding Mary Spinei’s letter ofOct. 5 (“Steadier Politics RequireCongress Do Its Job”): In the face ofall the recent decrying of America’spartisan antipathy, how refreshingto read Ms. Spinei’s reminder that“‘partisan antipathy’ will always ex-ist in a democracy.” In fact, I’ll takethis one step further by denyingthat “gentlemanly” discourse is bet-ter than the acrimonious discordthat reflects the political passionsand genuine rifts that are part ofthe vitality of democracy.

A country that is truly freeHas citizens who disagree.There isn’t any culture warIn Orwell’s 1984.

PROF. FELICIA NIMUE ACKERMANBrown UniversityProvidence, R.I.

Ben Bernanke’s End Game

T en years after the financial panic, thearchitects of the rescue policies are tak-ing a victory lap.Wewon’t relitigate the

immediate panic response,some of which we supported.But there is one policy whoseoutcome is still uncertain: TheFederal Reserve’s near-decadeof unprecedented zero-inter-est rates and bond buying. Isthe October correction in stocks, includingWednesday’s 3% plunge, telling us that this billis now coming due?

The final payments on any Fedmonetary cy-cle aren’t merely the results when interest ratesare low and policy is easy. The verdict is clearonly at the end of the cycle when the Fed hasto unwind its accommodation and interest ratesrise. Only then can the world see clearlywhether the Fed overdid its stimulus with nastyconsequences on the other end.

That’s true even in a conventional monetarycycle of falling and then rising interest rates.Thus only amid the housing bust that triggeredthe 2008 panic did we see the results of the Fedhaving kept interest rates too low for too longfrom 2003 through mid-decade.

Negative real interest rates produced acredit subsidy that fed a commodity boom andhousing mania that eventually became a panicand crash. Former Fed chairs Ben Bernanke andAlan Greenspan to this day blame everyoneelse—“global imbalances”—but they should re-read Charles Kindleberger: “The cycle ofmaniasand panics results from the pro-cyclical changesin the supply of credit.”

This is especially true in the current mone-tary cycle because of the Fed’s post-2008minis-trations. The Bernanke Fed’s bond buyingknown as quantitative easing (QE) was aimeddeliberately at holding down long-term interestrates. The goal of this “financial repression”was to push investors into riskier assets thanTreasurys or bank accounts. The risk assets in-clude equities that have had an extraordinaryrun since 2009 even as the real economy grewonly moderately until 2017.

But since tax reform and deregulation re-versed Barack Obama’s policies, the real econ-omy has surged and is now growing at close to4%. The Fed is lifting rates in response and be-latedly (if slowly) winding down its bond buy-ing. Bond yields are now rising in response tothis faster growth, and traditionally that hasmeant that stock prices will fall.

The question that no one can answer withcertainty is whether the correction in asset

prices will be longer and deeper because theFed’s financial repression was so extended.Some of our friends think it is irrelevant and

that higher corporate earn-ings and faster growth willcarry stocks to new heights,give or take the occasional ad-justment. We hope they’reright.

But an honest assessmenthas to be that no one knows. We have neverseen the kind of central bank experiment thatMr. Bernanke began and that Europe and Japanfollowed. It’s certainly possible that as longbond rates rise, capital will flow out of certainrisk assets and back to a more normal patternof investment allocation and risk.

No one knows, too, howmuch such a reversalwill affect the real economy. Growth and overalleconomic confidence are strong enough nowthat even amajor stock correctionmay not getin the way. Then again, if the “wealth effect” ofrising 401(k)s and stock prices contributed toconsumer confidence on the way up, perhapsit will subtract on the way down.

Keynesian economists alsoworry aboutwhathappens when government spending is sched-uled to slow after 2019, but this underestimatesthe supply-side impact from the incentivechanges of tax reform. Unless Democrats takeCongress in November and reverse reform, orMr. Trump’s trade war escalates, a recessiondoesn’t seem imminent.

i i i

All of this leaves current Fed Chairman Je-rome Powell with some difficult decisions. Butno one should think that this end game will behis legacy alone. Mr. Powell and the current Fedinherited this clean-up operation after the longQE and zero-interest rate era.

Mr. Bernanke had begun only very modesttapering in Fed bond buying by the time he leftthe Fed in 2014. Janet Yellen succeeded him andbegan raising rates off zero very slowly with asimilarly slow bond taper. Their legacies are asmuch on the line as Mr. Powell’s as the Fedsteers through the end of this era of financialrepression and toward amore complete verdicton post-crisis monetary policy.

The good news is that, thanks to the Trump-GOP policymix, the economy is strong. The eco-nomic gains from faster growth, rising produc-tivity and a tight labor market are also likelyto flow more broadly than they did from thebull market in equities of the repression era.But as stock prices are showing, the transitionis uncertain and may be bumpy.

As ‘financial repression’ends, risk assets arelikely to get riskier.

‘That’s What You Want to Hear’

I n the movie “Field of Dreams,” someoneasks the lead character played by KevinCostner if this is heaven? No, he says, “it’s

Iowa.” But it is politicalheaven if you're a corn farmerwho sells to ethanol refiners,as President Trump is provingthis week with onemore favorfor the fuel made with cornand your tax dollars.

“Andmy Administration is protecting etha-nol, all right? That’s what youwant to hear,”Mr.Trump said at a rally in Iowa on Tuesday, andgive him points for political candor. Mr. Trumpthen announced that his Administration willnow allow fuel with 15% ethanol to be sold allyear long. The Clean Air Act sets standards forfuel volatility, and E15 hasn’t been allowed inthe summer because it can cause smog. Mostblends contain 10% of ethanol.

On the plus side, theWhite House isn’t man-dating or subsidizingmore ethanol, which is al-ready pushed into the fuel supply at increasingrates under the renewable fuel standard. In anideal market, ethanol blends could competewith regular gasoline year round without thepotpourri of government distortions. (We candream too.)

Some 20 Senators from both parties pointedout in a letter last week that the agency doesn’thave the legal authority to waive the Clean AirAct’s summer standards. The law lays out awaiver process for “blends containing gasolineand 10 percent denatured anhydrous ethanol.”But nowhere is a 15% blend mentioned.

EPA said in 2011 that it doesn’t believe it hasthe authority to allow year-round sales of E15,and that is not remembered as an era of agency

restraint. If the standards are too strict, thenCongress should change them. Oil companiesplan to sue, even if their less than pure motive

is heading off competitionfrom cheap ethanol amid ris-ing oil prices.

The other issue is how littlereformers appear to be get-ting in exchange. The TrumpAdministration says it’s con-

sidering changes to compliance credits knownin the lingua franca as “renewable identificationnumbers,” or RINs, which companies have tobuy if they don’t reach ethanol blending quotas.The East Coast refiner Philadelphia Energy So-lutions paid $300 million for RINs in 2017(twice the company’s payroll).

The White House cited speculators as onearea for reform, but RINs are expensive becauseso many companies have to buy credits in lieuof blending a marginal gallon of ethanol. Inother words, RINs are expensive because thecredits are scarce. The Administration also saidit would focus on transparency, though every-one knows the real problem.

If there’smore demand for E15, perhaps RINswould be less expensive, though even Iowa sellsfour times the amount of E0—no ethanol—asit does E15 and E85 combined. At this point theAdministration should at least cap the price onRINs—amaximumpenalty for noncompliance—or allow exports to create RINs and thus in-crease supply of the credits.

We almost feel like chumps for bringing upsmall matters like the law and economics, sincethe new policy is so clearly a sop to farmers hithard by Mr. Trump’s tariff policy. As ever, onebad policy inevitably leads to another.

At least Trump ishonest about his lousynew gift to ethanol.

Democrats Sing, the ABA Dances

B rett Kavanaugh has already heard hisfirst Supreme Court oral arguments, butDemocrats are signaling they’ll con-

tinue a campaign to under-mine his standing. Let’s hopethe American Bar Associationdoesn’t become their partisanhandmaiden.

Paul Moxley, head of theABA’s Standing Committee onthe Federal Judiciary, wrote to Senate JudiciaryChairman Chuck Grassley in an Oct. 5 letter thatthe ABA committee is “reopening” its “evalua-tion” of Justice Kavanaugh. This is the sameABA committee that on August 30 gave thejudge its highest rating in a report replete withpraise. Now Mr. Moxley writes that this couldchange, given “new information of a materialnature regarding temperament during the Sep-tember 27th hearing” in which Judge Ka-vanaugh defended himself against claims byChristine Blasey Ford.

Mr. Moxley’s letter landedmore than a week

after the Kavanaugh-Ford hearing, though onthe eve of the crucial full Senate vote on JudgeKavanaugh. It followed a public demand by ABA

President Robert Carlson—aHillary Clinton donor—to fur-ther delay the Senate votewith an FBI probe. The voteproceeded after that probe,and now the only purpose ofan ABA re-evaluation would

be to join the Democratic political campaign todelegitimize the new Justice and the currentSupreme Court.

Mr.Moxley seems like a straight-shooter, butif he’s being bullied by Mr. Carlson or Demo-crats on his committee, he ought to resign andsay so publicly. Otherwise he should shut downthis revisionist exercise. This last-minute ma-neuvering shows again why this guild of liberallawyers should have no role in nominations.Let’s hope South Carolina Senator Lindsey Gra-ham, who may chair the Judiciary Committeenext year, is watching.

Will the lawyers’ guildtry to delegitimize thenew Court Justice?

REVIEW & OUTLOOK

OPINION

THEWALL STREET JOURNAL. Thursday, October 11, 2018 | A17

‘T he War on Poverty isnot a struggle simplyto support people,”declared PresidentLyndon B. Johnson in

1964. “It is an effort to allow them todevelop and use their capacities.”During the 20 years before the Waron Poverty was funded, the portionof the nation living in poverty haddropped to 14.7% from 32.1%. Since1966, the first year with a significantincrease in antipoverty spending, thepoverty rate reported by the CensusBureau has been virtually un-changed.

Last year a United Nations inves-tigator using census data found“shocking” evidence that 40 millionAmericans live in “squalor and de-privation,” in a country where “taxcuts will fuel a global race to thebottom.” He continued: “The crimi-nal justice system is effectively asystem for keeping the poor in pov-erty,” and reported that “the demon-izing of taxation means that legisla-tures effectively refuse to levytaxes.”

If that doesn’t sound like thecountry you live in, that’s because it

Government Can’t Rescue the Poorisn’t. The Census Bureaucounts as poor all people infamilies with incomes lowerthan the established incomethresholds for their respec-tive family size and composi-tion. The thresholds, first setin 1963, are based on a multi-ple of the cost of a budgetfor adequately nutritiousfood, adjusted for inflation.While the Census Bureau re-ports that in 2016 some12.7% of Americans lived inpoverty, it is impossible toreconcile this poverty rate,which has remained virtuallyunchanged over the last 50years, with the fact that totalinflation-adjusted govern-ment-transfer payments tolow-income families haverisen steadily. Transfers tar-geted to low-income familiesincreased in real dollars froman average of $3,070 per per-son in 1965 to $34,093 in2016.

Even these numbers sig-nificantly understate transferpayments to low-incomefamilies since they excludeMedicare and Social Security, whichprovide large subsidies to low-in-come retirees. Compared with whatthey pay in Social Security taxes, thelowest quintile of earners can re-ceive as much as 10 times the life-time benefits received by the highestquintile of earners and three timesas much as the middle quintile.

The measured poverty rate hasremained virtually unchanged onlybecause the Census Bureau doesn’t

count most of the transfer paymentscreated since the declaration of theWar on Poverty. The bureau mea-sures poverty using what it calls“money income,” which includesearned income and some transferpayments such as Social Securityand unemployment insurance. But itexcludes food stamps, Medicaid, theportion of Medicare going to low-in-come families, Children’s Health In-surance, the refundable portion of

the earned-income taxcredit, at least 87 othermeans-tested federal pay-ments to individuals, andmost means-tested statepayments. If governmentcounted these missing $1.5trillion in annual transferpayments, the poverty ratewould be less than 3%.

The 3% poverty rate de-termined by counting moreof the government transfersto low-income families is vir-tually identical to the num-ber economists Bruce Meyerand James Sullivan found ina 2016 study, which mea-sured actual consumption bypoor families. The numberalso reconciles the currentdisparity between the lowincome levels used by theCensus Bureau to define pov-erty and studies such as theDepartment of Energy Resi-dential Consumption Survey,which find consistently ris-ing spending among poorfamilies on cars, home elec-tronics, cable, household ap-pliances, smartphones and

living space. The 3% poverty ratewould fall even further if it ac-counted for transfers within families,some $500 billion of private charita-ble giving, and the multibillion-dollarinformal economy, where income isunreported.

Transfer payments essentially haveeliminated poverty in America. Trans-fers now constitute 84.2% of the dis-posable income of the poorest quintileof American households and 57.8% ofthe disposable income of lower-mid-dle-income households. These pay-ments also make up 27.5% of Amer-ica’s total disposable income.

The stated goal of the War on Pov-erty is not just to raise living stan-dards, but also to make America’spoor more self-sufficient and to bringthem into the mainstream of the econ-omy. In that effort the war has beenan abject failure, increasing depen-dency and largely severing the bottomfifth of earners from the rewards andresponsibilities of work.

In 1965, before funds were appro-priated for War on Poverty pro-grams, all five income quintiles hadmore families in which at least oneperson worked than families inwhich the head of household was of

prime working age. So broadly basedwas the work ethic that the lowestincome quintile had only 5.4% morefamilies with working-age heads andno one working than did the middlequintile. The lower-middle quintileactually had proportionately fewerfamilies where no one worked thandid the middle quintile.

The expanding availability of anti-poverty transfers has devastated thework effort of poor and lower-middleincome families. By 1975 the lowest-earning fifth of families had 24.8%more families with a prime-work agehead and no one working than didtheir middle-income peers. By 2015this differential had risen to 37.1%.And by that same year, even familiesin the lower-middle income quintileheaded by working-age persons werealmost 6% more likely to have no oneworking than a similar family in themiddle-income quintile.

Even these numbers understatethe decline in work among low-in-come Americans that has accompa-nied the War on Poverty. Comparedwith the low-income quintile, thelower-middle quintile today hasthree times as many families withtwo or more workers, and the middlequintile has five times as many. Thetrend illustrates how the War onPoverty produced an unprecedenteddecline in work effort among thosewho received benefits.

The massive reduction in materialpoverty that government transfershave allowed has come at a consider-able underappreciated cost. The Waron Poverty has increased depen-dency and failed in its primary effortto bring poor people into the main-stream of America’s economy andcommunal life. Government pro-grams replaced deprivation withidleness, stifling human flourishing.It happened just as President Frank-lin Roosevelt said it would: “The les-sons of history,” he said in 1935,“show conclusively that continueddependency upon relief induces aspiritual and moral disintegrationfundamentally destructive to the na-tional fiber.”

Mr. Gramm is a former Chairmanof the Senate Banking Committee.Mr. Early served twice as assistantcommissioner at the Bureau of LaborStatistics and is president of VitalFew LLC. Bob Ekelund and Mike So-lon contributed to this article.

By Phil GrammAnd John F. Early

DAVID

KLE

IN

Federal programs havereduced material povertyat the cost of promotingidleness and dependency.

OPINION

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Open the Door to Venezuelan Migrants

N o government in the WesternHemisphere knows what to dowith Venezuelan migrants. Na-

tive populations in host countriesare growing restless and sometimesxenophobic. Yet all signs point tocontinued massive flows. The num-ber of Venezuelan emigrants couldsoon approach the number of Syrianswho have fled their country and cre-ate a crisis in Latin America compa-rable to the one that rocked Europein 2015.

In the first 15 years of HugoChávez and Nicolás Maduro’s dicta-torship, hundreds of thousands ofVenezuelans fled to the U.S., Colom-bia, Panama, Spain and other coun-tries. At first this was a gradual,

mostly upper- and middle-class af-fair. Then amid Venezuela’s economicand political meltdown in 2014, theexodus accelerated. People from allstrata of society started heading forthe exits. In the past few years, thecollapse of Venezuela has becomethe hemisphere’s worst humanitariandisaster ever.

Four million Venezuelans liveabroad, of whom 2.3 million have leftin recent years due to the inhumaneconditions at home, according to Hu-man Rights Watch. Colombia, acrossthe western border, has receivedmore than one million; Ecuador,Peru, Chile, Brazil and Argentinaeach have received hundreds of thou-sands more. In many cases the mi-grants have settled temporarily inborder towns, overwhelming the lo-cal infrastructure. Sometimes ten-sions have triggered violence: In Pa-caraima, an entry point in Brazil, thelocal population attacked migranttents in August after an assault on alocal restaurant owner.

Latin American countries werequite welcoming at the start of thecrisis but have lately started impos-ing harsh controls on migration. Ec-uador and Chile are demanding pass-ports, which are nearly impossible

for migrants to get. Chile requirescostly police-record certificates. Bra-zil has mobilized the army in borderareas and is turning migrants backoutright. Politicians are making themigrants into scapegoats for socialgrievances. Ricardo Belmont, a can-didate for mayor of Lima, recentlysaid the Peruvian government had asecret plan to naturalize one millionVenezuelans in exchange for theirvotes. He added in vulgar languagethat Venezuelan women looked tooshapely to be fleeing hunger.

To end the confusing and arbi-trary status of migrants, the regionshould admit that the migrants arerefugees under the 1984 Declarationof Cartagena. It can do so throughthe Lima Group, a multilateral bodyset up last year to deal with the Ven-ezuelan crisis. This would normalizethe status of migrants and allowthem to be incorporated into theeconomy and society. It would alsoprovide a mechanism to deal with fu-ture migrants, who could perhaps bedistributed among the participatingcountries on a voluntary basis.

Under the United Nations RefugeeConvention of 1951, only those flee-ing political persecution must begranted refugee status. But under themore expansive Cartagena agree-ment, which 15 Latin American coun-tries have incorporated into theirown legislation, Venezuelans fleeinghuman-rights violations and statecollapse clearly deserve asylum.

By refusing to grant Venezuelansrefugee status and instead opting forlimited, ad hoc measures, LatinAmerican governments claim theyare preventing a temporary situationfrom becoming permanent andavoiding costly commitments. Itwon’t work. Costs are escalating be-cause governments are reluctant tosend migrants away, instead prefer-ring to pressure Venezuela to accepthumanitarian relief. They know theconditions are unsustainable there.Meanwhile, ambiguity about the sta-tus of Venezuelan migrants in hostcountries is forcing many to huddlein border areas where they are creat-ing problems for themselves andothers. This prevents them from in-tegrating into national communitiesand formal labor markets.

The U.S. should be more welcom-ing, too. The mostly middle-classVenezuelans who have flown to Mi-ami have largely managed to receive

asylum, but they represent only atiny fraction of those trapped in legallimbo in Latin America. The liberaldemocracies of the Western Hemi-sphere should agree to share respon-sibility for the humanitarian casual-ties of Venezuela’s tyrant. Theywould all benefit from the contribu-tions of Venezuelans desperate tolive and work in freedom and peace.

Mr. Vargas Llosa is a senior fel-low at the Independent Institute. Hislatest book is “Global Crossings: Im-migration, Civilization and America.”

By Alvaro Vargas Llosa

TheWestern Hemisphereshould share responsibilityfor casualties of thesocialist dictatorship.

A18 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

WORLD NEWS

ment to clean energy, chargeda commission of 28 industryexecutives, environmentalistsand other experts with draw-ing up a plan this year tophase out coal use by or before2050. Germany’s environmentministry said it is still commit-ted to the Paris Agreement andaims to cut coal-fired powergeneration by around 60% by2030 and increase renewableenergy use to 65% of consump-

tion by that year.Meeting emissions targets

will depend on how quicklythe country is willing to phaseout coal mining.

“The image of Germany as acountry leading on the renew-able energy transition is very,very wrong,” said Laura Röll-mann, a climate activist.

Brown coal, a greasy, low-grade fuel also known as lig-nite, isn’t just controversial be-

cause of the greenhouse gasesits burning spews into the at-mosphere. It is mined in vast,open pits that devour land-scapes and villages, leavingMartian vistas of desolationroamed by gigantic excavatorsstraight out of “Mad Max.”

Germany is its largest pro-ducer. Brown coal made upabout 23% of the country’s en-ergy supply last year, andblack coal an additional 14%,according to the EconomyMinistry. Renewable energysources made up 33%—upfrom 6% in 2000.

“Brown coal is secure sup-ply-wise,” said ThorstonDiercks, secretary general ofthe German Brown Coal Asso-ciation. “And that’s why weare keeping it and have tokeep it for a certain amount oftime, probably a generation.”

In the eastern state of Sax-ony, where the country’s larg-est opposition party, Alterna-tive for Germany, or AfD,performed best in last year’sgeneral election, mining ispopular and a source of jobs.

Brown-coal mining supportsbetween 20,000 and 30,000jobs in the state, environmen-tal activists and state officialsestimate. That has led someparties to back mining.

PÖDELWITZ, Germany—Onthe surface, this medieval idyllof timber-framed houses re-sembles most villages dottingthe landscape of this rural,thinly populated region ofEastern Germany.

But empty streets, over-grown lawns and silence reveala ghost town. Three years ago,most of the village’s 140 resi-dents agreed to leave, accept-ing an offer from local miningcompany Mibrag mbH of newhomes, moving costs and anadditional €75,000 ($86,000).

The company, whose open-pit mine has swallowed upmuch of Pödelwitz’s surround-ings, wants to dig up the ham-let so it can continue excavat-ing brown coal, a cheap,plentiful and highly pollutingfossil fuel.

Unless, that is, Pödelwitz’s27 remaining residents havetheir way.

“We don’t want their money.We just want to be able to livehere,” said André Kremkow, alocksmith leading a campaignto spare the village and, morebroadly, put an end to coalmining in Germany. Mibrag de-clined to comment on its plansand local resistance.

This and similar disputesaround the country havedrawn attention to a curioussplit: Though Germany haschampioned the use of cleanenergy, several Germanbrown-coal mines are expand-ing, which requires govern-ment permission. And thoughGermany’s greenhouse-gasemissions began trendingdownward in 1990, emissionshave climbed since 2015.

Chancellor Angela Merkelcampaigned for nations to em-brace emissions cuts in the2015 Paris climate accord, butGermany conceded last yearthat it won’t make its own tar-get of cutting greenhouse-gasemissions to 40% of 1990 lev-els by 2020. The EuropeanUnion as a whole is expectedto meet its 2020 goal.

Ms. Merkel’s government,seeking to renew its commit-

BY MICHELLE HACKMAN

Coal Fuels German Debate

Brown coal is a greasy, low-grade fuel also known as lignite that is mined in vast, open pits.

MARZENASKUBATZ

FORTH

EWALL

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problem by taking journalistson “kleptocracy tours” aroundLondon’s swankiest streets.

In July, the government is-sued draft legislation thatwould force foreign companiesowning U.K. real estate to dis-close their ultimate owners ina public register, adding to2016 rules requiring the sameof most U.K. companies. Theproperty register will be liveby 2021, the government said.

The draft law came after aparliamentary committee inMay urged the government toact on corrupt Russian moneyafter the attempted murder inMarch of former Russian spySergei Skripal and his daughterin Salisbury, England. It called

for additional legislation andinvestment in crime fighting.

According to the U.K. judi-cial ruling last week, the Haji-yevs bought the house in theupscale Knightsbridge neigh-borhood of London in 2009through a British Virgin Is-lands company, paying around£4 million of the £11.5 millionpurchase price upfront. Amortgage for the rest was paidoff in five years, the rulingsaid.

Mrs. Hajiyeva told the U.K.court her husband was a man“of substantial means” at thetime of the purchase of thehouse but records in the courtcase showed his bank salarywas around $70,000. She saidhe had other business inter-ests too, and supplied a 2011document from a money man-ager putting her husband’s networth at nearly $73 million.

The NCA said the combinedcost of the two properties was£22 million.

LONDON—The wife of ajailed Azerbaijani banker hasbeen ordered to explain howshe and her husband could af-ford their multimillion-poundLondon mansion or face havingit seized, in the first case usingnew U.K. investigative powers.

Zamira Hajiyeva, the wife offormer International Bank ofAzerbaijan Chairman JahangirHajiyev, was named Wednesdayas the recipient of two “unex-plained wealth orders” issuedby a U.K. court in February.

Her lawyers said Mrs. Haji-yeva applied to appeal lastweek’s ruling, and that the up-holding of the order doesn’timply any wrongdoing by theHajiyevs. They noted it is partof an investigative process,not a criminal procedure.

The orders, encompassing aLondon mansion and golf clubnear Ascot race course, mark awarning shot by U.K. authori-ties toward Russian oligarchs,families of former African dic-tators and other so-called po-litically exposed persons park-ing their money in the U.K.They are part of new legisla-tion aimed at combating dirtymoney in the country, andspecifically target people withpolitical connections or sus-pected of serious crime whosemeans for buying property orother assets isn’t clear.

The U.K. is seeking to shedits image as a haven for corruptmoney after being accused bycampaigners for decades of en-abling and tolerating ill-gottengains in the country. The U.K.National Crime Agency, whichbrought the action against Mrs.Hajiyeva, estimates hundreds ofbillions of pounds of interna-tional crime proceeds are laun-dered through the country andits banks each year. Transpar-ency International says it hasidentified £4.4 billion ($5.8 bil-lion) in U.K. property boughtwith suspicious wealth, whileother anticorruption campaign-ers have sought to highlight the

BY MARGOT PATRICK

Banker’s PropertySpurs U.K. Audit

5.8Billions of dollars in U.K. propertybought with suspicious wealthProduction, in million tons

Up in SmokeGermany, reliant on the brown-coal mining that makes it Europe'stop coal producer, said it would miss its 2020 emissions target.

* Excludes land use, land-use change and forestry. Sources: Euracoal (production); GermanEnvironment Agency (emissions)

0 20050 100 150

Germany

Poland

Turkey

Czech Republic

Serbia

Greece

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Lignite (brown coal) Hard coalChange in Germany'sgreenhouse-gas emissions*

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–60

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%

2000 ’10 ’201990

Targets

THEWALL STREET JOURNAL.

© 2018 Dow Jones & Company. All Rights Reserved. * * * * * THEWALL STREET JOURNAL. Thursday, October 11, 2018 | B1

TECHNOLOGY: GOOGLE’S PRIVACY PUSH LIKELY TO DISRUPT APP DEVELOPERS B4

BUSINESS&FINANCE

the first quarter.Those third-quarter numbers

roughly hit market forecasts, butanalysts say LVMH needed to dobetter than that to reassure in-vestors. China’s economic slow-down has cast a cloud over thesector in recent months, raisingfears that the industry would behit hard if Chinese shoppers reinin spending. They are the luxuryindustry’s most important clien-tele, representing roughly athird of all purchases globally.

LVMH is viewed as a bellwether for the sector. Concerns about China have hit its shares.

AKOSSTILLER/B

LOOMBERGNEWS

CVS-AETNADEAL MOVES BIGSTEP CLOSER

MERGERS, B3

SLACK’S CEOHAS A MESSAGE

FOR YOU

BOSS TALK, B6

Geopolitical tensions also areroiling the sector. Investors feara widening trade dispute be-tween the Trump administrationand China could become a full-fledged trade war, hurting Chi-nese consumers. Investors ap-pear to be betting thatnegotiations between the twonations to end the dispute willreach an impasse, said LucaSolca, an analyst at Exane BNPParibas. “If that’s the case, it’sonly rational you price a less fa-vorable environment for luxury,”Mr. Solca said.

Concerns about China havesent LVMH shares down around15% since the end of August,when they were trading near ahigh. Still, Mr. Solca said, “in thecurrent numbers there’s very lit-tle you can show in the way ofbad news.”

LVMH is viewed as a bell-wether for the luxury-goods sec-tor, with dozens of brands in-cluding high-fashion house Dior,cognac maker Hennessy, watch-maker TAG Heuer and dozens ofothers.

Mr. Guiony also highlightedweakness at some of LVMH’sother businesses. The U.S. watchmarket was weak, particularlyfor watches priced at less than$3,000, he said.

—Anthony Shevlincontributed to this article.

PARIS—A mild slowdown atLVMH Moët Hennessy LouisVuitton SE, the world’s biggestluxury-goods company, sent ashudder across the sectorWednesday, pushing down stockprices amid fears that a pullbackby China’s big-spending shop-pers could end a yearslongboom for the industry.

LVMH shares fell 7.1% in Parisafter executives detailed third-quarter sales Tuesday eveningon a call with analysts. Gucciparent Kering SA fell 9.6%, Bur-berry Group PLC dropped 8.1%and Hermès International SCAlost 5.1%.

Louis Vuitton, LVMH’s big-gest brand, reported slightlyslower sales from Chinese shop-pers during the third quarter,LVMH Chief Financial OfficerJean-Jacques Guiony told inves-tors and analysts Wednesday.“But we are really talking aboutgoing from high-teens [growthrate] to midteens,” Mr. Guionysaid.

The French luxury-goods con-glomerate reported third-quar-ter revenue of €11.38 billion($13.08 billion), up 10% whenadjusting for currency impactsand other factors. But the figuremarked a decline from 11% inthe second quarter and 13% in

BY MATTHEW DALTON

Luxury Shares Feel the PinchHold the BubblyShare performance for majorluxury-goods companies.*

THEWALL STREET JOURNAL.

*In local markets

Source: FactSet

10

–20

–15

–10

–5

0

5

%

Oct.Sept.

Hermès

LVMHKering

Burberry

Monday, according to peoplefamiliar with the matter.

Sears doesn’t have themoney to make the payment,one of these people said. Theboard didn’t move forwardwith a proposal to sell theKenmore brand to Mr.Lampert, as he had proposed,after it became clear the CEO’sbroader restructuring planwasn’t winning support fromcreditors, this person said.

The department-store chainis in talks with banks to raise

several hundred million dol-lars of emergency financing asit prepares for a potentialbankruptcy filing that couldcome within days, the peoplesaid.

The Wall Street Journalfirst reported on Tuesday thatSears has hired M-III Part-ners, a boutique advisoryfirm, to prepare a chapter 11filing.

The company’s already bat-tered shares dropped another17% on Wednesday, to 49

cents, and Sears bonds alsowere under pressure. TheSears notes coming due onOct. 15 changed hands at 50cents on the dollar Wednes-day, having traded most ofTuesday at 86 cents, accordingto FactSet.

It is unusual for a companylike Sears, which hasn’t earneda profit since 2010 and hasbeen working with advisers onrestructuring efforts, to nothave bankruptcy financinglined up this close to a poten-

tial filing, restructuring ex-perts said. As of Aug. 4, Searshad $193 million in cash.

The company faces a cashcrunch as it needs to stock itsremaining Sears and Kmartstores for the holidays, andmany vendors, from appliancemakers to toy companies, nowrequire the company to payupfront in cash. It needs sev-

PleaseturntopageB2

Edward Lampert, thehedge-fund manager who con-trols Sears Holdings Corp.,has repeatedly bailed out thestruggling retailer with short-term loans. Now, he is cuttingthe cord.

Mr. Lampert, who is Sears’schairman, chief executive,largest shareholder and big-gest creditor, doesn’t plan tolend the company money torepay $134 million in debt due

BY SUZANNE KAPNER

S&P 2785.68 g 3.29% S&PFIN g 3.04% S&P IT g 4.77% DJTRANS g 4.05% WSJ$ IDX g 0.09% LIBOR3M 2.425 NIKKEI (Midday) 22591.10 g 3.89% Seemore atWSJMarkets.com

Sears Chief Cuts Financial LifelineOnce a dominating force in American retailing, the ownerof Sears and Kmart stores has lost most of its marketvalue over the past decade amid declining sales thathave forced it to close locations.

Number of storesSears*Kmart

2,500

0

500

1,000

1,500

2,000

2006 ’10 ’15 ’18

Annual revenue, billions

$60

0

10

20

30

40

50

’90 2000 ’10 ’18

Merger with Kmart closesWalmart surpasses Searsas biggest U.S. retailer

Allstate spinoff

FY1983

Sears Holdings

$60 a share

0

10

20

30

40

50

’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’182008

*Sears store count excludes auto centers, other specialty stores, repair and delivery services.Note: Fiscal years ending in year shown.Sources: SIX (stock price); company securities filings (revenue, store count)

Posts annual loss of $3.1 billion, firstof seven straight unprofitable years

Edward Lampert formallytakes over CEO role

Wednesday

$0.49t17%

STREETWISE | By James Mackintosh

Best Stocks SwitchPlaces With the Worst

The pillarsof this year’sstock rallywere crum-bling even be-fore Wednes-

day’s decline, as a near-perfect reversal turned thebest performers into theworst, and many of the los-ers became successes.

The leading examples aredramatic: General Electricwas the best stock in theS&P 500 to own over thepast week through Tues-day—and the 496th per-former for the year up tothat point. Advanced MicroDevices, Abiomed and Net-flix were by far the shares tohold this year until lastweek, and since then all havelost money, ranking 393rd,481st and 443rd in the index.

The reversal was market-wide. Grouped into deciles ofroughly 50 stocks (there are505 stocks in the inaptlynamed index) ordered bytheir performance over thepast week it is clear that thebest performers were previ-ously the worst, and theworst performers were pre-

viously among the best.The pattern isn’t so clear

when sorted the other wayaround. The best performersfor the year so far did be-come the worst: The top 50stocks on average made 51%up to Wednesday last weekand lost 3.7% since then.

But plenty of stocks thathad a terrible time this yearcarried on being awful in thepast week, too. The bottom50 stocks on average fell 27%for the year to last Wednes-day, before losing an addi-tional 2.4% since, to makethem the second-worstdecile.

I’m hopeful that the rever-sal will see a resurgence ofcheap value stocks previ-ously abandoned by inves-tors, mitigating lossesamong the fashionable techstars known as FANGs andother technology disrupters.But for now, value stocksalso are down, just by lessthan the highflying growthstocks—and Wednesday’s bigdrop suggests the loss ofmomentum might more thanoffset any benefit from avalue rebound.

INSIDE

AT&T Inc. is set to launch astreaming video service nextyear featuring films and TVshows it acquired from itsblockbuster purchase of TimeWarner, bringing another ser-vice to a crowded marketplaceand ratcheting up its rivalrywith Netflix Inc.

The new online service,which has yet to be named orpriced, is expected to debut inthe fourth quarter of 2019,AT&T said Wednesday. It willcenter around HBO and offer aselection of AT&T-owned mov-ies and TV series but won’t re-place the existing streamingservice HBO Now, said JohnStankey, chief ofWarnerMedia,as Time Warner is now called.

AT&T’s push into the direct-to-consumer battlefield is thelatest sign that entertainmentcompanies want to establishtheir own lane to the customerinstead of relying on a third-party distributor to act as ago-between. As more consum-ers abandon traditional cableand satellite-TV contracts, en-tertainment companies aretrying to keep up with Netflix,Amazon.com Inc. and new low-cost upstarts.

Walt Disney Co. in Augustsketched out plans for a directvideo service that could carryeverything from “The Simp-sons” to “The Avengers” mov-ies. It is also slated to launchnext year.

When Disney first an-nounced its streaming servicelast year, it said it would pullfuture movies from Netflix.Disney has since agreed to buya variety of assets that are apart of 21st Century Fox Inc.Fox and Wall Street Journalparent News Corp share com-mon ownership.

Mr. Stankey said AT&TPleaseturntopageB4

BY DREW FITZGERALDAND JOE FLINT

AT&TTo OfferStreamingVideo

� Heard on the Street: A retailzombie is going under.........B12

BlackRock Inc. and ChiefExecutive Laurence Finkagreed to invest with private-equity firm Gallatin PointCapital, part of a push by theworld’s largest asset managerto become bigger in alterna-tive investments.

The fund giant pledged toinvest as much as $400 mil-lion of client money alongsideGallatin’s investments, peoplefamiliar with the matter said.Mr. Fink is also investing someof his own personal moneywith a fund maintained by theGreenwich, Conn.-based pri-vate-equity firm, founded in2017 by former BlackRock al-ternative-investment chiefMatt Botein and former U.S.Treasury official Lee Sachs.

The commitment givesBlackRock a new foothold inprivately held companies, oneof the few corners of WallStreet not dominated by thegiant investment firm.

It also illustrates the pull ofprivate capital markets, whichhave surpassed public marketsby some measures to becomethe more popular way forcompanies to raise money inthe U.S.

The growth of the privatemarkets is fueled by companieseager to raise money withoutthe regulatory burdens of go-ing public and by investorslooking for new ways to scorelarge payouts outside of thestock and bond markets. It istransforming how companiesgrow and cutting off a swathof companies from the reach ofmom-and-pop investors.

PleaseturntopageB2

BY DAWN LIM

BlackRockDives IntoPrivateMarkets

B2 | Thursday, October 11, 2018 * * * * THEWALL STREET JOURNAL.

concerns that Sears would gothe way of other retailers thattried to restructure undercourt protection but wound upliquidating instead—namelyToys “R” Us—he has comearound to the idea that an in-court restructuring couldwork, the person continued.

—Lillian Rizzoand Andrew Scurria

contributed to this article.

continue investing in the com-pany as long as it has a future,the person continued. For thatto happen, Sears needs to be-come smaller and more nim-ble, this person said. Mr.Lampert’s restructuring plancalls for the company to sellabout 200 of its remaining900 locations.

While Mr. Lampert long re-sisted a bankruptcy filing over

in 2009 and launched a groupthat made illiquid, or infre-quently traded, investments.One of his first tasks when hebecame head of the firm’s al-ternative-assets group in 2010was to knit together disparate

BUSINESS & FINANCEINDEX TO BUSINESSESThese indexes cite notable references to most parent companies and businesspeoplein today’s edition. Articles on regional page inserts aren’t cited in these indexes.

AAbiomed......................B1Advanced Micro Devices.....................................B1Aetna...........................B3Alibaba Group Holding........................A8,B4,B11Alphabet................A4,B4Amazon.com.A1,B10,B11Apple...........................A1AT&T............................B1

BBaidu....................A8,B11Baum Hedlund Aristei &Goldman....................B3

Bayer...........................B3Bed Bath & Beyond..B12Bitmain Technologies.B4BlackRock....................B1Burberry Group...........B1

CCambricon Technologies.....................................B4Campbell Soup............B6Caterpillar...................A1Centene.......................A3Christian Media..........B3Cigna............................B3CVS Health..................B3

DDoctor's Associates....B2Dunkin' Brands Group B2

FFacebook................B4,B6

GGallatin Point Capital.B1General Electric ..........B1General Mills ..............A9Goldman Sachs Group...................................B10

HHermes International.B1HSBC...........................A2Huawei Technologies..B4

IIBT Media....................B3International BusinessMachines...................B6

JJack in the Box...........B2J.C. Penney................B12JD.com.........................A8J.M. Smucker..............A9

KKering..........................B1

LLVMH Moët HennessyLouis Vuitton............B1

MMcDonald's..................B2Mibrag.......................A18Microsoft.....................B6M-III Partners.............B1Monsanto....................B3

NNetflix ............A1,B1,B11

OOikos Networks..........B3

RRestaurant BrandsInternational.............B2

SSalesforce.com..........B11Sears .........................B12Sears Holdings............B1Slack Technologies .....B6Snap.............................B4Square.........................B2State Farm Insurance...................................B10

TTencent Holdings A8,B11Third Point..................B6Time Warner...............B4Tower Hill Group.......B10Travelers....................B10

UUBS Group...................B2Universal InsuranceHoldings..................B10

VVanguard Group........B12Viacom.........................B4

WWalt Disney................B1WarnerMedia..............B1WellCare Health Plans.....................................B3Wicked Cool ................B2

INDEX TO PEOPLE

Burger ForcesMore franchisees are operatingMcDonald's restaurantsworld-wide.

THEWALL STREET JOURNAL.Source: the company

40

0

10

20

30

thousand restaurants

2008 ’10 ’12 ’14 ’16

Company-operatedFranchised

AAnderson, William......B3

BBankston, Kevin..........B4Bell, Nick.....................B4Berkowitz, Bruce........B2Botein, Matt...............B1Butterfield, Stewart...B6

CCloherty, Tyler ..........B12

DDruckenmiller, Stanley...................................B12

FFink, Laurence.............B1

Friar, Sarah .................B2

G

Gates, Bill ...................B2Guiony, Jean-Jacques.B1

J

Jhuty, Gursharan......B10Jia, Mo........................B4

K

Krosby, Quincy..........B11

L

Lampert, Edward........B1

M - N

McDevitt, Kevin........B12Mitchell, Olivia .........B10

Neidorff, Michael........A3

RRinzler, Michael..........B2Rupkey, Chris............B11

SSachs, Lee...................B1Schultz, Paul.............B10Solca, Luca..................B1Stoeckle, Mark..........B11

TTam, Kevin................B11

UUzac, Etienne..............B3

VViniar, David ...............B2

Some 400 McDonald’sCorp. franchisees gathered fora rare meeting Wednesday todiscuss their concerns aboutthe burger giant’s plans forimproving weak sales.

The U.S. restaurant opera-tors met at the office of alarge franchisee in Tampa,Fla., in a session that becameso crowded two tents had tobe set up outside, said one ofseveral attendees interviewed.

The attendees, who repre-sent about one-quarter of U.S.franchisees, agreed to proceedwith steps to form an indepen-dent operators’ association.The group passed out pledgecards asking franchisees tocontribute $200 a restaurantto form the association. Manysigned, according to some

franchisees who attended. Noformal vote has been taken orscheduled.

Franchisees of other fast-food chains—including DunkinBrands Group Inc.; sandwichchain Subway, owned by Doc-tor’s Associates Inc.; and TimHortons, a unit of RestaurantBrands International Inc.—have created independentfranchisee groups to agitatefor change. But this is the firsttime such a large group ofMcDonald’s franchisees hastaken serious steps to orga-nize. A group of Jack in theBox Inc. franchisees on Tues-day called for the chief execu-tive of that chain to step downbecause of concerns about alack of marketing support andlackluster sales.

McDonald’s franchisees,who have been tasked with

updating stores, buying newrefrigerators to store freshbeef and installing touch-screen kiosks as part of thecompany’s turnaround strat-egy, say the upgrades’ cost isbecoming a burden while salesaren’t growing fast enough toyield a sufficient return.

A spokeswoman forMcDonald’s said the companyis committed to a collabora-tive dialogue with its franchi-sees and said that restaurantsthat are fully modernized inthe U.S. typically record mid-single-digit-percentage salesincreases in the first year. Sheadded that already remodeledrestaurants that add elementssuch as the self-order kiosksusually record a 1% to 2% salesincrease. McDonald’s is shar-ing in the cost of upgrades.

One franchisee who at-

tended Wednesday’s meetingsaid the internal goal for U.S.franchisees was to achieve 5%same-store sales growth thisyear and for each of the nexttwo to achieve positive cashflow after remodeling restau-rants. McDonald’s posted U.S.same-store sales growth of2.6% in the second quarter,short of analyst forecasts for3% growth.

McDonald’s is increasinglyrelying on franchisees aroundthe world to operate its res-taurants as it moves to an “as-set light” model that hasgained favor in the restaurantindustry. The company collectsroyalties for the use of thebrand name and other sup-port. About 95% of the morethan 14,000 McDonald’s res-taurants in the U.S. are oper-ated by franchisees.

BY JULIE JARGON

Franchisees to Pressure McDonald’sThe chain is tasking franchisees with updating stores with elements including touch-screen kiosks.

TANNENMAURY/EPA

-EFE

/REX/SHUTT

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CK

Sears CEOCuts OffLifeline

At left, customers watching televisions at a Sears department store in White Plains, N.Y., in 1969. On the right, a store in Chicago this past spring.

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groups BlackRock hadamassed from acquisitions ofcompanies like Barclays GlobalInvestors and Merrill LynchInvestment Managers.

He stepped down last yearto launch Gallatin Point withMr. Sachs, a top aide to formerTreasury Secretary TimothyGeithner who was in charge ofa team that responded to the2008 financial crisis. Mr.Sachs has also worked as chiefexecutive of Alliance Partners,an asset manager for financialinstitutions that attracted aBlackRock investment in 2011.

BlackRock and Mr. Boteinmaintain close ties on severalfronts.

BlackRock has the option toget a piece of any deal GallatinPoint makes so long as Black-Rock’s stake in those busi-nesses is under 24.9%. It canalso opt out of any invest-ment. The client money beingcommitted by BlackRock willgo into a separately managedpool that will co-invest in Gall-atin Point’s deals.

stock and bond indexes, givingit a total of $6.3 trillion in as-sets as of June 30. Roughlytwo-thirds of those assets arein index funds or exchange-traded funds.

Its push into alternative in-vestments is an effort to bulkup on products where Black-Rock can charge higher fees,lock in investor capital overyears and promise pensionfunds and other clients higherreturns.

BlackRock is also trying toraise money it can use to buyand hold direct stakes in com-panies.

These holdings, which in-clude private equity and infra-structure, amounted to morethan $100 billion as of June.That is roughly 2% of the in-vestments BlackRock managedas of that date, but the hold-ings reeled in roughly 10% ofthe company’s fee revenue in2017.

Mr. Botein was in charge ofthat business while at Black-Rock. He started with the firm

Alternative StepsBlackRock is trying to pressdeeper into alternatives, an areait hasn’t dominated.Breakdown of BlackRock’s $6.3 trillionin assets under management

THEWALL STREET JOURNAL.Source: the company

Equity

Fixed income

Multi-asset

Cash

Alternatives

30%

8%

7%

2%

53%

Note: Data as of June 30.

The $400 million pledgeBlackRock made on behalf ofclients will comprise about 1/3of the roughly $1.2 billionraised by Gallatin Point fordeals as the private invest-ment firm seeks stakes inlenders, insurers, financial in-stitutions and financial assetssuch as loan pools. It is un-clear how much Mr. Fink per-sonally invested.

BlackRock is a major playerin everything from stock andbond trading to software thathelps financial institutions as-sess their risks. It is also oneof the biggest beneficiaries ofa decadelong investor shift tocheaper funds that mimic

ContinuedfrompageB1

BlackRockIn PrivateEquity

portant role given that Mr.Dorsey runs Twitter Inc. In re-cent years, she joined theboards of Walmart Inc. andSlack Technologies Inc.

Mr. Dorsey said in a note toemployees that it was alwaysMs. Friar’s ambition to serve asa CEO and that Square’s goal isto “build an organization thatis not dependent upon any oneperson, including me.”

force.com Inc. executive, Ms.Friar joined Square in 2012when the company was bestknown for its white credit-cardreaders that plugged into smart-phones. She guided Squarethrough a rocky initial public of-fering in 2015 and played an in-strumental role in its expansioninto financial services.

Ms. Friar served as the faceof Square to Wall Street, an im-

market close on a down day forthe broader market.

Ms. Friar will remain in hercurrent position into December,the financial-technology com-pany said. The search for hersuccessor will be led by DavidViniar, a Square board memberand the former finance chief ofGoldman Sachs Group Inc.

A former Goldman Sachs re-search analyst and Sales-

tune of Microsoft Corp. co-founder Bill Gates, and hedgefund Fairholme Capital Man-agement, whose managerBruce Berkowitz left the Searsboard last year. Mr. Berkowitz,once the second biggest share-holder, has been selling downhis stake.

Mr. Lampert isn’t giving upon Sears, according to one ofthe people. He is willing to

Inc., has sunk hundreds of mil-lions of dollars of loans intoSears, the company also hasborrowings with major bankssuch as UBS Group AG, Bankof America Corp. and Citi-group Inc.

Its backers include someprominent investors. As ofSeptember, its lenders also in-cluded Cascade InvestmentLLC, which manages the for-

assets, including the Ken-more appliance brand, whichhe has offered $400 millionto buy himself.

With a potential chapter 11now looming, investors saidasset sales are less likely asbuyers worry about being suedlater on by Sears creditors orby a bankruptcy trustee.

Although Mr. Lampert’shedge fund, ESL Investments

eral hundred million dollarsjust for this holiday season,one person said.

The retailer has been mak-ing payments for merchandisebut recently fell behind by aweek, said Michael Rinzler, co-president ofWicked Cool LLC,which makes Cabbage Patchdolls and Pokémon toys.“We’ve been preparing for theinevitable,” said Mr. Rinzler,noting his company has lim-ited the money owed by Kmartand stopped shipping toysonce that amount wasreached.

In recent months, Mr.Lampert had pushed for anout-of-court restructuringthat would slash more than$1 billion from Sears’s $5.5billion debt load, divest an-other $1.5 billion of real es-tate and sell $1.75 billion of

ContinuedfrompageB1

Jack Dorsey’s Square Inc.said that Chief Financial Offi-cer Sarah Friar is leaving thecompany to become chief ex-ecutive at neighborhood socialnetwork Nextdoor Inc.

Shares were down more than10% in after-hours trading afterthe announcement. They hadfallen more than 10% before the

BY PETER RUDEGEAIR

Square’s Finance Chief to Step Down

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THEWALL STREET JOURNAL. * * * * Thursday, October 11, 2018 | B3

BUSINESS NEWS

CVS Health Corp.’s acquisition of Aetna Inc. needs some state approvals to move the nearly $70 billion deal to completion.

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ruling if it is finalized.Glyphosate is the most

widely used herbicide in theworld. Monsanto pioneeredthe genetic engineering ofcorn, soybeans and othercrops to survive the chemical.Most of the nearly $11 billionin crop seeds sold annually byMonsanto are genetically mod-ified to resist glyphosate.

The chemical’s safety cameunder global scrutiny after theInternational Agency for Re-search on Cancer, a unit of theWorld Health Organization, in2015 classified glyphosate aslikely having the potential tocause cancer. Monsanto andother agricultural groupspushed back, but the classifi-cation prompted lawsuits andregulatory challenges.

Mr. Johnson’s attorneys,Judge Bolanos wrote in the or-der, didn’t provide “clear andconvincing evidence of maliceor oppression by Monsanto.”

A Bayer spokesman said thejudge is considering its mo-tions for a new trial on the lia-bility verdicts and reduction ofthe $39 million in compensa-tory damages the jury awarded.Bayer “continues to believethat the evidence at trial doesnot support the verdict and thedamage awards,” he said.

A spokeswoman for BaumHedlund Aristei & Goldman PC,the law firm representing Mr.Johnson, declined to comment.—Sara Randazzo contributed

to this article.

Bayer AG could win a newtrial to defend its Roundupweed killer.

A California judge onWednesday issued a tentativeruling for a new trial on the$250 million in punitive dam-ages awarded to a grounds-keeper, who sought to hold theRoundup maker liable for hisnon-Hodgkin lymphoma.

If finalized, Judge SuzanneRamos Bolanos’s ruling wouldgrant a motion by Bayer argu-ing that sum wasn’t justifiedand that the evidence didn’tprove the company intendedto harm the plaintiff. It isn’tclear when the judge may fi-nalize the ruling, issued aheadof a court hearing Wednesday.

The ruling calls into ques-tion the bulk of the $289 mil-lion judgment, the first inthousands of cases allegingthat glyphosate, the main in-gredient in Bayer’s Roundupherbicide, causes cancer.

The jury verdict rockedBayer weeks after the Germancompany completed its take-over of Monsanto, the U.S.seed and pesticide giant thatmanufactures Roundup andcrop seeds engineered to with-stand the spray. Bayer’s stockhas fallen about 20% since theverdict, as investors priced inthe potential for more in courtjudgments ahead.

The plaintiff, DewayneJohnson, is likely to appeal the

BY JACOB BUNGE

Bayer Wins RoundIn Herbicide Case

New York police raided IBT Media offices in January.

LUCA

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defraud, falsifying business re-cords, and conspiracy. ChristianMedia and Mr. Anderson werealso charged with contempt forallegedly failing to produce doc-uments that had been subpoe-naed by a grand jury in the case.

The defendants are scheduledto surrender to authoritiesThursday and will be arraignedThursday afternoon.

“It is disturbing that theManhattan DA’s office is onceagain trying to make a casewhere no victim suffered any fi-nancial harm,” said Andy Lank-ler, a lawyer for Mr. Anderson.“The notion that my client in-tended to deceive anyone, muchless engage in a money launder-ing conspiracy, is absurd. Wewill vigorously defend thesecharges.”

Marc Agnifilo, a lawyer forMr. Uzac, said his client “stead-fastly denies” the allegations.“No victim was defrauded orlost a dime. This is a made-upcase that will be soundly repu-diated.”

Prosecutors alleged the fraudran fromMarch 2015 until Octo-ber 2016. Using false financialstatements and a phony auditor,the companies secured loansfrom financial institutions, tell-ing lenders the money would beused by Oikos to acquire high-capacity computer servers for asmuch as $180,000 each.

But instead of purchasing themachines specified in the loanapplications, Oikos allegedly ac-quired far less sophisticatedservers that cost as little as$10,000 apiece, people briefedon the case said. Oikos thentransferred the remainingmoney to the twomedia compa-nies’ accounts, which they usedto cover general operating ex-penses and to pay back earlierloans, prosecutors alleged.

In all, IBT received more than$8.6 million through the scheme,prosecutors allege, with Chris-tian Media pocketing approxi-mately $1.5 million. Oikos hasties to the World Olivet Assem-bly, the church behind OlivetUniversity, people briefed on thecase said. The loans were ulti-mately repaid, which meansnone of the defendants facesgrand-larceny charges, accordingto the people.

puter servers, according to pros-ecutors. The money was thenlaundered through corporatebank accounts and used to sup-port day-to-day operations atthe media organization, prosecu-tors alleged.

IBTMedia said that it “deniesthese allegations. The financecompanies from which the com-pany obtained the loans in ques-tion all were repaid in full andmade whole. The company in-tends to defend against the alle-gations in court.”

A lawyer for Christian Mediadidn’t immediately respond tomessages seeking comment.

A spokesman for Olivet Uni-versity didn’t immediately re-turn a call seeking comment. Oli-vet wasn’t accused ofwrongdoing.

The 10-count indictment un-sealedWednesday in ManhattanSupreme Court names as defen-dants IBT Media and its co-founder, Etienne Uzac; ChristianMedia and its former chief exec-utive and publisher, William An-derson; and a computer com-pany calledOikos Networks Inc.

A lawyer for Oikos, MichaelBachner, said: “My client’s ac-tivities were wholly legitimate,”but declined to comment fur-ther.

Both individuals and all threecompanies were charged withmoney laundering, scheming to

fully resolve the Department’scompetition concerns.”

The merger—which bringstogether the giant drugstorechain and pharmacy-benefitmanager with the health in-surer—needs some state ap-provals to complete the deal.

State attorneys generalfrom California, Florida, Ha-waii, Mississippi and Washing-ton joined the Justice Depart-ment in filing a civil suitWednesday asking the U.S.District Court for the Districtof Columbia to require the saleto WellCare as a condition ofthe merger.

CVS said that it already hadgotten “many” of the state ap-provals it needs. “We arepleased to have reached anagreement with the JusticeDepartment that maintains thestrategic benefits and valuecreation potential of our com-

bination with Aetna,” saidCVS’s chief executive, LarryMerlo. “We are now workingto complete the remainingstate reviews.”

Aetna rival Cigna Corp. al-ready has gotten Justice De-partment antitrust clearance

for its acquisition of ExpressScripts Holding Co., whichalso brings together a majorhealth insurer with a phar-macy-benefit manager.

CVS and Aetna operate inlargely different businesses,

with their most direct overlapcoming in selling plans underthe Medicare prescription-drugprogram, known as Part D.

To preserve competitionwhere CVS and Aetna sell PartD plans head-to-head, the Jus-tice Department had been ex-pected to require the compa-nies to sell off parts of theirPart D business to a competi-tor that would compete withthe newly merged firm.

Also on Wednesday, CVSsaid accounting chief and con-troller Eva Boratto would be-come the company’s next fi-nance chief. Shawn Guertin,Aetna’s CFO, had been ex-pected to take over that rolein the combined company. Mr.Guertin, who CVS said wasleaving for personal reasons,will remain with the companyuntil June 2019 to assist in theAetna integration.

Justice Department anti-trust enforcers cleared CVSHealth Corp.’s acquisition ofAetna Inc. after the companiestook steps to ease regulators’concerns, moving the nearly$70 billion deal a major stepcloser to completion.

The Wall Street Journal hadearlier reported that federalantitrust officials were prepar-ing to give the deal a greenlight, but the overlap in thetwo companies’ Medicare drugbusinesses had to be ad-dressed. Aetna in late Septem-ber announced the planned di-vestiture of its Medicare drugbusiness to WellCare HealthPlans Inc.

In announcing its approval,the Justice Department saidthat the WellCare deal “would

BY ANNA WILDE MATHEWSAND MICAH MAIDENBERG

CVS-Aetna Deal Gets Nod

Officials wanted thecompanies to addresstheir overlap inMedicare drug sales.

Newsweek’s former parentcompany has been charged byManhattan prosecutors with car-rying out a complex scheme todefraud lenders out of millionsof dollars as part of an effort tokeep the struggling media or-ganization afloat.

The indictment follows amore than yearlong fraud probeby the Manhattan District Attor-ney’s Office that has also beenexamining possible advertisingabuses at IBT Media and itsconnections to Olivet University,a bible college in California, ac-cording to people briefed on theinvestigation.

IBT Media owned Newsweekduring the period of the allegedfraud; the company saidWednesday it completed a spin-off of Newsweek into a separateentity.

Prosecutors allege IBT wasjoined in the fraud scheme bythe Christian Media Corp., afaith-based online publisherbased in Washington, D.C.

Together, the top executivesfrom the two companies createdphony financial statements ap-proved by a fictitious auditorand used them used to securearound $10 million in loans fromthree financial institutions, os-tensibly to buy high-end com-

BY LUKAS I. ALPERTAND REBECCA DAVIS O’BRIEN

Newsweek’s Former Parent Firm,Others Are Charged With Fraud

Bayer’s Roundup is at the center of an appeal over damages.

JOSHEDELS

ON/A

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FRANCE

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AGES

B4 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

TECHNOLOGY WSJ.com/Tech

BY DOUGLAS MACMILLAN

velop at home.“Computing power is the

foundation of AI,” said EricXu, Huawei’s chairman, at aconference in Shanghai onWednesday. “We need to pro-vide more abundant and af-fordable computing power.”

Other Chinese companiesare also pouring resourcesinto developing AI chips,which typically feature uniquedesigns optimized for process-ing large amounts of data atonce. Last month, e-commercecompany Alibaba HoldingsLtd. announced plans tolaunch an AI chip next year,while Chinese startups such asBitmain Technologies Ltd.and Cambricon TechnologiesCorp. are also working on suchcomponents.

Huawei already manufac-tures an AI-enabled chip forits smartphones under its Ki-rin brand. The company islikely to find a willing marketfor the new components in itshome market of China, but itwill face challenges in unseat-ing rivals elsewhere aroundthe world, said Mo Jia, an ana-lyst at technology consultingfirm Canalys.

“Huawei is likely to use alower-price entrance strategy

SHANGHAI—Huawei Tech-nologies Co. unveiled two newcomputing chips aimed atpowering artificial-intelligenceapplications, marking the Chi-nese telecommunications gi-ant’s first major push intohigh-end technology domi-nated by U.S. chip makers.

Huawei’s Ascend line ofsemiconductors includes achip that is installed on serv-ers and performs complex AItasks such as programming al-gorithms, as well as a secondchip for more routine func-tions on smartphones andother devices.

With the AI chips, Huawei,the world’s biggest maker oftelecom equipment and a ma-jor smartphone vendor, ischallenging U.S. companiessuch as Nvidia Corp., Intel Inc.and Qualcomm Inc.

The new components alignwith broader efforts by Chinato reduce its dependence onadvanced U.S. technologiesand develop such products do-mestically. Under Beijing’sMade in China 2025 develop-ment plan, semiconductorsand AI have emerged as areasthat authorities want to de-

BY DAN STRUMPF

Huawei Steps UpAI Game, TestingU.S. Dominance

won’t be pulling all of its pro-gramming off third-party ser-vices like Netflix, which havehelped boost Time Warner’sprofits for years. But there arescenarios he could envisionwhere new and older contentcould be exclusive to AT&T’snew streaming service, hesaid.

AT&T said the planned ser-vice’s new subscribers wouldoffset licensing revenue, sug-gesting the company couldmake fewer movies and rerunsavailable to rival services infavor of its own brand.

Mr. Stankey said his job“isn’t to build another Net-flix,” though WarnerMediacan’t afford to be left behind,as more TV watchers demandto view video outside theirtraditional cable packages.

Netflix and Amazon haveplowed billions of dollars intooriginal programming.

One relationship that couldchange as AT&T pursues its di-rect-to-consumer strategy isbetween the CW Network andNetflix, the second home forpopular CW shows such as“Riverdale” and “The Flash.”

The streaming deal Netflixhas with the CW has made thenetwork, which is a joint-ven-ture between Warner Bros.and CBS Corp., a profitable en-tity. The shows, which arepopular on Netflix, also helpeddrive up CW’s viewership.

Mr. Stankey declined to saywhether AT&T would renewthat deal when it expires butnoted that the CW shows ap-peal to a young adult demo-graphic that most networksstruggle to reach.

AT&T took control of HBOas well as Turner channels likeTNT and TBS and the WarnerBros. film studios after a fightagainst the Justice Depart-ment. A federal judge in Juneruled the Time Warner dealcould proceed, though thegovernment has appealed thatdecision.

Unlike AT&T’s previous of-ferings, the new service will of-fer films, TV series, older con-tent, documentaries andanimated shows in a new pack-age.

“What’s different about thisproduct is it’s HBO and more,”Mr. Stankey said.

ContinuedfrompageB1

AT&T toOffer VideoStreaming

Google’s plan to lower therisk of another privacy gaffe islikely to disrupt business forscores of app developers thatbuild services using the wealthof data generated by the popu-lar email service.

The Alphabet Inc. unit thisweek said it is reining in thedata it makes available to out-side developers of Gmail appsas part of a broader effort tosecure the privacy of its users.

Apps that don’t fall into cat-egories of either email or pro-ductivity services will be cut offfrom all Gmail data, and otherdevelopers will be restrictedfrom selling data they collect orusing it to target advertising ormarket research, Google said ina blog post Monday.

The rule changes, which takeeffect Jan. 9, threaten to chokeoff the main source of revenuefor a cluster of companies inthe email data business.

Hundreds of outside soft-ware developers scan the in-boxes of millions of Gmail userswho have signed up for email-based services in areas like fi-nance, travel, and scheduling—and often collect informationabout these users’ buying hab-its and sell it to marketers, TheWall Street Journal found in anexamination published in July.

Google’s shift illustrates thetrade-offs tech giants face asthey try to maintain an ecosys-tem of apps offering potentiallyattractive services and to en-sure ironclad data protectionsfor users.

Locking down user data mayhelp prevent a data breach, butit also may squelch innovationby emerging startups, said

Kevin Bankston, a lawyer anddirector of the Open Technol-ogy Institute at the Washing-ton, D.C., nonprofit New Amer-ica.

“My concern is that there isgoing to be an overcorrection,where we end up making itharder for users to leveragetheir data that is stored withthe big platforms,” Mr. Bank-ston said.

Google said it would phasein the Gmail changes over threemonths to give developers timeto adjust. The company an-nounced the change along withplans to terminate the con-

sumer functionality of Google+after the Journal reported thatGoogle discovered—and de-cided not to publicize—a secu-rity flaw in the social networkearlier this year that gave out-side app developers the abilityto access unauthorized userprofile data. Google said itfound no evidence of misuse.

Popular email apps includetravel planners, shopping-re-ceipt trackers and contact orga-nizers. As of July, more than160 apps were feeding inboxdata to Return Path Inc., a com-pany highlighted in the Jour-nal’s article that month that

uses the data to provide mar-keters a dashboard where theycan see which of their email-marketing messages reachedthe most customers.

That activity appears to beexpressly prohibited underGoogle’s new rules, which statethat Gmail apps “must use thedata to provide user-facing fea-tures and may not transfer orsell the data for other purposessuch as targeting ads, marketresearch, email campaign track-ing, and other unrelated pur-poses.”

A Google spokesman de-clined to comment on which

developers will be affected butsaid the company will only al-low apps that provide a userbenefit.

Matt Blumberg, chief execu-tive of Return Path, declined tocomment on whether Gmail’srules would have an impact onits business.

Google said app developersmust bar human employeesfrom reading any raw user dataunless they are given expresspermission, need to complywith the law or need to investi-gate security problems. Havinghumans read a small number ofusers’ emails to improve algo-

rithms has been described as acommon practice by executivesin this field, according to theJournal’s July examination.

Even app makers who meetGoogle’s criteria will face newrequirements, including a man-datory security assessment thatwill cost each developer$15,000 to $75,000, Google saidin its blog. That fee will be paiddirectly to an outside assess-ment company picked byGoogle.

Google is trying to encour-age developers to build smaller,simpler versions of their apps,called “add-ons,” which can beopened inside the Gmail win-dow for composing new mes-sages. Add-ons give developersaccess to data only during thetime a user has them open onthe screen.

Users of email apps may no-tice at least one change to theway they give permission to ac-cess data: Instead of “bundling”permissions into one screen,where users agree to let an appcontrol their calendar, email,docs and other data with thepress of one button, developerswill have to ask for permissionto access these types of dataindividually.

That change may be subtleto users, but to developers itcould mean that a lower per-centage of people make itthrough the setup and actuallybecome users of an app, saidAleem Mawani, co-founder ofStreak, a tool for managingsales leads inside the inbox.

“Users may drop off,” Mr.Mawani said. “You can arguethat those users didn’t reallyread the prompt when it wasjust one. But now that there aremultiple prompts, they may ac-tually pay attention.”

Despite the new burden ofcomplying with Google’s rules,Mr. Mawani said changes likethese are good for his businessbecause they may help restoreuser trust in tech products.

Gmail Privacy Upgrades to Disrupt AppsGoogle’s plan to putmore limits on accessto user data is likely tojolt developers

Apps that don’t fall into categories of either email or productivity services will be cut off from all Gmail data. Google said in a post.

JEFF

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SSOCIATE

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The company already manufactures an AI-enabled chip for its smartphones under its Kirin brand.

ANGELGARCIA/B

LOOMBERGNEWS

similar to its infrastructure orserver business” to break intothe market, Mr. Jia said. “Inthe future, I think Huawei’s AImarket will mainly be in theChinese market.”

Currently, the market forpowerful chips capable of ad-vanced artificial-intelligenceprocesses like deep learning is

led by U.S. companies such asNvidia. Alphabet Inc.’s Googlealso offers a similar chipcalled a tensor processingunit, while companies such asQualcomm make AI chips builtinto devices.

However, unlike those chipmakers, Huawei won’t be sell-ing the chips directly to cus-tomers, Mr. Xu said.

Instead, the chips will besold as a part of servers, mod-ules and via its existing cloud-computing business to Huaweicustomers, he said.

The AI effort follows suc-cess for Huawei in its mobile-phone business, which earlierthis year overtook Apple Inc.

as the world’s No. 2 vendor ofsmartphones after SamsungTechnologies Co.

At the same time, Huawei isweathering increased scrutinythis year from authorities inthe U.S., where its telecommu-nications gear has beenbanned because of securityconcerns. Such fears led Aus-tralia to bar Huawei from thecountry’s fifth-generationwireless rollout, while officialsin Japan are studying similarmoves.

Huawei has long said that itisn’t a security threat and thatit is owned by its employeesand operates independently ofBeijing.

deal in 2017 with TimeWarnerInc.’s Turner cable channelsand the Warner Bros. studio.That agreement also includedadvertising commitments fromTime Warner media properties.

Several television and filmproducers have agreed to pro-duce Snap Originals. Viacomcommitted to creating 10 newshows, according to Snap. Italso agreed to syndicate aminimum of 500 episodes ofits networks’ shows to theSnapchat audience.

NBCUniversal developedone of the six shows includedin the initial Snap Originalsslate, and agreed to extend acontent-production commit-ment with Snap through 2019.The social-media company andNBCUniversal struck a deal in2017 to team up to producecontent.

Snap Originals shows willoffer episodes that last aboutfive minutes. Companies canpurchase six-second adswithin them.

“Over the last two years,our highly engaged and loyalaudience has helped to definewhat mobile content shouldlook like—vertical, hyper-vi-sual and paced in a way thatdraws you in quickly andmakes you want to return,”Nick Bell, vice president ofcontent at Snap, said in astatement.

The initial slate of SnapOriginals includes “EndlessSummer,” which follows twoonline influencers living in La-guna Beach, Calif., and “TheDead Girls Detective Agency,”described by the social-mediacompany as a “darkly comedicsupernatural soap opera.”

Snap Inc. is getting deeperinto the crowded scripted-show market, teaming up withcompanies such as Viacomand NBCUniversal on originalcontent.

The social-media companyis launching its Snap Originalsinitiative as it struggles tocompete with Facebook Inc.and Facebook’s Instagram app,which has gained popularity inpart by adopting some ofSnap’s ideas. Instagram, mean-while, is seeking to stake out adominant position in longer-form mobile video, announc-ing in June it would create anew hub for that format calledIGTV.

Snap has struck deals togenerate scripted shows in thepast, including a $100 million

BY MICAH MAIDENBERG

Snap Tries More Scripted Shows

Two new chips alignwith China’s effortsto reduce its relianceon U.S. technologies.

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B6 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

ageable and you’ve wanted toslow down?Mr. Butterfield: There was atime about 18 months agowhere we really put on thebrakes, mostly on the productand engineering side, becausethe complexity is a little bitgreater there, and we wanted to

Then the last bucket, which isby far the most important, isensuring that the organizationas a whole is performing atthe highest possible level.

WSJ: You’ve been growingquickly. Were there pointswhere it has become unman-

job. There might be a pointlike when you’re eight people,but that goes away reallyquickly. Now, I think about re-ally three distinct categories.One is setting the overall vi-sion and strategy. The secondone is governance, supervi-sory, administrative duties.

MANAGEMENT

Activist investor Third PointLLC warned Campbell Soup Co.not to fill the open chief execu-tive position at the food com-pany ahead of its next annualmeeting, scheduled for Nov. 29.

In September, the investingfirm led by Daniel Loeblaunched a proxy fight to re-place the entire board at Camp-bell, which lost its chief earlierthis year amid flagging sales.Third Point and its allies ownabout 10% of Campbell’s stock.

The investor said in an Oct.10 letter addressed to LesVinney, chairman of theCampbell board, that becauseof the current board’s “poortrack record of managingleaders and processes, we thinkit is entirely uncontroversial toinsist that the next permanentCEO be selected by the newlyelected Board.”

A Campbell representativesaid the board expects to choosea CEO by year-end. For months,according to the representative,the company has worked withoutside search firms to considercandidates “who possess a trackrecord of proven results andachievement.”

According to Third Point’sletter, Campbell indicated in asecurities filing that it issearching for a successor to De-nise Morrison, who resignedfrom the job in May.

Third Point’s letter says it isunlikely the company would beable to attract a “first-rate foodexecutive” amid a proxy fight,given that the board could turnover, depending on the resultsof the battle.

Third Point also said in theletter that any new chief cho-sen before the meeting wouldalmost certainly insist the com-pany provide him or her with a“golden parachute” to providefor compensation in the eventof a quick termination.

BY MICAH MAIDENBERG

CampbellWarnedNot to FillChief’s Job

make sure we actually had suf-ficient management and leader-ship capacity to keep peopleproductive and stay organized.

WSJ:Microsoft has launched acompeting product, as hasFacebook. Why do you thinkyou can take on a companythat’s 100 times your valuation?Mr. Butterfield: [There are] alot of great examples throughhistory, beginning with Micro-soft itself versus IBM, whichwas at the time the biggestand most powerful corporationin the world. The moral of thatstory for us is that the small,focused startup with goodtraction with customers canwin against a large incumbent.

WSJ: Do you expect Microsoftto invest more in their productthan you’ve raised?Mr. Butterfield: If you look atthe dollar effort in personhours, or something like that,almost inevitably they’ll investmore. But I also think the big-ger you get, the less effectivea dollar is, because it’s justmuch harder to coordinate gi-ant organizations.

WSJ: You’ve resisted sellingSlack. What would changeyour mind?Mr. Butterfield: We think we’rea small percentage of the waypenetrated into the big oppor-tunity, so it would be foolish.With terrible execution, wewill still be many times largerthan we are today and a mas-sive success. In the low end ofgood execution, it’s 10 timesfrom where we are now. In thehigh end of good execution,it’s 100 times from where weare now. It’s also more fun.

WSJ:Why are you still private?Mr. Butterfield: If this was 15years ago, we would have beenpublic by now for sure, withmany times more revenuethan companies would typi-cally go public with. But com-panies in that era didn’t growas quickly as we did. And com-panies of that era didn’t havethis completely, historicallyunprecedented private market.

Perhaps more than anyother Silicon Valley entrepre-neur, Stewart Butterfield hasfound success by failing atbuilding videogame companies.

When his first multiplayervideogame startup failed to

gain traction, hetransformed it intothe photo-sharingwebsite Flickr,which Yahoo Inc.

bought in 2005.Four years later, Mr. Butter-

field co-founded another com-pany whose videogame alsofailed to take off, and the com-pany morphed a feature of thegame into a messaging-plat-form operator now known asSlack Technologies Inc. SanFrancisco-based Slack, withMr. Butterfield as chief execu-tive, has grown to more thanthree million paying custom-ers since the service’s launchin 2014, as companies use it tosupplement or replace internalemail and online chatting.

Slack was valued at $7.1 bil-lion in an August fundraisinground. So far, the company hasresisted going public. The WallStreet Journal reported lastmonth that Slack is preparing foran initial public offering in thefirst half of 2019, according topeople familiar with thematter.

Mr. Butterfield said he didn’thave specific plans for IPO tim-ing. He recently sat down withthe Journal for an interview.Here are edited excerpts:

WSJ: What have you learnedin your experience from Flickrto now that has helped you torun a company?Mr. Butterfield: I would havethought that my job two orthree years ago was to besmarter than everyone elseand to make all of the reallyimportant decisions. It turnsout that wasn’t actually the

BY ELIOT BROWN

What Failure Taught Slack’s CEOButterfield on usinglessons learned fromvideogame startupsto tackle messaging

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B10 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

BANKING & FINANCE

damage.Many property insurers in

Florida rely heavily on reinsur-ance and in part on cat bondsto manage their risk.

Almost $1 billion in catbonds and insurance-linked se-curities is exclusively exposedto Florida catastrophe risk, ac-cording to data provider Ar-temis.

Following large losses fromhurricanes in 2004 and 2005,many large home insurersshrank their presence in theFlorida market. Florida’s

Annual defaults on loanstaken against investors’401(k)s threaten to reduce thewealth in U.S. retirement ac-counts by about $210 billionwhen the lost savings are com-pounded over employees’ ca-reers, according to an analysisby Deloitte Consulting LLP.

The projected future lossamounts to about 2.7% of the$7.8 trillion currently in401(k)-style retirement ac-counts.

The numbers highlight theproblem of tapping 401(k) sav-ings before retirement, knownin the industry as leakage.Most leakage occurs becauseabout 30% to 40% of peopleleaving jobs elect to cash outtheir accounts and pay taxesor penalties rather than leavethe money or transfer it to an-other 401(k) or an individualretirement account.

But employees also take outloans, which about 90% of401(k) plans offer. Workerscan generally choose toborrow up to half of their401(k) balance or $50,000,whichever is less.

About one-fifth of 401(k)participants with access to401(k) loans take them, ac-cording to the InvestmentCompany Institute, a mutual-fund industry trade group.While most 401(k) borrowersrepay themselves with inter-est, about 10% default, or failto repay their accounts, trig-gering taxes and often penal-ties, according to research byauthors including OliviaMitchell, an economist at theUniversity of Pennsylvania’sWharton School.

Failing to restore the fundstypically occurs when employ-ees with outstanding 401(k)

BY ANNE TERGESEN

loans leave companies beforefully repaying their balances.

Money lost to 401(k) leak-age, including loan defaultsand cashouts, reduces thewealth in U.S. retirement ac-counts by an estimated 25%when the lost annual savingsare compounded over 30years, according to an analysisby economists at Boston Col-lege’s Center for RetirementResearch.

Even those who success-fully repay 401(k) loans canend up with less at retirementthan they would have had. Onereason is that many borrowersreduce their 401(k) contribu-tions while repaying theirloans.

While 401(k) loan defaultscurrently amount to about $7.3billion a year, the impact is fargreater given that many bor-rowers in default withdrawadditional money to cover thetaxes and early-withdrawalpenalties they owe on theiroutstanding balances, accord-ing to Gursharan Jhuty, seniormanager at Deloitte Consult-ing.

About two-thirds of partici-pants who default liquidatetheir accounts, he adds.

As a result, Deloitteprojects that those who de-fault on loans of $7.3 billionthis year will drain about $48billion from their retirementaccounts.

If the $48 billion were toremain in their accounts, itwould be valued at $210 bil-lion by retirement age, assum-ing a 6% annual return, Del-oitte calculated.

Few employers are willingto eliminate 401(k) loans, inpart because academic studieshave shown that theyencourage participation in401(k) plans.

But Deloitte, which offersconsulting services to 401(k)and traditional pension plans,recommends that companiesconsider ways to reduce work-ers’ use of loans—steps manycompanies are starting to take.

Sour 401(k)Loans Cost$210 BillionEstimate highlightsthe trouble withtapping accountsbefore retirement

tition from startups trying toappeal to those customers. Atthe same time, a commonguessing game in the businessis whether a tech giant likeAmazon will enter the space,using its customer loyalty anddata to compete with insur-ance providers or agents.

The Travelers-branded pageon Amazon offers security cam-eras, water sensors and otherinternet-connected home de-vices from brands includingWyze and SmartThings at a dis-count to Travelers customers incertain states. Shoppers can pay

for Amazon to install the de-vices. Policyholders with thedevices could be eligible for dis-counts on their premiums.

Travelers, the sixth-biggesthome insurer in the U.S. by pre-miums written, recommendsthese devices to its customersas a way to reduce certain typesof losses including water leaks,fire damage and theft. The pagealso encourages shoppers tobuy insurance through a localagent or the Travelers website.

Home insurers have beenwidely experimenting with so-called smart home devices as a

way to protect homes againstdamage—for example, byalerting homeowners to waterleaks early—and potentiallyreduce what insurers have topay out in claims.

“We’ve always been a com-pany and an organization thatresponds to losses after theyhappen,” said Michael Klein, ex-ecutive vice president and pres-ident of personal insurance atTravelers. “Part of what we’retrying to accomplish here is geteven further down the path ofhelping customers preventlosses in the first place.”

Travelers Cos. began sellingdiscounted home-security andsensor devices to its home-in-surance customers on Ama-zon.com Inc., the first time aninsurer has had a retail pres-ence on the online retail giant.

Insurers are scrambling tomake their policies simpler andeasier to buy. Many Americansstill buy insurance from localagents, but a growing numberprefer to buy policies and fileclaims online.

Insurers are facing compe-

BY NICOLE FRIEDMAN

Travelers Offers Devices on Amazon

Issuance of CRE CLOs is ex-pected to hit about $13 billionthis year, more than twice theamount sold in 2017, accordingto presenters at last week’sconference on the securitiza-tions held by the CommercialReal Estate Finance Council, atrade group. The event wasCREFC’s first conference onthe security and attractedroughly 500 attendees, an offi-cial with the group said.

The CRE-CLO deals hittingthe market are fundamentallydifferent from the commercialreal estate collateralized debtobligations, or CDOs, bankerssold investors before the 2008

financial crisis, bankers andlawyers working on the newdeals say. Many of those olderCDOs owned a hodgepodge ofthe riskiest mortgage securi-ties and were purchased by in-vestors using borrowed money.CDO prices collapsed whenreal-estate markets crashed,then fell further as margincalls forced most owners of thedebt to sell out.

CRE-CLO issuers are gener-ally real-estate lenders whoraise money by issuing bondsand equity to outside investorsand use the cash to makeshort-term bridge loans to bor-rowers looking to buy or reno-

vate properties.The issuers also purchase

equity in the CLOs alongsideoutside investors, exposingthemselves to losses if the un-derlying loans fall into arrears.Money coming in from thebundled bridge loans pays in-terest and principal on the CLObonds with any residual cashgoing to equity holders.

The CLOs are issued bymortgage lenders looking tomake more loans, a contrast toprecrisis CDOs, which were of-ten created primarily as specu-lative investment vehicles,bankers and analysts said.

Still, the recent CRE CLOs

come with their own risks.Bridge loans are made to prop-erties in flux and the renova-tions they pay for can fail toattract new tenants as quicklyas forecast, leading to defaults.

Demand for the new securi-tizations from investors likeinsurers, banks and pensionfunds is growing, allowing CRECLO issuers to borrow at lowerrates. Yields on newly issuedCRE CLO bonds have fallenabout half a percentage pointin the past year, said JeffreyDawkins, a vice president atGoldman Sachs Group Inc.,one of the investment banksdeveloping the product.

Wall Street is cooking up anew type of mortgage-backedsecurity for bond investors:the commercial real estate col-lateralized loan obligation, orCRE CLO.

The financial product is partof a broad surge in CLO issu-ance as institutional investorsclamor for more of the floatingrate securities, which outper-form most bonds when interestrates rise. Global CLO issuanceis expected to hit a record $165billion in 2018, a 27% increasefrom the previous year, accord-ing to data from Creditflux.

BY MATT WIRZ

Real-Estate Backed Loans ReturnWith Surge in CLOs

PrudentialNts PJH 24.00 -0.2Prudential PUK 42.90 -2.1PrudentialPfd PUKpA 25.35 0.2PublicStoragePfB PSApB 22.83 -1.3PublicStoragePfC PSApC 21.90 -2.3PublicStoragePfD PSApD 21.15 -1.8PublicStoragePfE PSApE 20.89 -1.6PublicStoragePfdF PSApF 21.57 -0.9PublicStoragePfdG PSApG 21.57 -1.2PublicStoragePfV PSApV 22.57 -1.3PublicStoragePfX PSApX 21.84 -2.2PublicStoragePfU PSApU 23.58 -1.3PublicStoragePfW PSApW 21.38 -1.5PulseBiosciences PLSE 11.10 -3.6QIWI QIWI 11.61 -2.5QVC Nts2067 QVCD 22.60 -0.5QuantaServices PWR 31.66 -2.2Qudian QD 4.30 -11.3QuickLogic QUIK 0.82 -11.3RELX RELX 19.45 -2.0RE/MAX RMAX 40.75 -3.1

52-Wk %Stock Sym Hi/Lo Chg

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52-Wk %Stock Sym Hi/Lo Chg

RushEnt A RUSHA 36.82 -2.3RXiPharm RXII 0.50 -3.6SEI Investments SEIC 55.95 -3.8SGOCO Group SGOC 0.89 7.0Sina SINA 59.11 -5.5SINOPEC SHI 51.31 -7.6SLGreenRealtyPfd SLGpI 24.71 -0.5SMART Global SGH 26.26 1.3SORL AutoParts SORL 3.62 -5.7SVMK SVMK 11.37 -7.1Sanmina SANM 24.09 -2.9Satrn JCPen HJV 8.04 -1.1SchneiderNatl SNDR 22.88 -4.2SchweitzerMaud SWM 34.47 -1.6SealedAir SEE 36.08 -3.7SearsHoldings SHLD 0.35 -16.8SelectiveInsNts SGZA 24.17 -1.2SemicondctrMfg SMI 4.69 -5.4SensataTechs ST 44.13 -0.9SequansComms SQNS 1.35 0.7ServiceSource SREV 2.60 -3.3ShipFinance SFL 13.28 -2.8SifyTech SIFY 1.28 -5.2Sigmatron SGMA 5.10 -4.5

52-Wk %Stock Sym Hi/Lo Chg

SiliconLab SLAB 80.66 -3.9SinoGlobalShip SINO 0.88 -8.8SmithAO AOS 48.46 -2.7Snap SNAP 6.59 -5.9Sogou SOGO 5.96 -4.1Sohu.com SOHU 15.89 4.6SonicFoundry SOFO 1.50 -2.6Sonos SONO 12.84 -1.8Sotheby's BID 41.79 -3.9SouthcrossEner SXE 0.41 3.4SouthernNt2016A SOJB 22.05 -1.0SouthernNts77 SOJC 22.14 -1.6SpartanMotors SPAR 12.01 -7.4St.Joe JOE 15.11 -4.3StanleyBlackDeb SWJ 24.53 -0.7StanleyBlackDeckUn SWP 101.45 -2.5StanleyBlackDck SWK 129.96 -3.3StateStreetPfdG STTpG 25.14 -0.7StateStreetPfdC STTpC 22.79 -1.3StealthGas GASS 3.35 -0.6StifelFinNts47 SFB 21.64 -2.8StifelFinancial SF 49.48 -3.2STMicroelec STM 16.12 -4.9SummitHotelPfdE INNpE 21.87 -2.0

52-Wk %Stock Sym Hi/Lo Chg

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52-Wk %Stock Sym Hi/Lo Chg

Toro TTC 55.22 -1.5ToyotaMotor TM 117.78 -1.8TranslateBio TBIO 8.00 -6.5Trevena TRVN 0.88 -11.5TrilliumTherap TRIL 3.70 -4.1Trinseo TSE 59.91 -20.7Tronox TROX 10.75 5.5Tupperware TUP 30.27 -2.4TurquoiseHill TRQ 1.94 -3.0UBS Group UBS 14.55 -2.0UMHPropPfdC UMHpC 23.60 -1.7US BancorpPfdH USBpO 22.65 -1.3US Concrete USCR 37.81 -6.5US Xpress USX 11.72 -3.9UltraClean UCTT 11.06 -2.2UnicoAmerican UNAM 6.70 -2.2Unifi UFI 25.45 -3.2UnitedMicro UMC 2.26 -3.0UnityBiotech UBX 12.59 -8.8UrstadtBiddlePfdH UBPpH 22.60 -1.3VSE VSEC 30.56 -4.0Valhi VHI 1.95 ...ValmontInds VMI 133.00 -1.5Valvoline VVV 19.57 -2.6

52-Wk %Stock Sym Hi/Lo Chg

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52-Wk %Stock Sym Hi/Lo Chg

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52-Wk %Stock Sym Hi/Lo Chg

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52-Wk %Stock Sym Hi/Lo Chg

Continued From Page B9

New Highs and Lows | WSJ.com/newhighs

when Hurricane Irma lookedlike it could make landfall nearMiami. Irma ended up turningup Florida’s west coast.

“If you have a large cate-gory storm bearing down[near Miami], there’s going tobe a lot more exposure than ifyou have something that goesinto a less populated or lessdense part of the state,” saidPaul Schultz, chief executive ofAon Securities.

Large investors have piledinto cat bonds in recent yearsas they sought diversificationand higher returns. The risk tobondholders is they can losetheir principal if certainevents occur, like hurricanewinds above a certain speed ordamages that exceed a certaindollar threshold.

There are now nearly $30billion of these securities out-standing, up from roughly $26billion a year ago, according toAon.

Insurance companies typi-cally cover losses up to a cer-tain amount, then use reinsur-ance or securities such as catbonds to help cover lossesabove that amount. Thatmeans many cat bonds that in-clude exposure to Floridawouldn’t be triggered unlessthe storm causes significant

home-insurance market is nowdominated by small to midsizecarriers.

The biggest home insurersby market share in Florida areUniversal Insurance HoldingsInc., State Farm and TowerHill Group, according to rat-ings firm A.M. Best.

Insurers have historicallyfocused on the wind damagecaused by hurricanes, as stan-dard home-insurance policiesdon’t cover flood damage.Homeowners in flood-proneareas are typically required orencouraged to purchase sepa-rate flood insurance from thefederal government.

But some insurers and in-vestors are more exposed toflood damage than in the past,as the U.S. government’sflood-insurance program haspurchased reinsurance sincelast year and issued its firstcat bond this year.

The Federal EmergencyManagement Agency’s catbond would cover up to $500million of the National FloodInsurance Program’s losses fora single event, but only ifthose losses exceed $5 billion.The NFIP paid nearly $10 bil-lion in claims following hurri-canes Harvey, Irma and Mariain 2017.

Pension funds, endowments,wealthy families and otherlarge investors could be on thehook for a portion of damagescaused by Hurricane Michael,which intensified Wednesday.

The exposure for theselarge investors stems fromtheir ownership in catastrophebonds, which are issued by in-surers or entities seeking in-surance. The investors receiveinterest payments but can losetheir principal if certain disas-ters occur.

About $15.7 billion in out-standing catastrophe bondshave potential exposure toFlorida, where Michael madelandfall, according to reinsur-ance broker Aon Securities.

In addition to cat bonds,some of these investors alsohave exposure to hurricanerisk through other types of in-surance-linked securities.

Analytics firm CoreLogicestimated Wednesday that Mi-chael would cause $2 billion to$4.5 billion in wind and stormsurge damage. The majority ofthe estimated loss is residen-tial, CoreLogic said.

The insurance industry isless on edge ahead of Michaelthan it was in September 2017,

BY NICOLE FRIEDMAN

Storm Threatens Large InvestorsAbout $15.7 billion in catastrophe bonds have potential exposure to Florida, where locals readied Tuesday for Hurricane Michael’s arrival.

JONAT

HANBA

CHMAN/R

EUTE

RS

Big CatProperty catastrophe bondsoutstanding

THEWALL STREET JOURNAL.Source: Aon SecuritiesNote: Years ending June 30.

$30

0

5

10

15

20

25

billion

’10 ’12 ’14 ’16 ’182008

Assets in 401(k)-styleretirement plans

Median and average dollaramounts of 401(k) loans

Lending LeakageAs assets in 401(k) plans rise, people are borrowingmore from their accounts.

Source: Investment Company Institute THEWALL STREET JOURNAL.

$8

0

2

4

6

trillion

2000 ’10

$8,000

3,000

4,000

5,000

6,000

7,000

2000 ’10

Average

Median

BuildupCumulative real estatecollateralized loan obligationsrated by Kroll

Source: Kroll Bond Rating Agency

THEWALL STREET JOURNAL.

$12

0

4

8

billion

4Q 2017 1Q ’18 2Q ’18 3Q ’18

THEWALL STREET JOURNAL. * * * * Thursday, October 11, 2018 | B11

MARKETS

investment shift that favorsshares of more durable compa-nies, such as health-care firms,over the highflying tech stocksthat powered the rally.

As stocks fell further fromtheir records, bond yields re-sumed their climb. The yield onthe 10-year U.S. Treasury noterose to 3.211% from 3.208% aday earlier, further building onSeptember’s gain, which wasthe biggest in a month sinceJanuary.

The Dow Jones IndustrialAverage tumbled 831.83 points,

or 3.1%, to 25598.74. The S&P500 shed 94.66 points, or 3.3%,to 2785.68 to notch its longestlosing streak since November2016. The Nasdaq Compositefell 315.97 points, or 4.1%, to7422.05, its biggest one-day de-cline since June 2016.

Tech stocks in the S&P 500fell 4.8% to lead the broad in-dex lower, the sector’s worstday since 2011. The communi-cations and consumer discre-tionary sectors, which include ahandful of other tech stocks,fell 3.9% and 3.7%, respectively.

this year that sent major in-dexes into correction territory.

While the losses were broad,the selling undercut the stronggains that companies such asAmazon.com Inc., Netflix Inc.and Salesforce.com Inc. havecontributed to the stock marketthis year and left some inves-tors who hold those shares flat-footed.

“Investors are selling thewinners and where the momen-tum has been,” said MarkStoeckle, chief executive of Ad-ams Funds, whose funds ownstocks like Netflix and Sales-force. “But when we look at thereason we own them andwhether there’s any news,there’s nothing” about thosecompanies, he added. “We stillbelieve earnings are going tocome through and that’s whereyou’ll get paid.”

Technology stocks have beena major contributor to the 9½-year rally. Investors savoredtheir massive profit marginsand exponential sales growth,and many showed a willingnessto test the upper limits ofstock-market valuations.

But surging bond yields haveupended the stock market’s sta-tus quo, several analysts said.With the Federal Reserve’seasy-money policies ending,several analysts and investorsare more willing to call for an

Tech—especially internetand social-media stocks—re-mains one of the most popularpositions among big moneymanagers and retail investors,analysts said, and further draw-downs are expected to come ina fast-rising-rate environment.

“There’s a tug of war in themarket,” said Quincy Krosby, amarket strategist at PrudentialFinancial. “Is the business cycleslowing down to the point it’slooking like a recession at somepoint, or not?”

Industrial and materialsstocks were knocked back 3.5%and 2.5%, respectively, as inves-tors worried that rising rateswould eat into their profits at atime many of those companiesare already coping with highercommodity costs and risingwages.

More defensive stocks faredbetter Wednesday. Utilities,which investors tend to like fortheir attractive dividends andrelative stability, fell just 0.5%,while consumer-staples compa-nies, another rich dividendpayer, declined 1.3%.

If bond yields continue toclimb, several money managersand analysts predicted furtherpain for the stock market, evenwith the S&P 500 on the cuspof reporting its third straightquarter of double-digit profitgrowth.

Stock Dive Hits All S&P SectorsDecline spares none ofDow 30, as rising bondyields, inflation signsrattle investors

Biggest LosersAll 11 S&P 500 sectors notchedlosses Wednesday in the broadindex’s worst day of tradingsince February.

THEWALL STREET JOURNAL.Source: FactSet

–5% 0–4 –3 –2 –1

Utilities

Consumer staples

Real estate

Health care

Materials

Financials

Industrials

Energy

Consumer discretionary

Communications

Technology

AUCTIONRESULTSHere are the results ofWednesday's Treasuryauctions. All bids are awarded at a single price at themarket-clearing yield. Rates are determined by thedifference between that price and the face value.

THREE-YEARNOTESApplications $92,303,111,000Accepted bids $36,000,081,000" noncompetitively $96,461,000" foreign noncompetitively $200,000,000Auction price (rate) 99.675199

(2.989%)Interest rate 2.875%Bids at clearing yield accepted 32.32%Cusip number 9128285F3

The notes, datedOct. 15, 2018,mature onOct. 15,2021.

NINE-YEAR, 10-MONTHNOTESApplications $54,885,832,900Accepted bids $23,000,049,000" noncompetitively $25,667,900" foreign noncompetitively $0Auction price (rate) 97.065145

(3.225%)Interest rate 2.875%Bids at clearing yield accepted 45.89%Cusip number 9128284V9

The notes, datedOct. 15, 2018,mature onAug. 15,2028.

Tencent shares trade atabout 25 times projected earn-ings over the next 12 months,its lowest forward multiplesince July 2013, according toFactSet.

“The rationale behind thebuyback reflects our confidencein the fundamentals and long-term value of the business,” aTencent spokeswoman said.

Share buybacks are ubiqui-tous in the U.S., especiallyamong consumer-staples andcash-rich companies. Theyhave been the biggest sourceof demand for U.S. equities,

averaging almost $500 billion,or 3% of the total market’scapitalization, a year over thepast five years, according toGoldman Sachs.

They are a far less commonstrategy in Asia, however. Buy-backs among companies listedin Hong Kong and China haveaccounted for 0.1% of marketvalue, according to Goldman,which tallied up $24 billion ofbuybacks over the past decade.

Investors have long re-warded cash-rich U.S. compa-nies that repurchase their ownshares. The S&P 500 Buyback

Index, which contains stockswith the highest ratio of buy-backs to market value, hasoutperformed the broad S&P500 by nearly 100 percentagepoints in recent years.

Such investor enthusiasmhasn’t translated to Tencent.Much of that could be due tothe small size of the buybacks.

Tencent, to be sure, mayhave better uses for much of itscash. The Shenzhen-based com-pany, which owns popular Chi-nese social-messaging appWeChat and is one of theworld’s largest videogame pub-

lishers by revenue, has been in-vesting in new technologies andinternet startups to increase itsmarket share in China.

Other Chinese tech giantshave also considered buybacks.Nasdaq-listed search-enginegiant Baidu Inc. said in Junethat its board approved a $1billion buyback program. E-commerce titan Alibaba GroupHolding Ltd. last month said itplans to implement a previ-ously announced $6 billionshare-repurchase program.—Shan Li and Quentin Webb

contributed to this article.

China on Thursdaylaunched a multibillion-dollarbond offering to investors out-side the country, seeking toborrow money as cheaply assome of America’s strongestcompanies during a majorconflict with its largest trad-ing partner.

The sovereign bond sale—China’s second in a year andonly its third U.S. dollar bonddeal since 2004—includes se-curities maturing in five, 10and 30 years. Bankers told in-vestors that China expects toraise a total of $3 billion.

On Thursday morning inAsia, the new bonds were be-ing offered to investors at in-terest rates of 0.5 to 0.9 per-centage point above yields onU.S. Treasurys, according tobankers marketing the deal.That is in the range of whatbonds of companies like AppleInc. and Microsoft Corp. wererecently yielding.

Final pricing is expected tobe determined later in the day.

BY MANJU DALAL

ChinaLaunchesDollar Bonds

the impact on declining ex-ports from Iran and crisis-racked Venezuela, according tosome analysts.

Those worries pushed oil

U.S. government bondsweakened Wednesday afterdata showed producer pricesbounced back in Septemberfrom a summer slowdown.

The yield onthe benchmark10-year U.S.Treasury notesettled at 3.221%,

compared with 3.208% Tues-day. Yields rise as bond pricesfall.

Treasury yields tickedhigher after the Labor Depart-ment said the producer-priceindex, which measures pricesbusinesses receive for goodsand services, rose a seasonallyadjusted 0.2% in September af-ter stalling for two consecutivemonths. Inflation is a threat togovernment bonds because itchips away at the purchasingvalue of their fixed payments.

On the whole, “price pres-sures are still forming at thelowest level of the productionchain, and with the strengthen-ing economic winds and tariffscoming on imported goods, in-flation will become a worry forconsumer pocketbooks sooneror later,” said Chris Rupkey,chief financial economist atMUFG, in a note.

Bond yields pared their ad-vance as the U.S. stock marketcame under pressure, sendingthe S&P 500 toward its fifthconsecutive session of de-clines—its longest losing streaksince November 2016, accord-ing to Dow Jones Market Data.

Although some analysts haveattributed recent weakness inthe stock market to a sharp risein bond yields, others point outthat volatile markets can drivehigher demand for Treasurys,which many consider relativelysafe assets.

Analysts will be watchingdata on consumer prices Thurs-day for signs inflationary pres-sures are building. Economistssurveyed by The Wall StreetJournal expect the consumer-price index to rise 0.2% in Sep-tember from the month earlier.With investors on the lookoutfor data that show inflation ris-ing, an unexpectedly strongreading could send bond yieldsjumping, analysts warn.

BY AKANE OTANI

TreasurysSink AfterInflationReading

CREDITMARKETS

The Dow Jones Industrial Av-erage plunged more than 800points, as a continuing surge inTreasury yields prompted theblue-chip index’s biggest pull-

back sinceFebruary.

Fast-ris-ing bondyields and

signs of inflation have led in-vestors to worry that profitmargins could narrow, sparkingone of the biggest downturns ofthe year among shares of fast-growing companies that havebenefited from a decade ofnear-zero interest rates.

All 11 S&P 500 sectors tum-bled, as the broad index fell fora fifth straight session, its worststretch of trading in nearly twoyears. Each of the 30 stocks thatmake up the Dow industrialsnotched losses. A measure ofstock-market volatility, the CboeVolatility Index, surged to itshighest level since February,causing several investors tocompare the stock market’s lat-est turn with the selloff earlier

BY MICHAEL WURSTHORN

WEDNESDAY’SMARKETS

crease in crude-oil stockpilesfor the week ended Oct. 5,which would follow increasesin each of the previous twoweeks.

The string of higher inven-tories reflects a seasonal dropin oil demand as refineriespartially shut down for main-tenance activities, and as driv-ers spend less time on theroad than in the summer.

The American PetroleumInstitute, an industry group,said late Wednesday that itsown data for the week showeda massive, 9.7-million-barrelincrease in crude supplies, a3.4-million-barrel rise in gaso-line stocks, and a 3.5-million-barrel decrease in distillate in-ventories, according to amarket participant.

Rising U.S. oil inventories,combined with indications ofincreasing oil production infar-flung places such as Libya,suggests markets may havebecome too concerned about

prices to four-year highs in re-cent weeks.

“Let’s worry about upsiderisks to supply for a change,”said JBC Energy in a researchnote. “The market may be farmore able to absorb additionalsupply disruptions than manycurrently still assume, bring-ing with it a pronounceddownside risk to outrightprices.”

Still, many investors remainconvinced the Iran sanctionswill put a serious squeeze onsupplies, especially as an ag-gressive stance by the Trumpadministration could meanstricter adherence to the banon Iranian oil purchases thanduring previous sanctions.

“With the Iran sanctionsscheduled for early November,we have a variable that couldtighten capacity even more,”said Mark Watkins, regionalinvestment manager at U.S.Bank Wealth Management inSalt Lake City. “We are run-

ning near capacity and theIran sanctions could place theworld oil supply at capacity.”

Meanwhile, oil investors arestill keeping their eye on Hur-ricane Michael, which cut off-shore oil production in theGulf of Mexico by 42%, or719,000 barrels a day, onWednesday due to producersevacuating workers on oilplatforms as a safety precau-tion.

That decline amounts to anearly 7% drop in overall U.S.oil production. But while thatis significant, such output re-ductions can be recoupedquickly once the storm passesand workers return.

Oil prices also remained un-der pressure as analysts antic-ipated major organizationsmight downgrade their expec-tations for the world’s thirstfor oil after the InternationalMonetary Fund’s lowered pro-jections for global economicgrowth for this year and 2019.

Oil prices fell sharplyWednesday, in line with a bigdrop in stocks on Wall Streetand as investors awaited a re-

port ex-pected toshow athird con-

secutive weekly rise in U.S. oilinventories.

Light, sweet crude for No-vember delivery ended 2.4%lower at $73.17 a barrel on theNew York Mercantile Ex-change, its lowest settle valuein nearly two weeks. Brentcrude, the global benchmark,was 2.2% lower at $83.09 abarrel.

The Energy Information Ad-ministration is due to releaseits weekly report on U.S. oilinventories Thursday morning.Analysts surveyed by The WallStreet Journal expect, on aver-age, a 1.5-million-barrel in-

BY DAN MOLINSKIAND NEANDA SALVATERRA

Oil Prices Decline Ahead of U.S. Stockpile DataOctober SlideU.S. crude-oil price

THEWALL STREET JOURNAL.Source: Dow Jones Market Data

$76

64

66

68

70

72

74

a barrel

July Aug. Sept.

COMMODITIES

Tencent Holdings Ltd. hasbeen buying back shares dailyfor a month, an uncommonmove by a large, rapidly grow-ing company in Asia.

There is just one problem:Its stock continues to sink.

After more than doublinglast year, Tencent shares havedropped 29% in 2018, in partbecause Chinese regulators arecrimping the company’s near-term growth prospects. In-cluding Wednesday’s 2.5% de-cline, the stock has fallen fornine straight days, its worstlosing streak. And the sharesare on track for their worstannual performance since Ten-cent went public in Hong Kongin 2004.

Tencent has tried to stemthe slide by undertaking itsfirst share repurchases since2014. Corporate buybacks areintended to make a stock pricemore valuable. By scooping upits own shares, a companyshrinks the stock pie, whichcan improve its earnings pershare. Theoretically, thatshould help push the shareprice higher.

But since Tencent startedbuying back shares on Sept. 7,its stock price has dropped9.6%, more than triple that ofHong Kong’s Hang Seng Index.The company has so far spentaround 768 million Hong Kongdollars (US$98 million) on thebuybacks, according to regula-tory filings.

One reason: Tencent hadbought back only 2.3 millionshares through Tuesday, rep-resenting 0.02% of its sharesoutstanding, according toFactSet.

“It’s a positive, but theamount is insignificant,” saysKevin Tam, an analyst at CorePacific-Yamaichi International inHong Kong. “They could be try-ing to signal to the market thatthey think their stock is cheap.”

BY STEVEN RUSSOLILLO

Tencent Buybacks Fail to Help Sliding Shares20

–30

–20

–10

0

10

%Jan. Feb. March April May June July Aug. Sept. Oct.

Indexes’ performance

300

–100

0

100

200

%

’10 ’12 ’14 ’162008

S&P 500 Buyback Index S&P 500

Tencent’s annual share-priceperformance as a public company

300

–100

0

100

200

%

’10 ’15

0.2

2005 ’18* ’18*

Sources: FactSet (share price, Hang Seng performance); S&P Global (S&P indexes’ performance) THEWALL STREET JOURNAL.*2018 data are through Wednesday.

Sept. 7Buybacks

announced–30

–20

–10

0

10

Tencentt29%

Hang Sengt12%

Year-to-date performance

B12 | Thursday, October 11, 2018 THEWALL STREET JOURNAL.

four of the past five quarters,reinforcing a trend in place forthe past decade.

But the bigger surprise so farthis year is a decline in theamount of new money beingcommitted to passively man-aged investments that mimic in-dexes for a fraction of the costof traditional mutual funds.

These funds have attracted

trillions in new client moneysince the 2008 financial crisisas Americans looked forcheaper investment options,prompting sweeping changesthroughout the financial world.

That torrent of cash is slow-ing this year. Clients added$329.4 billion to these ETFsand index funds in the firstthree quarters, down 35% from

a $513.28 billion haul duringthe same period last year.

The cooling demand is evi-dent at indexing firm Van-guard Group, which becamethe second-largest U.S. moneymanager largely because ofenthusiasm for passive funds.

Vanguard’s net inflows of$104.8 billion in the secondand third quarters were down

36% from $163.6 billion col-lected in the year-ago period,according to the firm. Van-guard reeled in $371.9 billionlast year, exceeding a companyrecord set the prior year.

“It was realistic to expectflows to moderate” after tworecord years of cash flows, aVanguard spokeswoman said.

The larger industrywide

pullback, she said, “reflects in-vestor sentiment with respectto an aging bull market, con-cerns about volatility and geo-political uncertainty.”

Even though this year’s in-flows are down, they are stillroughly in line with the aver-age year in the past decade,said Kevin McDevitt, a Morn-ingstar analyst.

HEARD ON THE STREETEmail: heard@wsj.com FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

A Retailing‘Zombie’ IsGoing Under

On Tuesday, legendary in-vestor Stanley Druckenmillerpredicted a wave of bank-ruptcies at indebted “zom-bie” companies. He high-lighted one in particular:“Seriously, does anyoneknow why Sears is still inbusiness?” he asked.

That remark proved eerilyprescient. As The Wall StreetJournal reported Tuesdaynight, the 125-year-old re-tailer is preparing a bank-ruptcy filing.

Sears hasn’t been profit-able since 2010, yet Chief Ex-ecutive Officer EddieLampert has kept it alivethrough clever financial ma-neuvering. The need to paydown debt left Sears evenless able to reinvest in storesor e-commerce than otherstruggling mall-based stal-warts. Still, lenders haveshown themselves willing toprop up retailers even whenthey are unprofitable.

All of that may come toan end this week. Sears hasa $134 million debt paymentdue Monday. Its shares weredown nearly 17% Wednesdayon the news. Though Searshas been in decline for years,it had been expected to lin-ger for a bit longer, at leastthrough the holiday season.The news is a wake-up callfor how quickly things canunravel.

Sears’s downfall was pre-ceded by fellow householdname Toys “R” Us. Both eq-uity investors and companiesin the business of keepingretail zombies ambulatoryare asking themselves whomight be next. Vulnerablecompanies that recently havebeen serial disappointmentsinclude J.C. Penney and BedBath & Beyond. With inter-est rates rising and a his-toric name about to fold, itis little wonder the market isspooked. —Elizabeth Winkler

2013 that have raised morethan $100 billion, accordingto Dealogic. Returns on thosenewly public companies havebeen mixed, but the winnershave been strong enough to

Biotech Sector’s Latest Wobble Is No Long-Term ConcernBiotechnology stocks are

starting to look wobbly aftera record run, but recent his-tory suggests the sector isbetter equipped than ever tohandle sour stock perfor-mance.

Biotech has been a hotcorner in which to invest formuch of this decade. Some269 companies have gonepublic since 2013. That tallyis nearly as high as total bio-tech IPO formation from1995 through 2007, accordingto Leerink Partners Research.Meanwhile, startups that al-ready have gone public havehad no problem accessingadditional financing. Therehave been more than 800secondary offerings since

retain investor interest.Of course this golden age

of fundraising has coincidedwith a bull market for allstocks as well as a placid in-terest-rate environment. Nowboth of those conditions ap-pear at risk. Treasury yieldshave hit postcrisis peaks anda broad index of small andmidsize biotech stocks hasshed 15% since August afterflirting with records. It is nosecret that biotech tends toperform especially poorlywhen stocks fall, raising thethreat that the current sell-off could worsen.

If that scenario comes topass, though, the long-termfundamentals of biotech arestrong and investor interest

isn’t merely speculative.Even in 2016, when drug-pricing drama and threats ofcrackdowns from politicianshelped cause the biotech in-dexes to plunge 40%, it wasstill possible to attract in-vestment.

There were 26 IPOs in2016 raising nearly $2 billionin combined proceeds. Thatwas well below totals in bet-ter years, but it hardlyevokes comparisons with theaftermath of the dot-com orglobal financial washouts.

Furthermore, 46% of those2016 IPOs have generated apositive cumulative return aspublic companies, accordingto Leerink. That is right inline with the average of 44%

since 2013. Promising newtechnology like gene editingmay take many years to com-mercialize effectively, whichraises the chances of short-term volatility.

Calling coming develop-ments revolutionary ishardly an overstatement,though. Even an ugly selloffof biotech stocks wouldn’taffect the long-run prospectsfor innovative drug develop-ment, which is the reason toown the stocks in the firstplace.

The recent selloff couldturn into yet another peri-odic rout, but biotech’s fun-damental attractiveness willkeep investors engaged.

—Charley Grant

Steady DoseBiotech IPO deal volume

Source: Leerink Partners Research

*Through Monday

$6

0

1

2

3

4

5

billion

2013 ’14 ’15 ’16 ’17 ’18*

The New York Yankeeswere defeated in the Ameri-can League Division Series bythe Boston Red Sox on Tues-day night. Stocks sold offsharply Wednesday morning.

Coincidence? Not to thosepeople who see a relationshipbetween sports and the mar-ket.

Had the Yankees gone onto win and then prevailedover the Houston Astros, itwould have marked their 41stWorld Series appearance. Winor lose, their presence hasbeen auspicious for U.S.stocks.

The market has risenabout twice as much in the12 months after the Yankeesplayed as in years following aseries without them.

Then again, maybe thenews isn’t quite so bad. Theresult is heavily tilted byboom times such as the late’20s and late ’90s dynastiesand the economic nirvanathat was the 1950s.

The hangover from thosestreaks was painful not justfor New Yorkers but investorsnationwide.

OVERHEARD

Is this the big one? Noteven close, but there is some-thing unusual and unsettlingafoot in financial markets.

A loss of 831 Dow pointsjust isn’t what it used to be—the 3.1% drop in the indexwas only the 80th biggest de-cline since the 1950s and noteven the worst this year. Butthe way that other assetclasses reacted is notable.

Despite the selloff instocks, financial marketsoverall didn’t exhibit a classicflight to safety. Two safe as-sets, gold and bonds, havehad a horrible year and wereessentially flat on Wednes-day.

Treasurys have been thereal “break glass in case ofemergency” investment in re-cent years. Their weaknessand corresponding rise inyields so far this year finallyhave taken a toll on risky as-sets. Since the end of 2017,yields on two-year Treasuryshave risen by nearly a fullpercentage point and the 10-year note’s yield has risen byeight-tenths of a point, evenas stocks climbed until re-cently. It isn’t unusual for

bonds to suffer as stocksprosper.

But on days of sharpstock-market tumbles, it isalmost unheard of for 10-yearnote yields not to rally. Forexample, during the biggestone-day stock-market declinein history, in 1987, the 10-year yield fell to 9.4% from10.15%. One of the only ex-ceptions was a particularlyscary day in 2008 whenstocks plunged on fears thatthe global financial system

would unravel.Such existential fears

weren’t behind Wednesday’sflattish performance forbonds even as stocks melteddown. Instead, it is a signthat the forces behind risingyields are at least as power-ful as the traditional, knee-jerk flight to safety. That isin and of itself unsettling.With unemployment at alevel last seen in the 1960s,the federal budget deficitheaded toward an unprece-

dented trillion dollars duringan economic expansion, infla-tion on the upswing and theFederal Reserve in rate-liftingmode even as it slowly un-winds years of quantitativeeasing, it may be hard tostop this train.

Investors are starting torealize how dependent thelongest bull market in historyhas been on cheap money.That is particularly true forthe riskiest segments of themarket. While the Dow didn’teven suffer its biggest loss of2018, the tech-heavy NasdaqComposite had its biggestdrop since Brexit in 2016.Those stocks, traditionallymore dependent on investorrisk appetite and a lack ofsatisfactory income-produc-ing alternatives, have beenthe drivers of the late stageof the bull market.

For a decade now, the Fedhas been willing and able tokeep a leash on yield break-outs, saving the day forstocks time and again.Wednesday’s market action isa sign that neither may bethe case any longer.

—Spencer Jakab

Market Divergence Spells TroubleParty PooperIndex performance

THEWALL STREET JOURNAL.Source: SIX

20

–5

0

5

10

15

%

Jan. Feb. March April May June July Aug. Sept. Oct.

S&P 500Nasdaq Composite

MARKETS

Even before Wednesday’sstock plunge, there was onesign that investors’ doubtsabout the market were grow-ing: the slowdown of newmoney into the investmentworld’s most popular products.

Net flows into U.S. mutualfunds and exchange-tradedfunds are down 46% throughthe first three quarters of theyear, according to new datatracked by Morningstar. Theytotaled $281.7 billion this yearthrough September, comparedwith $517.2 billion during thesame period in 2017, Morning-star said.

“It feels like investors arein the early stages of position-ing themselves for a potentialdownturn,” said Tyler Clo-herty, research head at CaseyQuirk, a consulting practice ofDeloitte. They “are returningto cash and relatively defen-sive positions.”

Despite Wednesday’s pull-back, the S&P 500 index is up4.2% for the year throughWednesday, extending one ofthe longest bull markets instock-market history. Thebenchmark has more thanquadrupled since March 2009,near the depths of the last fi-nancial crisis.

These days, though, someinvestors are looking past therecord book and toward a listof concerns they think maycrimp future returns or evenend the rally. Those worriesinclude rising interest ratesand escalating trade dis-putes—two factors behindWednesday’s slide.

The retreat was most pro-nounced among investors in ac-tively managed funds that makespecific bets on stocks andbonds of their own choosing.The $42.9 billion in outflowsfrom these funds in the thirdquarter was the highest sincethe fourth quarter of 2016.

Clients now have pulledmoney from active funds for

BY JUSTIN BAERAND DAWN LIM

Investors’ New Wagers Are Slowing$200

–$200 billion

–150

–100

–50

0

50

100

150

billion

’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’182008

’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’182008

Clients are pulling money from actively managed funds and committingless new cash to cheaper, passively managed investments.

Net flows for activelymanaged funds

Net flows for passivelymanaged funds

Quarterly

Vanguard says it is realistic to expect itsnet inflows to moderate after two banner years.

Sources: Morningstar (net flows); Vanguard (Vanguard net inflows); SIX (S&P 500) *As of Sept. 30 THEWALL STREET JOURNAL.

2018

2017

2016

2015

2014

$174.5 billion*

371.9

315.4

278.3

244.0

3000

500

750

1000

1250

1500

1750

2000

2250

2500

2750

2008 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18

Weekly

The U.S. stock market has hit new highsthis year despite signs of investor unease.

RECESSION

S&P 500