Trump Halts Family Separation

* * * * THURSDAY, JUNE 21, 2018 ~ VOL. CCLXXI NO. 144 WSJ.com HHHH $4 .00

Nope, No Secret WashingtonCabal Meets in Room H-107

i i i

Tantalizing non-denial denials about

Capitol Hill’s Chowder and Marching Club

banquets—Ms. Ros-Lehtinenacknowledged her slip.

“They probably choked meafter that,” she said. “The firstrule about Chowder is that wedon’t talk about Chowder.”

All the secrecy seemsanachronistic when hardly ameal is eaten in America with-out a photo on Instagram.

These tidbitsare known: TheChowder andMarching Clubis an invitation-only group ofcurrent andformer HouseRepub l i c an sthat has been

around almost 70 years. Theymeet Wednesday evenings inthe U.S. Capitol. Once everyfew years, members gatherfor a banquet wearing aprons

PleaseturntopageA10

WASHINGTON—In this self-important, gossipy town, wherealmost no conversation is safefrom leaks, there is one bastionof secrecy on Capitol Hill.

The Chowder and MarchingClub is kept so far under wrapsthat membersare reluctant toeven acknowl-edge its exis-tence. “I don’teven know whatyou are talkingabout,” said U.S.Rep. Ileana Ros-Lehtinen.

When reminded she hadtweeted a photo of herself in2014 wearing a chef’s toqueand striped apron emblazonedwith “Chowder and March-ing”—the garb worn at club

BY JANET HOOKAND NATALIE ANDREWS

Chef’s toque

DJIA 24657.80 g 42.41 0.2% NASDAQ 7781.51 À 0.7% STOXX600 384.29 À 0.3% 10-YR. TREAS. g 10/32 , yield 2.928% OIL $66.22 À $1.15 GOLD $1,271.20 g $4.40 EURO $1.1577 YEN 110.36

Americans between 18 and 64,census figures show. Thatnumber—called the old-agedependency ratio—barelyedged up over the next 30years, rising to just 21 retiree-aged Americans for every 100of working age in 2010.

But there has been a rapidshift since then. By 2017, therewere 25 Americans 65 andolder for every 100 people intheir working years, accordingto new census figures releasedThursday that detail ageand race for every county. Theratio would climb to 35 re-tiree-age Americans for every

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Big oil companiesare pushing aheadwith ‘short-cycle’projects, such asthose involvingfracking, in partsof the world wherethey previouslystruggled. The movecomes as OPECmeets in Viennaand international oilprices have easedoff 3½-year highs.B10

WHATAIRLINES KNOWABOUT YOU

LIFE & ARTS, A11

SHOPPINGSPREE LIFTS

RETAIL STOCKS

BUSINESS & FINANCE, B1

The surge of retiring babyboomers is reshaping the U.S.into a country with fewerworkers to support the el-derly—a shift that will add tostrains on retirement pro-grams such as Social Securityand sharpen the national de-bate on the role of immigra-tion in the workforce.

For most of the past fewdecades, the ratio of retiree-aged adults to those of work-ing age barely budged. In1980, there were 19 U.S. adultsage 65 and over for every 100

BY JANET ADAMYAND PAUL OVERBERG

INSIDE

BLO

OMBERGNEWS

UNITEDAIRLINES

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Human labor refers to tuning, patching, updating, and maintenance of database.Copyright © 2018, Oracle and/or its affiliates. All rights reserved.

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WASHINGTON—PresidentDonald Trump directed his ad-ministration on Wednesday totry to detain asylum-seekingfamilies together, a reversal

after weeks in which he in-sisted he had no choice but toseparate children and adultswho cross the border.

On Capitol Hill, lawmakerswrestled with demands thatthey take action of their ownto end family separations andpass broader immigration leg-islation, ahead of contentiousvotes on a pair of bills sched-uled for Thursday.

In an executive order, Mr.Trump said families seekingasylum should be detained to-

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By Louise Radnofsky,Siobhan Hughes

and Sadie Gurman

CONTENTSBusiness News...... B3Capital Account.... A2Crossword.............. A13Heard on Street. B12Life & Arts....... A11-13Management.......... B5

Markets............. B11-12Opinion.............. A15-17Sports....................... A14Technology............... B4U.S. News............. A2-5Weather................... A13World News....... A6-9

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

>

What’sNews

� Trump directed his ad-ministration to try to detainasylum-seeking families to-gether, following a furor overborder separations. A1, A4�The surge of retiring babyboomers is reshaping the U.S.into a country with fewerworkers to support the el-derly, census figures show.A1� Federal authorities havesubpoenaed the publisherof the National Enquirer forrecords as part of a criminalprobe of Michael Cohen. A3�TheWhite House plans topropose merging the Laborand Education departmentsas part of a reorganization ofthe federal government. A4� German auto makershave thrown their supportbehind a proposal to scrapall import tariffs for cars be-tween the EU and the U.S. A7�Nine states rolled out aplan to push ambitious goalsfor sales of environmentallyfriendly automobiles. A5�Bloomberg plans to spend$80million on political cam-paigns this year, largely inan effort to help Democratswin control of the House. A3� The Catholic Church saidit found an allegation ofsexual abuse against a for-mer archbishop of Washing-ton, D.C., to be credible. A5�RobertWilkie was offi-cially nominated to head theVA, theWhite House said. A3� Yemeni forces capturedthe airport of a key portcity from Houthi rebels. A6� Canada legalized recre-ational marijuana use, be-ginning in mid-October. A9

D isney sweetened itsbid for most of Fox to

over $71.3 billion in cashand stock, topping Com-cast’s unsolicited offer. A1� Guggenheim Partnersis in talks to buy the asset-management arm of Ger-man insurer Munich Re. B1� Berkshire, Amazon andJPMorgan named surgeonand author Atul Gawande asCEO of their venture to over-haul workers’ health care. B1� Cboe is making changesto a monthly auction thatdetermines final prices offutures tied to the VIX. B1� U.S. stocks stabilized aday after trade tensions rat-tledmarkets. TheNasdaq rose0.7% to a record 7781.51 andthe S&P 500 gained 0.2%. B11� Chinese shipper Coscooffered to put a Long Beach,Calif., container terminal ina trust to allay U.S. na-tional-security concerns. B3� Tesla accused an ex-em-ployee of hacking into itscomputer system and send-ing data to a third party. B3� Chinese data companyJiguang plans an IPO in NewYork in the second half. B11�Xiaomi plans to raise upto $6 billion in its IPO,sharply lowering its goal. B11�Deutsche Bank will pay$205 million to settle a cur-rency-trading probe by NewYork’s financial regulator. B2�MSCI returned Argen-tina to emerging-marketstatus for the first time innearly a decade. B10� AMC is taking on Mov-iePass with a new movie-subscription service. B3

Business&Finance

World-Wide

Amazon Rises as One of D.C.’sMost Powerful Players

Its push into Washington brings big rewards, but also political risks

Trump Halts Family SeparationPresident, in reversal,signs order to detainadults and childrentogether at border

A Honduran family seeking asylum in the U.S. after fleeing gang violence waited Wednesday at a shelter in Reynosa, Mexico.

WASHINGTON—When JeffBezos founded Amazon.comInc. more than two decadesago, he sought to keep the on-line bookstore away from thegovernment’s reach. He has said he lookedinto placing its headquarters on an Indianreservation as a tax-saving strategy.

That was then. Today, Amazon, whoserevenues last year topped $177 billion, hasbecome deeply entwined with the federalgovernment. Mr. Bezos has built one of thelargest lobbying operations in Washington,bigger than those of powerhouses such asExxon Mobil Corp. and Walmart Inc. Its

cloud-computing business is amajor government contractor,with an estimated $1.5 billionin contracts last year, accord-ing to consulting firm GBH In-

sights. And the company has been pushinghard to change the law to allow governmentemployees to buy more of their own supplieson Amazon.com.

With three Washington-area locationsamong the 20 finalists for its planned sec-ond headquarters, Amazon could become abig part of the capital region’s social fabric.The company estimates its second head-

PleaseturntopageA10

By BrodyMullins,Laura Stevens andJohn D. McKinnon

Disney said it also has a regula-tory advantage over Comcast inwinning a company to help itfight back against new-mediacompetitors like Netflix Inc.

Fox, in a news release, saidthe new Disney deal “is supe-rior to the proposal” made byComcast earlier this month. AComcast spokeswoman had noimmediate comment.

Disney and Comcast arebattling for prized media as-sets including the TwentiethCentury Fox film and TV stu-dio; U.S. cable networks FX

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Walt Disney Co. raised itsoffer to purchase most of 21stCentury Fox to more than$71.3 billion in cash and stock,topping an unsolicited offer

from rival Comcast Corp. andescalating the bidding war forthe coveted media properties.

Disney’s new offer is farhigher than its original deal,$52.4 billion in stock, and sur-passes Comcast’s all-cash offerof roughly $65 billion. In addi-tion to having the higher offer,

By KeachHageyin NewYorkandErich SchwartzelinLosAngeles

Fox Accepts Disney’sCash-Enhanced Bid

Retirees Grow, WorkforceShrinks in Strain for U.S.

FrackingGets aGlobalBoost

*estimated economically recoverableSource: Rystad Energy THEWALL STREET JOURNAL.

U.S.

Argentina

Canada

Brazil

China

Mexico

Australia

Saudi Arabia

India

Russia

Algeria

Oman

1.981.10

0.66

0.21

0.19

0.17

0.08

0.07

0.06

0.04

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Natural gas resourcesthat require fracking*

Natural gas production by fracking,2010-2018

.billion cubic feet a dayQuadrillions of cubic feet

Outside the U.S.U.S.

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� Immigration to developednations slipped last year.... A8

� Heard on the Street: Don’tcount Comcast out yet......... B1

A2 | Thursday, June 21, 2018 THEWALL STREET JOURNAL.

U.S. NEWS

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Artist Paul Cézanne had ason, also named Paul. The Re-view essay on Saturday aboutfathers incorrectly said he hadno children.

Hamburg’s Elbphilhar-monie, which opened last year,is a concert hall. An Off Dutyarticle Saturday about touringMadrid incorrectly alluded tothe building as an opera house.

CORRECTIONS �AMPLIFICATIONS

Readers can alert The Wall StreetJournal to any errors in news articlesby emailing [email protected] or

by calling 888-410-2667.

migrants come from. In themajority of states, non-His-panic whites are dying fasterthan they are being born, ac-cording to a recent study bythe Applied Population Lab atthe University of Wisconsin.

The retiree surge, whichhas been long expected, beganwhen the first baby boom-ers—whose birth years span1946 to 1964—turned 65 in2011. About 10,000 babyboomers turn 65 each day, Mr.Taylor said. Lower birth ratesthat began in the 1970sthinned the ranks of the work-ing-age population in the gen-erations that followed them.An immigration boom wasn’tenough to offset that.

Even as the U.S. ratiogrows, it would remain lowerthan those of many developednations. In 2025, when theU.S. ratio is expected to reach33 older adults per 100 of

working age, Canada’s wouldreach 40, Germany’s 44 andJapan’s 58, according to cen-sus projections. By compari-son, India’s ratio would reach13, Mexico’s 16 and China’s 22.

The figures are the latestsign that the U.S. safety netfor seniors will become evenmore stretched for cash. Ear-lier this month, the trusteesfor Social Security said theprogram is dipping into itstrust fund for the first timesince 1982 to pay benefits.States also face mounting em-ployee pension costs that haveled them to pare spending onprograms like education andhealth care.

State pension funds had$2.6 trillion in assets to coverliabilities of $4 trillion in fis-cal 2016, according to an Aprilanalysis of the most recentpublicly available data by thePew Charitable Trusts. Thegap between assets and liabil-ities is up $295 billion fromthe prior year and is due inpart to investments fallingshort of states’ assumptions,the report said.

The new census figuresshow clusters of rapidly gray-ing counties concentrated inthe Northeast, Upper Midwestand across southern and west-ern coastal areas that attractretirees.

The state with high-est age-dependency ratio isFlorida, where there are 34retiree-aged people for every100 of working age, the newcensus figures show. That ra-tio has risen more slowly thanthe rest of the country’s since2010, as its economy drawsyoung migrants, especiallyfrom Puerto Rico. Since2010, Florida also has addedmore than 600,000 immi-grants, mostly from the Carib-bean and Central America.

The ratio is lowest inWashington D.C., at 17, fol-lowed by Alaska, Utah andTexas at 17, 18 and 20, respec-tively.

A lull in the U.S. birth ratesince the 2007-09 recession ismaking the whole countrymore reliant on immigrants,who are typically youngadults, to slow its aging. Atthe same time, though, thereis a crackdown on immigra-tion that could undercut thatdynamic in the future.

American women are hav-ing children at the lowest rateon record, and the number ofbabies born last year hit a 30-year low. The median age ofAmericans was 38 in 2017, upalmost a year from the startof the decade.

CAPITAL ACCOUNT | By Greg Ip

U.S. Turns From Global Uniter to DisrupterThe west-

ern world hasseen plenty ofdivision andconflict be-fore. But in

the past the U.S. was the sta-bilizer, seeking to align itsinterests and those of itspartners. Today, it is the de-stabilizer, driven by a beliefthat its interests and theworld’s are at odds.

The relatively buoyantstock market and economymight suggest this doesn’tmatter. Tariffs announced todate are tiny relative togross domestic product andquantitatively matter muchless than tax cuts. Even themost committed free tradersadmit protectionism does itsdamage slowly.

But the disconnect betweenglobal discord and Americanprosperity may be fragile.Economies are accident-prone: Natural disasters, warsand financial crises come outof nowhere, and global coop-eration has often served tocontain their damage. Strainsare already apparent, in theEuropean Union, on the Mex-ico-U.S. border, and in emerg-ing markets. Solving these or

any other crises gets harderthe more mistrust grows be-tween the U.S. and the rest ofthe world.

P resident Donald Trump’santagonism toward U.S.allies and trading part-

ners reflects a belief that theyare free riders on the U.S. mil-itary and economy. And it istrue that since World War IIthe U.S. has borne a dispro-portionate share of the cost ofsustaining military alliancesand free trade.

But to suggest other coun-tries sacrifice nothing to helpthe U.S. ignores plenty of mili-tary and economic history. Af-ter al Qaeda attacked the U.S.in 2001, Britain, Canada, Ger-many, France, Italy, Spain andthe Netherlands each sentthousands of troops to Af-ghanistan. More than 800died. Britain’s contribution tothe U.S.-led invasion of Iraq in2003 cost Prime MinisterTony Blair heavily in politicalsupport and reputation.

It was the U.S. that, startingin the 1990s, prodded othercountries to adopt safeguardsagainst money laundering. Af-ter 9/11, that infrastructureproved invaluable in the fight

against terrorism financing,said Daniel Drezner, a politicalscientist at Tufts University.The sanctions that BarackObama, prodded by a Republi-can Congress, pushed theworld to adopt forced Iran toaccept curbs on its nuclearprogram (whether Mr. Obamaused that leverage effectivelyis another question). Germanyhas suffered much more, eco-nomically, than the U.S. for thesanctions imposed on Russiafor its annexation of Crimea.

On economics, too, othercountries have often bent toU.S. priorities. In 1978 WestGermany agreed to stimulateits economy with deficitspending to help the U.S. nar-row its trade deficit. In1985 the Group of Seven ad-vanced economies jointly in-tervened to bring down thedollar to narrow the U.S. tradedeficit. Japan paid a steepprice: It countered the strongyen with low interest ratesthat produced the bubbleeconomy and its collapse. Dur-ing the global financial crisisof 2008, other countriesheeded U.S. entreaties to stim-ulate their economies andthus prop up demand, whilethe Federal Reserve teamed

up with other central banks topump dollars into foreignbanks and prevent fire sales ofmortgage-linked securities.

While nothing comparablelooks likely now, there areplenty of scenarios in whichbad blood between the U.S.and others could aggravate acrisis. Arguably, the southernborder offers one example.Mexico could stem the tide ofCentral American migrants

reaching the U.S. border byrequiring a visa before theyenter Mexico or requiringthem to seek asylum oncethey do enter. While the Mex-ican government would pay apolitical price and upset itssouthern neighbors, it mightdo so for the sake of good re-lations with the U.S., as it hasdone in allowing U.S. drugagents to operate in Mexico.But at present such a sacri-fice would be political suicidegiven the acrimony Mr.Trump has stirred up overtrade and immigration.

S imilarly, the U.S. maynever have needed tar-iffs to curb Chinese

trade abuses had it first alliedwith other advanced econo-mies—as in 2014 when theU.S., Japan and EuropeanUnion forced China to resumeexports of industry-criticalrare earths. Instead, Japan,wary of U.S. protectionism, isnow nurturing warmer traderelations with Beijing.

Then there is the risk thatU.S. policies actually trigger anew crisis. Tariffs and non-tar-iff barriers, such as invasivecustoms inspections, could dis-rupt the delicate supply chains

that link the U.S., Chinese andworld economies, a man-madeversion of the Icelandic vol-cano in 2010 or Thai floods in2011 that disrupted globaltravel and manufacturing.

Meanwhile the U.S. tax cutand the borrowing that fi-nances it are pushingup growth, interest rates andthe dollar, sucking capital outof emerging economies fromBrazil to Turkey. Capital mayalso flee China on expecta-tions the yuan will be deval-ued to counter U.S. tariffs.Commodity and oil prices arealready softening as a result,which could ricochet into U.S.shale oil investment.

That this hasn’t hurt muchyet is in great part becausethe Federal Reserve has beenso restrained in raising inter-est rates. Indeed centralbanks world-wide remain bas-tions of technocratic compe-tence and global cooperation.

But central banks can onlydo so much. Military and eco-nomic crises typically requiremany countries to act to-gether in their collective inter-est as a way of advancingtheir individual interests. TheU.S. used to lead such efforts.In the future, that isn’t so sure.

Goldman Sachs CommodityIndex, net asset value

Signs of StrainTrade tensions are weighing oncommodity prices.

Sources: Goldman Sachs (GSCI); FederalReserve Bank of St. Louis (Dollar)

THEWALL STREET JOURNAL.

2016 ’17 ’18

12

14

16

18

$20

100 of working age by 2030,according to census projec-tions released earlier thisyear, and 42 by 2060, thoughcurrently unforeseen factorscould alter that.

“You have this top-heavyage distribution that is basi-cally uncharted waters,” saidPaul Taylor, author of “TheNext America” who has stud-ied the aging population. “Thefailure to face what’s evident,right in front of our eyes, is aform of generational theft,” hesaid, referring to the financialconsequences for subsequentgenerations.

The new census figuresalso show that the number ofwhites who aren’t Hispanicfell slightly in 2017. Revisedestimates for 2016 alsoshowed a small decrease. If itis not revised, the overall de-crease of about 41,000, or0.02%, would be the first onrecord, according to WilliamFrey, a demographer at theBrookings Institution.

The finding showcases thelong-term aging of the whitepopulation due to lower birthrates and shifts in where im-

ContinuedfromPageOne

RetireesReshapePopulation

Rising Seniors

2010

2017

Baby boomers are driving up the share of older adults, posing a financial challengefor retirement systems.Old-age dependency ratio: Number of residents age 65 and older per 100 residents age 18-64

25 35

2017 U.S. average

45

National old-age dependency ratio Workers per Social Security beneficiary40

0

10

20

30

1980 ’90 2000 ’10 ’20 ’30 ’40

4

0

1

2

3

1980 2000’90 ’10 ’20 ’30 ’40

ProjectionsProjections

Sources: Census Bureau; Social Security Administration THEWALL STREET JOURNAL.

The shift began when the first baby boomers turned 65 in 2011.

JOEGIDDEN

S/PAWIRE/ZU

MAPR

ESS

THEWALL STREET JOURNAL. Thursday, June 21, 2018 | A3

U.S. NEWS

Former New York CityMayor Michael Bloombergplans to spend $80 million onpolitical campaigns this year,largely in an effort to helpDemocrats win control of theHouse of Representatives.

Mr. Bloomberg, a billionairewho identifies as an indepen-dent, has spent tens of millionsof dollars in previous electionsbacking candidates of both par-ties and on issues such as tight-ening gun-control laws. He saidin a statement Wednesday hewould continue to support someRepublicans at the state level.

In federal races, he is all infor Democrats.

“Republicans in Congresshave had almost two years toprove they could govern re-sponsibly. They failed,” he saidin his statement. He called con-gressional Republicans and inparticular their leaders “feck-less,” saying they have “essen-tially stopped acting as a co-equal branch of government.”

His midterm plans were re-ported earlier by the New YorkTimes.

Mr. Bloomberg ownsBloomberg LP, a financial-ser-vices and media companybased in New York. He wasfirst elected New York mayorin 2001 as a Republican, en-dorsed Democrat Hillary Clin-ton in the 2016 presidentialrace and has spoken outagainst some of PresidentDonald Trump’s policies, in-cluding on immigration.

Mr. Bloomberg is routinelyone of the country’s top do-nors, spending more than $67million on federal electionssince 2010, according to thenonpartisan Center for Re-sponsive Politics.

Democrats would need topick up 23 congressional seats towin control of the House. Otherwealthy donors also have an-nounced bigmidterm spending.Billionaire Democrat TomSteyeris spending more than $20 mil-lion on an advertising campaignaimed at attracting public sup-port for impeachingMr. Trump.He is spending another $30mil-lion to increase Democraticturnout in the midterms.

On the Republican side,Richard Uihlein, who owns apackaging-supply company inthe Midwest, already has putmore than $25 million into fed-eral races since January 2017,according to the Center for Re-sponsive Politics. And in May,Las Vegas gaming billionaireSheldon Adelson committed$30 million to the Congressio-nal Leadership Fund, a superPAC supporting House Republi-cans, according to a person fa-miliar with the donation.

BY JULIE BYKOWICZ

BloombergTo SpendBig to HelpDemocrats

permanently fill the post.“I’ll be informing him in a

little while, he doesn’t knowthis yet, that we’re going tobe putting his name up fornomination to be secretary ofthe Veterans Administration,”Mr. Trump said at the eventbefore shaking Mr. Wilkie’shand.

Since then, the WhiteHouse has held back on sub-mitting the necessary paper-work formally nominating Mr.Wilkie, with little explanation.Spokesman Hogan Gidley in a

statement last week said theWhite House was workingwith Mr. Wilkie to moveahead on the nomination,calling Mr. Wilkie “eminentlyqualified.”

The nomination was deliv-ered Wednesday afternoon,according to a spokeswomanfor Sen. Johnny Isakson (R.,Ga.), the chairman of the Sen-ate Committee on VeteransAffairs. A confirmation hear-ing is set for next Wednesday.

The White House didn’t re-spond Wednesday to a re-

quest for comment on the de-lay.

Mr. Wilkie is a longtimeWashington insider with ex-perience in government andprivate-sector companies thatwork with the federal govern-ment. He currently serves asan undersecretary in the De-partment of Defense and hasgone through the Senate con-firmation process in the past.

Before picking Mr. Wilkie,Mr. Trump announced his in-tent to nominate his personalphysician, Rear Adm. Ronny

Jackson, to head the depart-ment. Within days of that an-nouncement, the process wasderailed with allegations ofpast misconduct, which Adm.Jackson denies. A military re-view of those allegations isunder way.

When Mr. Trump an-nounced his intention to nom-inate Mr. Wilkie, Mr. Isaksonsaid he enjoyed getting toknow Mr. Wilkie and that hewill “look forward to learningmore about his long-termviews for the VA.”

WASHINGTON—The Trumpadministration has officiallynominated Robert Wilkie tohead the Department of Vet-erans Affairs, according to theWhite House, ending weeks ofunexplained delay in sendingthe official nomination paper-work to the Senate.

President Donald Trumpsurprised even Mr. Wilkie at aWhite House event last monthwhen he made public hischoice for a new secretary to

BY BEN KESLING

Wilkie Nominated as VA Secretary After a Delay

publishing it is known in thetabloid world as “catch andkill,” The Wall Street Journalpreviously reported.

The company’s chairmanand chief executive, DavidPecker, has said he is a long-time friend of Messrs. Trumpand Cohen, and the Enquireraggressively supported Mr.Trump’s campaign. Ms. Mc-Dougal said in a March lawsuitagainst the publisher that sherealized after the fact the pay-ment was intended to muzzleher during the campaign.

Two months after AmericanMedia’s payment to Ms. Mc-Dougal, Mr. Cohen wired$130,000 to former adult-filmstar Stephanie Clifford so shewould keep silent about an al-leged sexual encounter withMr. Trump, also in 2006. Thatpayment occurred 12 days be-fore the presidential election.

Mr. Trump and his repre-sentatives have denied he hadsexual encounters with Ms.McDougal or Ms. Clifford, whois professionally known asStormy Daniels. Mr. Trump hasacknowledged repaying Mr. Co-

hen through monthly retainers.The White House and Mr. Co-hen didn’t respond to requestsfor comment for this article.

The U.S. Attorney’s Officefor the Southern District ofNew York and the Federal Bu-reau of Investigation have beenexamining whether Mr. Cohencommitted bank fraud or vio-lated campaign-finance orother laws in connection with

the payment to Ms. Cliffordand other matters, accordingto people familiar with the in-vestigation.

Mr. Cohen has deniedwrongdoing and hasn’t beencharged.

Federal agents raided Mr.Cohen’s home, office and hotelroom in April. A search war-

rant obtained by federal inves-tigators authorized seizure ofdocuments related to the pay-ments to Ms. Clifford and Ms.McDougal, the Journal has pre-viously reported.

The search warrant alsocontained a broad provisionasking for materials related toany effort or payment to dealwith sources of negative pub-licity, a person familiar withthe matter said.

Around that time, federalprosecutors sent a subpoena toAmerican Media asking for re-cords related to the McDougalpayment, people familiar withthe matter said. The companyis in the process of producingthe documents, one of the peo-ple said.

Phone records show thatMessrs. Cohen and Peckerwere in frequent contactaround the time of the negotia-tions with Ms. McDougal, an-other person familiar with thematter said. It isn’t clearwhether investigators have ob-tained any information reflect-ing the substance of their dis-cussions.

The Justice Department’sguidelines for federal prosecu-tors describe subpoenas sentto news organizations as “ex-traordinary measures, notstandard investigatory prac-tices.”

Corporations are barredfrom making contributions tocandidates under federal elec-tion law. If investigators findevidence that Mr. Cohenpressed American Media tobuy Ms. McDougal’s story toprotect Mr. Trump’s campaign,prosecutors could bringcharges against Mr. Cohen, thecompany or both, legal expertssaid.

In such a case, prosecutorswould have to prove Mr. Cohencoordinated with AmericanMedia to provide Mr. Trumpsomething of value for the pur-pose of influencing the elec-tion, said Douglas Spencer, aprofessor of law and publicpolicy at the University of Con-necticut.

Proving coordination wouldlikely be the most difficultprong of such a case, Mr. Spen-cer said.

Federal authorities havesubpoenaed the publisher ofthe National Enquirer for re-cords related to its $150,000payment to a former Playboy

model for the rights to herstory alleging an affair withDonald Trump, according topeople familiar with the mat-ter.

The subpoena from Manhat-tan federal prosecutors re-questing information from thepublisher, American MediaInc., about its August 2016payment to Karen McDougal ispart of a broader criminal in-vestigation of Mr. Trump’s for-mer personal lawyer, MichaelCohen, they said.

Investigators are probingany potential efforts by Mr.Cohen to suppress damaginginformation about Mr. Trumpduring the presidential cam-paign, including whether hecoordinated with AmericanMedia to pay Ms. McDougaland then not publish her ac-count, other people familiarwith the matter said.

Prosecutors are examiningwhether the payment violatedcampaign-finance or otherlaws, the people said.

American Media hasn’t beenaccused of wrongdoing, andthe company has denied pay-ing Ms. McDougal to suppressher story.

A spokesman for AmericanMedia said the company hascomplied “with any and all re-quests that do not jeopardizeor violate its protected sourcesor materials,” in accordancewith its First Amendmentrights.

Ms. McDougal has said pub-licly that she had a nearlyyearlong affair with Mr. Trumpbeginning in 2006. The tacticof paying for a story but not

By Nicole Hong, JoePalazzolo,Michael

Rothfeld and RebeccaDavis O’Brien

Tabloid Publisher Gets SubpoenaedProsecutors probe ifNationalEnquirerworkedwith ex-Trump lawyerto bury affair allegation

David Pecker, chairman of American Media, which paid Karen McDougal, right, for her story about an alleged affair with Donald Trump.

FROM

LEFT

TORIGHT:

ROSSWHITE/B

FA;JEFF

KRAVITZ/FILMMAGIC/G

ETT

YIM

AGES

Prosecutors seekinformation about thepublisher’s paymentto ex-Playboy model.

#SQUADONAMISSION

The Breitling Jet SquadJacques Bothelin

Christophe DeketelaerePaco Wallaert

A4 | Thursday, June 21, 2018 P W L C 10 11 12 H T G K B F A M 1 2 3 4 5 6 7 8 9 O I X X * * * * * THEWALL STREET JOURNAL.

U.S. NEWS

thus far, but was expecting arequest shortly as existing mi-grant facilities reach capacity.

Government officials havelooked at buildings at threesites: Goodfellow Air ForceBase and Dyess Air Force Base,both in Texas, and Fort BlissArmy base, which straddles theborder of Texas and New Mex-ico, the defense official said.Officials this week considered afourth installation, Little RockAir Force Base in Arkansas.

As late as Tuesday, Mr.Trump and top administrationofficials refused to entertainsuggestions that they take ex-ecutive actions to end the fam-ily separations, instead callingon Congress to pass legislation.

Mr. Trump said Tuesday he

saw only two options availableto the administration—“totallyopen borders or criminal pros-ecution for lawbreaking”—with only Congress able toprovide a third option to de-tain and remove families “to-gether as a unit.”

The president and Republi-cans had come under growingpressure after images and au-dio recordings surfaced ofsome of the 2,342 children theadministration has said wereseparated from adults andplaced in government facilitiessince the policy took effect.

In response, many GOP law-makers pushed for legislativemeasures that would detainfamilies intact at the border.Democrats had broadly sought

6,350

2,690

16,480Guatemala

Honduras

Mexico

El Salvador

FY2018Oct.–May

6,690

Unaccompanied children* apprehended at the Mexican borderby top four countries of origin for migrants

THEWALL STREET JOURNAL.Source: Department of Homeland Security

*17 and under †Fiscal year-to-date (Oct. 1, 2017–May 31, 2018)Note: Fiscal year ends Sept. 30.

Heading North

80,000

0

20,000

40,000

60,000

FY2013 ’14 ’15 ’16 ’17 ’18†

settlement—known as the Floresagreement—bars the govern-ment from jailing migrant chil-dren. The move by the adminis-tration to continue arrestingadults while keeping their chil-dren with them in custody couldrun afoul of that settlement.

In the order, the Republicanpresident directed AttorneyGeneral Jeff Sessions to try tomodify that court settlement toenable officials to detain fami-lies together for the duration oftheir immigration proceedings.

Legal experts said that wouldset the stage for the same courtbattles that President BarackObama’s Democratic adminis-tration fought and lost when ittried to jail migrant families to-gether for more than 20 days.

Gene Hamilton, a counselorto Mr. Sessions, said the execu-tive order was legal butstressed that it would be up toCongress to create a perma-nent resolution. He said the De-partment of Homeland Securityand the Justice Departmentwould be working closely to-gether to implement the policy,but declined to offer specifics.

In the order, which Mr.Trump signed while flanked byVice President Mike Pence andHomeland Security SecretaryKirstjen Nielsen, the presidentalso instructed the Pentagonto make facilities available forthe housing and care of immi-grant families.

Defense Secretary Jim Mat-tis said Wednesday that thePentagon stood ready to help. AU.S. defense official said thePentagon hadn’t been asked forthe use of any military facility

to allow families to be releasedinto the U.S. together whiletheir cases are adjudicated.

GOP lawmakers met with Mr.Trump on Tuesday night andagain Wednesday morning. Mr.Trump said he had seen, andbeen horrified, by some imagesof the detained children.

“The president just wants itall: He wants to keep families to-gether, he wants zero toleranceand everything else,” a WhiteHouse official said Wednesday.“And this is what it looks likewhen you try to get it.”

The White House’s reversalwas welcomed by Republicanson Capitol Hill. But it also raiseda host of questions aboutwhether Congress still needed tolegislate, whether a new systemfor keeping families togetherwould end up amounting to in-definite detention while theircases are adjudicated, and howthe government would reunifyfamilies already split apart.

“I’m very pleased if the ex-ecutive order brings a halt tothis inhumane, traumatizingexperience for these children,but it might be helpful forCongress to define better therules of the road,” said Sen.Susan Collins (R., Maine).

“President Trump’s execu-tive order merely replaces oneinhumane act with another,”said Sen. Bernie Sanders (I.,Vt.). “In response to the over-whelming public outrage at hisadministration’s policy of tear-ing children away from theirparents at the border, this ad-ministration thinks the appro-priate response is to indefi-nitely detain families.”

gether when “appropriate andconsistent with law and avail-able resources.”

He kept in place the admin-istration’s “zero tolerance” pol-icy, instituted earlier in thespring, of prosecuting adultswho attempt illegal entry intothe U.S. That policy provoked apolitical outcry when it led tothe separation of thousands ofchildren from adults who werearriving at the southern border.

“We’re going to keep familiestogether, but the border’s goingto be just as tough as it’s been,”Mr. Trump said of the order ata campaign-style rally Wednes-day night in Duluth, Minn.

It remained unclear howthe order would overcome le-gal and logistical hurdles, orhow it would affect the morethan 2,300 children alreadyseparated from adults whohad been apprehended.

A spokesman for the De-partment of Health and HumanServices, which is responsiblefor the separated children, saidWednesday night the agency isstill “awaiting further guidanceon the matter” and that aspokesman had earlier mis-spoke in saying that existingcases would be unaffected bythe order.

A longstanding federal-court


Order SeeksChange forFamilies

“It is well known this is atough government with a badheart,” said Claudia Meléndez,a 32-year-old Honduran motherof two.

Migrants say that Mexicoisn’t an option for them. Rey-nosa, like parts of Mexico, hasbeen convulsed by a wave ofdrug gang violence. The mainsource of jobs are in assemblyplants, where the averagemonthly wage is $200.

Most migrants make a dan-gerous journey to this town bybus or hop on cargo trainsfrom southern Mexico. Mexi-can police, criminals and cor-rupt security forces all dogtheir steps. Smugglers charge$1,000 to cross the river intoMcAllen, and some $4,000 toget them to Houston and be-

yond, migrants say.Many described their efforts

to escape gang violence, unem-ployment and grinding povertyin their home countries. Theirstories couldn’t be indepen-dently confirmed but they areconsistent with descriptionsfrom human rights advocates.

Ms. Flores said she left ElSalvador fleeing the viciousMara Salvatrucha gang, alsoknown as MS-13. She lived inCuscatancingo, a town near thecapital, with Joan, whose fatherabandoned them when Joanwas three months old.

She opened amodest beautysalon. Joan, an avid soccer fan,was getting good grades atschool. But violence engulfedthe community. Shootings be-camemore frequent. The break-

ing point came when Joan wit-nessed a murder.

Ms. Flores said she decided itwas time to leave. She sold thebusiness. A relative in Los An-geles put her in touch with asmuggler who offered to takeher and Joan to the Mexicanborder city of Tijuana, acrossfrom San Diego.

They left El Salvador inMarch. But once they got toTapachula, on Mexico’s south-ern border, the smuggler aban-doned them with other mi-grants at a safe house. Shewent to work as a hotel maidto earn enough money to con-tinue her journey. Ms. Floresarrived at the shelter in Rey-nosa in early June. If deniedasylum, she’ll try to enter theU.S. in any case. But she

doesn’t know how and when.Some 800miles west of Rey-

nosa, in the border town of Ciu-dad Juárez near El Paso, Mexi-can migrants were also tryingto seek asylum in the U.S.

“I’m afraid of the U.S. gov-ernment’s response,” said An-gelica, a 42-year old womanfrom the violent state of Micho-acán, as she held her three-yearold granddaughter Ruth Sofia.

“We’re doing everything wecan to process (people) in a safeand humane way,” said RayProvencio, the Customs andBorder Protection acting direc-tor at the border checkpoint.Two Mexican families and oneCentral American one were al-lowed to cross into the U.S. bor-der station and apply for asy-lum on Wednesday.

The White House is set topropose merging the Labor andEducation departments as partof a reorganization of the fed-eral government, said a personwith knowledge of the changes.

An announcement isplanned for Thursday morn-ing, after a monthslong reviewof cabinet agencies with aneye toward shrinking the fed-

BY MICHELLE HACKMANAND ERIC MORATH

eral government.The changes would require

approval from Congress, but itisn’t clear that lawmakershave the appetite to undertakea far-reaching reorganization,especially at this point in thepolitical calendar.

Lawmakers have shown re-luctance to embrace such plansin the past, and Congress haslimited time for major legisla-tion before the November mid-term elections. Previous pro-posals to eliminate agencies,including the Education and En-ergy departments, have madelittle headway.

Streamlining the executivebranch has been a longtimeconservative goal. The new plan

also meshes with the adminis-tration’s priority of retoolinghigher-education programs totrain students more directly tojoin the workforce.

The White House has cham-pioned plans to expand accessto apprenticeships, for example,and the Education Departmenthas moved to deregulate thecontroversial for-profit collegeindustry, which often focuseson school-to-workforce trainingprograms but has been plaguedby scandals.

Spokesmen for the WhiteHouse and Labor Departmentdeclined to comment. Repre-sentatives at the Education De-partment couldn’t be reachedfor comment.

The administration has alsobeen weighing changes at theDepartment of Health and Hu-man Services, such as consoli-dating safety-net programs un-der HHS. That could accompanya renaming of the department tosomething similar to its name inthe 1970s, when it was called theDepartment of Health, EducationandWelfare.

HHS oversees Medicaid andother social-assistance pro-grams, while school meals andthe food-stamp program, for-mally called the SupplementalNutrition Assistance Program,are run by the Agriculture De-partment.

The Treasury and Depart-ment of Housing and Urban

Development oversee stillother programs.

The Education Departmentis one of the smallest federalgovernment agencies, withabout 3,900 employees. Itsworkforce has shrunk by morethan 10% since President Don-ald Trump took office, with Ed-ucation Secretary Betsy DeVosenforcing a departmentwidehiring freeze.

The department’s largest di-vision oversees $1.4 trillion infederal student loans, and thedepartment is also responsiblefor distributing K-12 educationdollars and enforcing civil-rightslaws at public schools andhigher education institutions.

The Labor Department has

about 15,000 employees whoseresponsibilities range from en-forcing federal minimum-wagelaws to overseeing worker-training programs. Its biggestdivision is the Bureau of LaborStatistics, which produces themonthly jobs report and othereconomic data.

Republicans during the Clin-ton administration proposedmerging the departments of Ed-ucation and Labor, along withthe Equal Employment Oppor-tunities Commission, naming itthe Department of Educationand Employment. At the time,the Government AccountabilityOffice predicted an agencywould have a budget of $71 bil-lion and employ 25,000 people.

Plan Seeks toMerge Labor and EducationWhite House effort tostreamline agenciesisn’t likely to winsupport in Congress

REYNOSA, Mexico—Patriciade Jesús Flores journeyed 1,500miles from El Salvador throughGuatemala and Mexico to thistown just across the Rio Grandefrom McAllen, Texas, with her7-year-old son.

She was headed to Los Ange-les and said she wanted to seekasylum and enter the U.S. le-gally. But, if denied, she said shewas prepared to sneak in evenat the risk of losing Joan.

“The only future for my sonin El Salvador was to become agang member. I don’t want towake up one day and see himdead on the street,” Ms. Flores,a single mother, said as Joanplayed with other children in amigrant shelter here.

On Wednesday, Ms. Floressaid she was relieved whenPresident Donald Trump signedan executive order to end a pol-icy separating children from im-migrants arrested crossing theborder illegally.

That was the fate of morethan 2,000 migrant childrensince the Trump administrationin April decided to prosecute allmigrants attempting to enterthe country illegally.

Mr. Trump later signed theexecutive order, though his ad-ministration didn’t say how itwould keep immigrant familiestogether. Even before Mr.Trump’s decision to end familyseparations, most migrants in-terviewed at this warehouselikeshelter were determined to con-tinue their exodus with theirchildren to the U.S. They saidthe Trump shift simply removedone obstacle.

Deep-rooted religious faithalso played a role in her deci-sion. “I know that God wouldn’tallow them to takemy son fromme,” Ms. Flores said.

Immigrants at this modestshelter run by a folksy evangeli-cal pastor weren’t deterred bythe outcry surrounding familyseparations that is roiling theU.S. Many say they were awareof Mr. Trump’s animosity to-ward migrants.

BY JUAN MONTES

At the Border, Policy Shift RelievesMigrants

A Salvadoran woman, Patricia de Jesús Flores, with her son Joan, 7, in a shelter near the U.S. border in Reynosa, Mexico, Wednesday.

GINNETTE

RIQUELMEFO

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WASHINGTON—The FederalTrade Commission’s newchairman is promising activeantitrust enforcement acrossindustries as well as scrutinyof big technology platforms,the latest signal that Trumpappointees could be as aggres-sive on enforcing competitionlaw as their Democratic prede-cessors.

Joseph Simons, in his firstroundtable session with re-porters Wednesday, said hismessage to the business com-munity is to expect vigorousenforcement.

“That’s the key thing. That’sthe mantra,” he said, adding,“We want to go after casesthat matter.”

The FTC shares antitrustpowers with the Justice De-partment, as both agencies re-view proposed mergers and in-vestigate business conductthat is potentially anticompet-itive.

The Justice Departmentwas recently dealt a blowwhen a federal judge rejectedits bid to block AT&T Inc.’stakeover of Time Warner Inc.,suggesting enforcers may facechallenges breaking new

ground in the digital era.The commission also is the

chief enforcer of U.S. con-sumer-protection law, which inrecent years has put it at theforefront of issues related toonline privacy and data secu-rity.

The FTC, for example, iscurrently investigating Face-book Inc.’s privacy practices.

The five-member bipartisancommission, however, hasmaintained a relatively lowprofile since President DonaldTrump was elected, in part be-cause the White House waiteda year before nominating newFTC members.

Mr. Simons, a respectedveteran antitrust lawyer, wasconfirmed in late April andsworn in May 1.

He announced Wednesday aseries of hearings beginningthis fall to examine whetherchanges in the economy,evolving business practicesand new technologies requirea new approach to enforce-ment.

Among other things, Mr. Si-mons said he wanted the com-mission to go back and studywhether it had been toughenough in policing past merg-ers. The FTC, he said, woulddo research, perhaps in con-junction with antitrust aca-demics, to examine whethertransactions previously ap-proved by the FTC have led tohigher consumer prices orother harmful results.

“That’s definitely one of thethings we want to investigate,”he said. The effort appearsmore of a fact-finding exercisethan an attempt to reopenpast cases.

Republican-appointed anti-trust enforcers have tended tobe less interventionist thanDemocrats, but that hasn’tproven true so far in theTrump administration.

BY BRENT KENDALL

New FTCChief SetsSights onAntitrust

Joseph Simons saidthat his message tobusinesses is to expectvigorous enforcement.

THEWALL STREET JOURNAL. * * * * Thursday, June 21, 2018 | A5

U.S. NEWS

U.S.WATCH

ECONOMY

Existing-Home SalesFall for Second Month

Sales of previously ownedU.S. homes declined in May forthe second consecutive month,signaling that a run-up in prices,rising mortgage rates and lim-ited inventory may be holdingdown purchases during thespring buying season.

Existing-home sales dropped0.4% in May from the prior monthto a seasonally adjusted annualrate of 5.43 million, the NationalAssociation of Realtors said. NewsCorp, owner of The Wall StreetJournal, operates Realtor.com un-der license from the NAR.

—Sarah Chaney

WEST VIRGINIA

Justice Is IndictedOn 22 Counts

Federal prosecutors indicted aWest Virginia justice on 22counts, including mail fraud andwitness tampering, related to hisalleged misuse of state vehiclesand a historic desk.

West Virginia Supreme Courtof Appeals Justice Allen Loughryfaces 16 counts of mail fraud, two

counts of wire fraud, one countof witness tampering and threecounts of making a false state-ment to investigators.

Justice Loughry couldn’t bereached to comment. A spokes-woman for the court didn’t re-spond to a request to comment.

—Kris Maher

KENTUCKY

GOP-Backed PensionOverhaul Struck Down

Kentucky’s new public-pensionoverhaul was struck down, in asetback for the state’s Republi-can leaders on an issue that an-gered thousands of teacherswho marched on the Capitol andclosed schools in protest.

Franklin County Circuit JudgePhillip Shepherd ruled that theGOP-run Legislature violated thestate Constitution in enactingthe law.

—Associated Press

REPUBLICAN PARTY

Michael CohenQuits RNC Post

Michael Cohen, President Don-ald Trump’s former longtime law-yer, resigned from his post as na-

tional deputy finance chairman atthe Republican National Commit-tee on Wednesday, according toan RNC official, saying the investi-gations into his contacts with Rus-sia and his business dealings wereproving too great a distraction.

Mr. Cohen, whose exit was re-ported earlier by ABC News,didn’t respond to a request forcomment.

—Rebecca Ballhaus

TITANIC ARTIFACTS

Potential AuctionIs on a New Track

The sale of artifacts from theTitanic through a bankruptcy-runauction has taken a new routeafter several sale efforts.

A group of equity holders andlenders behind Premier Exhibi-tions Inc., the bankrupt companythat owns thousands of artifactsfrom the doomed ocean liner,has made a $17.5 million offer toacquire the company, accordingto court papers filed last week.

PacBridge Capital Partnersand funds affiliated with ApolloGlobal Management and AltaFundamental Advisers andother equity holders and securedlenders are among the group.

— Lillian Rizzo

able network of charging sta-tions.

The recommendations don’tattach dollar figures to sug-gested investments and arenonbinding, though they areaimed at ensuring compliancewith future regulations.

The recommendations re-flect an effort among thestates to combat climatechange a dozen years into thefuture and are being framed bythe states as a defiant step asthe Trump administrationmoves to relax federal regula-tions covering tailpipe emis-sions. Current U.S. regulationsmandate car companies sellvehicles that cut emissionsenough to average more than50 miles a gallon by 2025. U.S.regulators have weighed a pro-posal freezing fuel-economystandards for future years.

More than 60% of current

U.S. car sales are less-efficientpickup trucks and sport-utilityvehicles, a trend largely tied tocheaper gasoline prices. Elec-tric vehicles have accountedfor around 1% of sales in re-cent years.

Despite the market land-scape, a key metric behind thestates’ plan is an emissions-cutting goal amounting tosales of roughly 12 millionzero-emission vehicles by 2030across the nine states. Therewere about 461,000 such vehi-

cles on the road in the ninestates at the end of 2017, ac-cording to registration data.

“With the goal of movingmore people to electric vehi-cles, states and utilities mustcommit to investing in thecharging infrastructure that isneeded to support consumeradoption,” said a spokesmanfor the Alliance of AutomobileManufacturers, a Washingtonlobbying group. He added re-bates, parking and HOV-laneaccess are incentives that mo-tivate consumers to switch toelectric cars.

The states represent nearly30% of the U.S. auto marketand most have Democraticgovernors. In addition to Cali-fornia, the coalition of statesincludes Oregon, Maryland,New York, New Jersey, Con-necticut, Vermont, Massachu-setts and Rhode Island.

BY MIKE SPECTOR

States Push Zero-Emission Plan

1%Portion of U.S. car sales in recentyears that were electric vehicles

In the Old Bear Republic, a New Trail Opens at the Zoo

SWIMMING HOLE: Bears took a dip in their pool habitat in the new California Trail section at the Oakland Zoo on Wednesday.

BENMARGOT/ASSOCIATE

DPRESS

California and eight otherstates rolled out a plan pres-suring auto makers and othersto meet ambitious goals forsales of environmentallyfriendly automobiles—part ofan effort to maintain tough lo-cal regulations as the Trumpadministration moves to relaxemissions standards.

The plan, covering 2018-21,outlines 80 steps that automakers, dealers, utilities, gov-ernment officials and chargingand fueling companies shouldtake to boost adoption of so-called zero-emission vehicles,predominantly battery-pow-ered automobiles.

The recommendations in-clude increasing advertisingpromoting environmentallyfriendly cars, ride-and-driveevents and building out a reli-

WASHINGTON—The new IRSForm 1040 will be released nextweek, and it will be signifi-cantly smaller than the currentversion, Treasury Secretary Ste-ven Mnuchin said Wednesday.

“It will be a postcard, as wehave promised,” he said at anevent celebrating the six-month anniversary of the taxlaw that lowered rates and re-moved some tax breaks.“Hardworking taxpayers won’thave to spend nearly as muchtime filling out their taxes.”

Mr. Mnuchin provided noother detail on what the formwill look like. The existingForm 1040 for filing individualtaxes is two pages long, withadditional schedules and com-

putations often required. TheInternal Revenue Service al-ready offers a one-page Form1040EZ for taxpayers withsimple financial situations anda Form 1040A that is lesscomplex than the regular formbut longer than the 1040EZ.

The tax law enacted in De-cember removed some breaksthat previously took up spaceon the 1040, including the de-duction for moving expenses.Other lines on the 1040 couldbe eliminated by moving themto separate forms or schedules.

For millions of taxpayers, alarger standard deduction willsimplify tax filing becausethey won’t need to track item-ized deductions. Other com-plex areas of the tax law werelargely unchanged.

BY RICHARD RUBIN

Mnuchin Touts‘Postcard’ 1040

the person who brought thecharges has gone through, aswell as for the scandal suchcharges cause our people,”Cardinal McCarrick said.

Patrick Noaker, a Minneapo-lis attorney who representsthe accuser, said the allegationwas made in January and in-volves two incidents at St. Pat-rick’s Cathedral in New York inthe early 1970s.

The Archdiocese of NewYork investigated the allega-tion. Cardinal Timothy Dolanof New York thanked the vic-tim for coming forward andsaid he hoped the processwould bring a sense of resolu-tion and fairness.

The case follows numerousallegations of abuse by Catho-lic priests around the world. Inthe U.S., several high-rankingchurch officials have beenswept up in allegations thatthey covered up years of abuseby priests in some cases.

—Francis X. Roccacontributed to this article.

The Catholic Churchsaid Wednesday it found an al-legation of sexual abuseagainst a former archbishop ofWashington, D.C., to be credi-ble, and the retired priest willstop practicing his ministry.

He is the highest-rankingU.S. Catholic cleric ever to re-ceive this penalty for allegedsexual abuse.

Cardinal Theodore McCa-rrick was accused of sexuallyabusing a then-teenagerroughly 45 years ago, when hewas a priest in New York. The87-year-old former archbishopsaid that he didn’t rememberthe incident and that he be-lieves he is innocent. But hesaid he is cooperating with theinvestigation and would re-frain from any public ministrygoing forward.

“While I have absolutely norecollection of this reportedabuse, and believe in my inno-cence, I am sorry for the pain

BY KRIS MAHER

Sex-Abuse AllegationCredible, Church Says

allegations that certain FAAsupervisors have disregardedvarious inspector complaintsand failed to aggressivelycarry out enforcement actionsafter they were drafted. Atleast one inspector has filed awhistleblower complaint andalleged that he suffered retali-ation from management.

Practices under review inthe audit range from changesin the way pilots computetakeoff distances and set flightcontrols to how the airlineruns specific training pro-grams to help pilots deal withstalls, these people said.

In its statement, the inspec-tor general said “recent eventshave raised concerns aboutFAA’s safety oversight, partic-ularly for Southwest Airlines,”adding that the “objective is toassess FAA’s oversight ofSouthwest Airlines’ systemsfor managing risk.”

Hours after the inspector

general’s statement, the FAAreleased a statement, saying itwelcomed the audit, calling itan “opportunity to improveupon what is already the safestaerospace system in the world.”

“We have a very transpar-ent and professional relation-ship with the Federal AviationAdministration,” Southwestsaid in response to questionsabout the audit. “Our absolutegoal at Southwest is to meetor exceed every requirementof our Safety ManagementSystem, and we believe we areheld accountable to that goalby the FAA.”

Allegations regarding train-ing and operational issues, ac-cording to the people familiarwith the matter, aren’t con-nected to the high-profile fail-ure and disintegration of an en-gine on a Southwest flight inApril, which killed a passenger.

—Alison Sidercontributed to this article.

The Transportation Depart-ment’s inspector general is ex-amining whether federal avia-tion inspectors have doneenough to ensure safety in po-licing operations of SouthwestAirlines Co.

Scrutiny of the Federal Avia-tion Administration’s oversightoffice in the Dallas area, re-sponsible for supervising thecarrier with the largest numberof domestic passengers, wasdisclosed Wednesday in a one-paragraph statement devoid ofdetails. But the audit wasprompted, at least in part, bymonths of allegations comingfrom inside the local office thatsome FAA supervisors were toocozy with airline managers, ac-cording to people familiar withthe details.

Some of the issues auditorsare delving into, according toone of these people, include

BY ANDY PASZTOR

FAA Oversight of Southwest Is Examined

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Island NationsRural Areas


TEL AVIV—Militants fired avolley of rockets into Israelfrom the Gaza Strip, puncturinga tacit three-week cease-fire, inthe latest flare-up in tensionsbetween the two sides.

The rockets from Gaza be-gan early Wednesday after Is-rael first struck three targetsin the strip in what the mili-tary said was a response to re-peated launches of flamingkites and balloons with explo-sives, low-tech weapons that

video tweeted by the U.A.E.’snews agency.

The coalition and its alliesare betting that taking Hodei-dah from the Houthis willforce the rebels into a broaderpolitical compromise that re-moves them from power in thecapital, San’a.

The U.N.’s Yemen envoy,Martin Griffiths, is shuttlingbetween Arab capitals to reachan agreement that spares Ho-deidah from an all-out attack.

Those talks have yet to pro-

duce a plan both sides accept,however.

Hodeidah’s port is an eco-nomic outlet for the Houthisthat has helped the group sus-tain itself despite the conflict,bringing in as much as $40million a month in revenue,Emirati officials said.

The city of 400,000 is alsothe entry point for much of Ye-men’s commercial food im-ports and three-quarters of thehumanitarian aid that millionsof Yemenis rely on to survive.

The U.N. said this monththat as many as 250,000 peo-ple could die if the aid gate-way is disrupted by battle.

There were still some pock-ets of fighting on the airportgrounds on Wednesday, mili-tary officials said.

But a person close to thecoalition confirmed the air-port had been fully secured af-ter a Houthi counterattack inthe morning.

A village to the west of theairport had also been cap-

tured, the person said.During the battle, the

Houthis destroyed about fivecoalition vehicles with anti-tank guided missiles, the per-son said, and fired a missilethat landed in the sea.

The Houthis laid large num-bers of mines in areas in andaround the airport, which maytake time to fully clear.

Gen. Shehi estimated 250Houthis had been killed in theoperation, and said 87 weretaken prisoner.

WORLD NEWS

Houthi representativescouldn’t be reached onWednesday. They have deniedprevious reports of the airportbeing overtaken.

On Tuesday, Houthi spokes-man Nasruddeen Amer playeddown the airport’s signifi-cance.

“We do not use this airportand no planes fly from it,” hesaid. “It does not have anystrategic importance for us,but we defend it as part of Ho-deidah.”

Following the airport’s cap-ture, coalition-backed Yemeniforces were expected to moveinto the city’s neighborhoodsfrom the south and cut offHouthi resupply lines fromSan’a to the east.

The U.A.E. and its coalitionpartners say they have devel-oped a plan to allow humani-tarian aid to flow even as theconflict intensifies.

The U.A.E. has 50,000 met-ric tons of food aid in Yemento deploy as needed in Hodei-dah, according to a letter itsent to the U.N. on Tuesday.

That includes aid on 10ships, 100 trucks and aplanned “air bridge” to drop inas much as 14,000 tons offood.

—Mohammed al-Kibsi inSan’a, Yemen, and Saleh al-

Batati in Aden, Yemen,contributed to this article.

A Saudi-led military coali-tion said Yemeni forces cap-tured the airport of Hodeidah,a milestone in their bid towrest control of the Red Seaport from Houthi rebels with-out causing a humanitarian ca-tastrophe.

The battle for Hodeidah isa potential turning point inYemen’s more-than-three-year war, which pits the co-alition of mostly Arab coun-tries against the Houthis, anIran-aligned political and cul-tural group that has ex-panded power from its north-ern stronghold to much ofthe country’s west since2014.

Coalition officials toldstate-backed news agencies inSaudi Arabia and the UnitedArab Emirates that the city’sstrategically important airportwas fully captured.

“The airport was com-pletely cleared and is undercontrol now,” said Brig. Gen.Abdul Salaam al-Shehi, thecommander of coalition forceson Yemen’s Red Sea coast, in a

BY ASA FITCH

Yemeni Forces Retake Key City’s AirportMove marks milestonein Saudi-led coalition’sbid to seize control ofHodeidah from Houthis

Yemeni fighters backed by the Saudi-led coalition fire from a truck near the Hodeidah airport before capturing it from Houthi rebels.

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have damaged thousands ofacres of Israeli farmland.

Over several hours, Gazamilitants fired 45 rockets intoIsrael and the Iron Dome sys-tem intercepted seven of them,the Israeli army said. The freshbarrage triggered sirens inseveral Israeli towns near theborder. There were no immedi-ate official reports of deaths orinjuries from the attacks.

As of 6 a.m. local time, theIsraeli military said it hadstruck 25 targets in the GazaStrip overnight in response to

what it described as a “severerocket attack” from the 25-mile-long enclave, which isdensely populated.

Hamas spokesman FawziBarhoum said on Twitter onWednesday that the large num-ber of rockets was meant to “setthe rules of the engagement” af-ter the Israeli airstrikes.

The escalating tensionsshow how Israel’s high-techmilitary is grappling to respondto the basic incendiary balloonsthat have burned thousands ofacres of Israeli farmland and

damaged nature reserves. Israelsaid it targeted Hamas militarycompounds with airstrikes topressure the group to halt thearson attacks.

Egypt has quietly mediatedbetween Israel and Hamasduring the surge in violencethat stems from clashes be-tween Palestinian protestersand Israeli military forces atthe border fence separatingthe Gaza Strip and Israel.Since March 30, more than 120Palestinians have been killedby Israeli forces at the border.

BY FELICIA SCHWARTZ

Gaza Militants Fire Rocket Barrage Into Israel

Israeli planes bombed Gaza City in response to rocket fire.

ZHAOYUE/X

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stimulus policies last week tosupport a softening economy,the trade conflict is “a matterof great concern,” said Bank ofJapan Gov. Haruhiko Kuroda.

The indirect impact onJapan’s economy could be“quite significant if the escala-tion between China and theU.S. continues,” Mr. Kurodasaid, because it could affect

heating.While the tensions haven’t

yet dented U.S. economicgrowth, Mr. Powell said busi-nesses increasingly were ex-pressing concerns to the Fedabout how the conflict mightaffect their plans for invest-ment and hiring.

For Japan, whose centralbank maintained its aggressive

could be pushed back.Jerome Powell, chairman of

the Federal Reserve, warned inthe discussion that changes intrade policy “could cause us tohave to question the outlook.”The Fed last week raisedshort-term interest rates andsignaled a quicker pace of in-terest-rate increases to keepthe U.S. economy from over-

WORLD NEWS

Daimler IssuesProfit Warning asChina Duties Bite

BERLIN—The escalatingtrade war between the U.S. andChina has claimed an unin-tended victim: Germany’s pre-mium car manufacturer, Daim-ler AG.

The Stuttgart-based makerof luxury sedans and muscular

sport-utility vehicles issued asurprise profit warning lateWednesday, saying Chinese re-taliatory import duties on vehi-cles built in the U.S. would hitsales and profits of the SUVs itbuilds at its Alabama factory.

“This effect cannot be fullycompensated by the realloca-tion of vehicles to other mar-kets,” Daimler said in a state-ment.

Daimler now expects pretaxprofits at its Mercedes-Benz

Cars division to fall slightly be-low the previous year’s levels.

While Daimler called China’simport tax on U.S. autos the“decisive factor” in lower earn-ings, it said other divisions werealso weakening as a result ofnew European emissions regu-lation and the decline of diesel.As a consequence, Daimler said2018 group earnings before in-terest and taxes would belower than the previous year.

—William Boston

the Asian supply chain cen-tered on countries like Japanand Taiwan and across south-east Asia.

While the tariffs themselvesmight not derail the globaleconomic recovery, the falloutcould be magnified by inves-tors through financial mar-kets, said Australia’s central-bank governor, Philip Lowe. “Ibelieve what is happening [ontrade] is incredibly worrying,”Mr. Lowe said.

He added that “it wouldn’ttake that much for financialmarkets to turn this into avery big global event.”

The problem for centralbanks, in Japan and elsewhere,is that they appear to have lit-tle ammunition left to dealwith any new economic down-turn after years of aggressivestimulus.

The value of assets held bythe Bank of Japan is set to ex-ceed the nation’s annual eco-nomic output over the comingmonths, while the ECB’s bal-ance sheet also will continueto grow through the end ofthis year. Both central banksare still holding short-term in-terest rates below zero.

said ECB President MarioDraghi, who was hosting theevent, Europe’s answer to theFed’s annual economic sympo-sium in Jackson Hole, Wyo.

Mr. Draghi warned that dis-putes over trade have created“considerable uncertainty” forthe 19-nation eurozone econ-omy, which has slowed sharplyin recent months.

The European Union saidWednesday it would imposetariffs on U.S. goods valued ataround €2.8 billion ($3.2 bil-lion) in response to Americanimport tariffs on steel andaluminum. But the EU’s moveis unlikely to discourage theU.S. from a second round oftariffs, possibly targeted atEuropean autos, which wouldhit exports valued at 0.3% ofthe EU’s economic output,said Oliver Rakau, an econo-mist with Oxford Economicsin Frankfurt.

In a shift reflecting thoseconcerns, Mr. Draghi warnedTuesday that the bank coulddelay plans announced onlylast week to phase out its €2.5trillion bond-buying programand suggested the timing of afirst interest-rate increase

raised concerns over the pastfew weeks about the potentialfallout from the administra-tion’s attempts to wrest con-cessions from trading partnersby imposing tariffs on a widerange of goods, warning ofhigher import prices and ex-ports lost because of retalia-tion by other countries.

The European Union willstart imposing retaliatory tar-iffs on U.S. goods on Friday, inresponse to U.S. duties onsteel and aluminum importsfrom the bloc.

American exports valued at€2.8 billion ($3.2 billion) willbe subject to tariffs immedi-ately and Brussels will ulti-

mately increase its rebalanc-ing measures to €6.4 billion,the EU’s executive arm—theEuropean Commission—saidWednesday.

Almost all U.S. goods hit inthe first round of measures—including bourbon whiskeyand Harley-Davidson motorcy-cles—will be subject to a 25%

fall.Mr. Ross didn’t comment on

whether the U.S. would bewilling to cut tariffs on trucks.

Government officials in Ber-lin are cautious about the carmakers’ initiative. While theyendorse the idea, they say thegovernment already ap-proached the Trump adminis-tration with similar proposalsweeks ago without elicitingmuch interest. They also say

no talks are currently takingplace on trade between Europeand the U.S. as the EU final-izes its response to Mr.Trump’s steel and aluminumtariffs.

Mr. Grenell, a rare U.S. am-bassador seen as having a di-rect line to the president, toldThe Wall Street Journal thathurting German car makerswouldn’t be in the interest ofthe U.S.

“It is important to stay fo-cused on American jobs, andthe German auto industry em-ploys tens of thousands of U.S.workers,” Mr. Grenell said.

Daimler confirmed that ameeting with Mr. Grenell tookplace but declined to com-ment. Volkswagen also de-clined to comment.

A spokesman for BMW saidin the company is “convincedthat free trade, with minimal

trade in automotive productsas the keystone of a broaderdeal covering industrial goods.The German government is onboard and Mr. Grenell prom-ised to support the idea, ac-cording to U.S. and German of-ficials.

German car makers’ effortsface significant hurdles. Berlinhas no power to hammer outtrade deals—a prerogative ofthe European Commission, theEU’s executive body in Brus-sels—and would have to per-suade fellow EU memberstates, starting with France, toback a radical free-trade ap-proach many have shown littleinterest in.

The car makers’ approach isunusual, but German officialssaid any approach could beworthwhile to try to sway apresident whose actions haveleft his allies perplexed atbest.

“Germany has the right ap-proach to resolving this tradedisagreement among friends,”said U.S. Commerce SecretaryWilbur Ross. “If the EU wereto reduce its 10% tariff on U.S.cars and trucks, that would bea positive first step towardtrade that was more fair andreciprocal.”

One catch is that the Euro-peans also want a 25% U.S. taxon imports of light trucks—pickup trucks, sport-utility ve-hicles and big vans—scrapped.Abolishing this relic of theJohnson administration couldalienate U.S. auto workers, acore constituency for Mr.Trump in the midterms this

BERLIN—Germany’s leadingauto makers have thrown theirsupport behind the abolitionof all import tariffs for carsbetween the European Unionand the U.S. in an effort tofind a peaceful solution to thebrewing trade war.

The U.S. ambassador toGermany, Richard Grenell,brought the proposal for abroader industry trade pact tothe Trump administration onWednesday, according to peo-ple familiar with the situation.

That would mean scrappingthe EU’s 10% tax on auto im-ports from the U.S. and othercountries and the 2.5% dutyon auto imports in the U.S. Asa prerequisite, the Europeanswant President DonaldTrump’s threat of imposing a25% border tax on Europeanauto imports off the table.

Over the past few weeks,Mr. Grenell has held closed-door meetings with the chiefsof all major German automo-tive companies, including bi-lateral meetings with the CEOsof Daimler AG, BMW AG andVolkswagen AG, which operateplants in the U.S. Overall, Ger-many’s auto makers and sup-pliers provide 116,500 jobs inthe U.S., according to the As-sociation of German Automo-tive Manufacturers.

During these talks, whichthe ambassador initiated, themanagers said they wouldback the scrapping of all im-port tariffs on trans-Atlantic

BY WILLIAM BOSTONAND BOJAN PANCEVSKI

German AutoMakers OfferZero-Tariff Area

or no barriers, benefits allconcerned and is an importantelement in promoting nationaland international prosperityand well-being. Clearly thisalso applies to trans-Atlantictrade.”

A European Commissionspokesman didn’t comment di-rectly on the German car mak-ers’ offer, but underlined ithas a united stance against thealuminum and steel tariffs.

“We made the case for dia-logue with the U.S. to addressany bilateral trade griev-ances,” the commission said.“We also made clear that thiscould only happen once the EUwas granted a permanent ex-emption on the tariffs on steeland aluminum products.”

A French official said Pariswas unaware of the proposal,and it wasn’t discussed duringa recent summit betweenFrench President EmmanuelMacron and German Chancel-lor Angela Merkel in Mese-berg, Germany.


Total

U.S. 323,288

Rest of World 430,247

804,200

Canada 41,014

Mexico 9,650

Total 116,500

Auto manufacturers 36,500

Suppliers 80,000

= 10,000 = 1,000

10

U.S. auto trade deficit $26.5

German auto exports to the U.S.

Trucks, SUVs

Cars

German auto imports from the U.S.

$34 billion

25%

10

7.5

U.S. import tax EU import tax

2.5

Source: Association of German Automotive Manufacturers

Hard SellGermany cites factories, jobs, exports to try to coax President Donald Trump away from raising tariffs, despite a big German surplus intrans-Atlantic auto trade.

Where German autos producedin the U.S. were sold in 2017

U.S. jobs at German plants,2017

U.S./German auto trade,2017

EU/U.S. auto import tariffs, 2017

tariff, according to lists sub-mitted by the EU to the WorldTrade Organization.

“We did not want to be inthis position,” said EuropeanTrade Commissioner CeciliaMalmström. “However, theunilateral and unjustified deci-sion of the U.S. to impose steeland aluminum tariffs on theEU means that we are leftwith no other choice.”

Wednesday’s hearing inWashington shone a light onconfusion about the processfor carrying out the U.S. tariffsthat have been announced,and the uncertainty into whichthat has plunged companies.

The bulk of the complaintsfocused on tariffs that Presi-dent Donald Trump imposedrecently on imports of steeland aluminum, arguing thatthe moves were necessary fornational security, by ensuringa certain level of domesticproduction of the metals. Thepolicy included a process forsteel and aluminum users topetition for exclusions fromthose tariffs if they couldshow the specialty productsthey use weren’t availablefrom domestic suppliers. It isthat process—run by Mr.Ross’s Commerce Depart-ment—that has drawn wide-

spread business and politicalgrumbling.

In his testimony, Mr. Rossplayed down the problems, as-serting that “we’re makingvery good progress” in han-dling the requests given “themagnitude of the chore.”

Mr. Ross said his depart-ment had received more than20,000 requests for exclusionssince the tariffs were first an-nounced in March, and has sofar posted 9,000 for publiccomment and review. Of those,98 have so far received a finalruling from Commerce offi-cials—42 have been grantedexclusions from the tariffs,while 56 have been rejected.

In a nod to the complaints,Mr. Ross said that Commercehad made “progress in reform-ing and improving the pro-cess” and would be “accelerat-ing the processing ofexclusions.” But he said thatonce officials do manage to re-view the stacks of requests, heexpects most will be rejected.

“There is a high probabilitythat relatively few of thosewill be granted—many have nosubstance…and have well-grounded objections postedagainst them,” he said.

—Emre Pekercontributed to this article.

WASHINGTON—Republi-can and Democratic lawmak-ers criticized the Trump ad-ministration’s attempts toimplement its new “AmericaFirst” trade policy, sayingWednesday that they havebeen flooded with complaintsby small business constituentsconfused by the system usedfor implementing new tariffson imports.

“The process has had, in myopinion, many serious flaws,and problems continue to sur-face,” Utah GOP Sen. OrrinHatch told Commerce Secre-tary Wilbur Ross at the open-ing of a Senate Finance Com-mittee hearing called toscrutinize the way the admin-istration has carried out theseries of tariffs it began imple-menting this year.

“American small businessesbelieve they are being heldhostage in a bureaucratic twi-light zone waiting to see ifthey will escape,” OregonDemocratic Sen. Ron Wydensaid. “Every single member ofthis committee is hearing fromsmall business….Every week itseems to me there is more andmore bedlam.”

Many lawmakers have

BY JACOB M. SCHLESINGER

U.S. Businesses Complain About Levy Implementation

Steel stored in Germany. The EU will start imposing retaliatory tariffs on U.S. goods on Friday.

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SINTRA, Portugal—Leadersof the world’s top centralbanks warned that escalatingtrade conflicts could ricochetthrough financial markets andhurt the world economy, po-tentially prolonging the era ofultralow interest rates.

Rising tensions over tradecome at an awkward time formajor central banks, whichhave started moving awayfrom easy-money policies in-troduced since the global fi-nancial crisis.

In a moderated discussionWednesday in Portugal, theheads of the Federal Reserve,European Central Bank, Bankof Japan and Reserve Bank ofAustralia called for calm andwarned that the costs of fur-ther escalation could be high.

Global stock marketssagged this week after Presi-dent Donald Trump called fora fresh round of tariffs on$200 billion of Chinese goods,upping the ante after he previ-ously approved tariffs on $50billion of goods.

“It’s very worrisome andagain, I can’t see any positive,”

BY TOM FAIRLESS

Central Bankers Say Dispute Could Threaten theWorld Economy

Few Tools RemainTo Fight Recession

Fed Chairman JeromePowell said at the meeting inPortugal that central bankswould have less capacity tofight any new recession be-cause interest rates are al-ready close to zero. The U.S.government also has lessscope to increase spendingthan in the past, he said.

Bank of Japan Gov. Har-uhiko Kuroda said he hoped“this escalation could be re-scinded and a normal tradingrelationship between the U.S.and China would prevail.”

Mario Draghi, center, voiced the EU’s ‘considerable uncertainty.’

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A8 | Thursday, June 21, 2018 * * THEWALL STREET JOURNAL.

ROME—Italy’s InteriorMinister Matteo Salvini saidhe wasn’t willing to take mi-grants who have been regis-tered in Italy back from Ger-many, a stance that wouldclash with the plans of hisGerman peer.

Asked on Wednesdaywhether he was willing tohelp Germany’s Interior Min-ister Horst Seehofer in hispledge to send back migrantspresent on German soil, whohave entered the EuropeanUnion from other countries,he said that “the Italian gov-ernment is willing to helponly Italians.”

He said Italy has rescuedmore than 600,000 migrantsin the past four years and re-ceived more than 450,000asylum applications over thisperiod.

“Therefore, instead of be-ing willing to take we arewilling to give,” he said.

He said Italy’s proposal onimmigration would focus onreinforcing the bloc’s southernborder in the Mediterranean.

BY GIOVANNI LEGORANO

Italy BalksAt GermanMigrantProposal

rope face criticism for theirimmigration policies. GermanChancellor Angela Merkel’s co-alition government is underthreat over plans by a key allyto start turning back some mi-grants at the border. In theU.S., President Donald Trumpfaces widespread condemna-tion for a policy that has sepa-rated thousands of migrantchildren from their parents.

The OECD, which has ad-vised member governments in-cluding the U.S. on immigrationpolicy for half a century, said itwas worried that recent de-bates on the subject aren’t be-ing informed by establishedfacts, and that native popula-tions have an exaggerated senseof the scale of migrant flows.

“There is a very serious

problem of communication,”said Ángel Gurría, the OECD’ssecretary-general. “What we’reseeing is that the numbers arepretty modest.”

Mr. Gurria was critical ofthe European Union, identify-ing a recent controversy overthe destination of a rescueship as a sign that “there isn’ta policy” behind the bloc’streatment of refugees.

He also spoke out against theU.S. government’s child separa-tion program, saying it brokewith the established practiceamong OECD members of privi-leging the interest of minors.

The research body saidmore than five million peoplelegally crossed borders in2017, a 5% decline on the pre-vious year. However, that fall

FROM PAGE ONE

Interior Minister Salvini, speakingon the set of a TV show withthe pope as a backdrop, saidItaly wouldn’t take migrants.

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was almost entirely because ofthe end of a surge of refugeesinto Germany, and the bodydoesn’t expect flows to fallmuch over coming years.

“Migration flows have beenrising over the past few de-cades and are unlikely to fallfrom their current levels, giventhe large demographic andeconomic imbalances,” saidStefano Scarpetta, the OECD’sdirector for employment.

The OECD recorded that theU.S. remained the most popu-lar destination country for mi-grants in 2016, the most recentyear for which comparable fig-ures are available, taking in 1.2million of the 5.3 million total.But in that year Germany re-corded by far the largest in-crease, taking in around one

million new migrants, althoughsome of that reflected the le-galization of arrivals that tookplace in the previous year. TheU.K. was a distant third, takingin 350,000 arrivals.

The research body said im-migrants shouldn’t squeezepeople already in those coun-tries out of jobs or lower theirincomes, since they account fora very small share of the po-tential workforce. It estimatesthat in Europe, the recentsurge in refugees would in-crease the working-age popula-tion by just 0.4% by 2020, andthe number of people actuallylooking for work by just 0.25%.

But it acknowledged that im-pact will be slightly larger inthose countries that have takenthe bulk of those refugees.

The number of people mi-grating to developed countriesfell last year for the first timesince 2011, but remained nearrecord levels and is unlikely tofall by much over comingyears, according to the Organi-zation for Economic Coopera-tion and Development.

In its annual report on themovement of people acrossnational borders, the Paris-based research body also saidthe number of illegal immi-grants is a much lower shareof the total than is commonlyperceived, although it ac-knowledged that reliable fig-ures are hard to come by.

The report comes as gov-ernments in the U.S. and Eu-

BY PAUL HANNON

Migration to Developed Countries SlipsA police officer checked a migrant at the port of Pozzallo, Sicily, on Tuesday, following an Italian coast-guard vessels rescue of asylum seekers and refugees at sea.

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and regional sports channels;international assets such asSky PLC and Star India; andFox’s one-third stake in thestreaming service Hulu.

Fox and Disney were negoti-ating terms of an amendedagreement over the weekendand had the outlines of a dealby Tuesday, though they werenailing down details like themix of cash and stock, a personclose to the situation said.

Disney submitted its bidWednesday ahead of a Foxboard meeting in London, an-other person familiar with thesituation said. Fox ExecutiveChairman Rupert Murdoch andDisney Chief Executive Bob Igermet to discuss the new pact.

Disney agreed to pay Foxshareholders roughly 50% incash and 50% in stock. If thecurrent deal closes, Fox share-holders would own 19% of thecombined company, comparedwith 25% under the old deal.

Some observers have said itmight make sense for Disneyand Comcast to divide the Foxassets between themselvesrather than go through a bid-ding war, but Mr. Iger said theidea of splitting the businessesis a nonstarter. “We have anagreement in place with [Fox]that precludes that,” he said ona conference call Wednesday.

Disney also has time on itsside, Mr. Iger said, because itsdeal with Fox has been throughseveral months of regulatoryreview. “We believe that wehave a much better opportu-nity, both in terms of approvaland the timing of that approval,than Comcast does,” he said.

The CEO also highlightedhow Fox’s programming wouldboost his company’s efforts tolaunch a Disney-brandedstreaming service next year andcompete directly with Netflix.“Direct-to-consumer distribu-tion has become an even morecompelling proposition in thesix months since we announcedthe deal. The consumer is vot-ing—loudly,” he said.


Fox AcceptsDisney’sNew Bid

The fight for Fox is part of ascramble by media, telecomand cable companies to get big-ger as technology-industry su-perpowers disrupt old ways ofdoing business.

Neither proposed deal in-cludes Fox News, Fox Sports 1,the Fox broadcast network or itstelevision stations. In either sce-nario, those assets would bespun off into a new company, forthe moment dubbed “New Fox.”

On a per-share basis, thenew Disney deal values the Foxassets being acquired at $38 ashare, compared with Com-cast’s offer of $35 and Disney’s

original offer of $29.54, basedon the last trading day before itwas announced. On Wednesday,Fox’s Class A shares rose 7.5%to $48.08, and Comcast sharesadded 1.8% to $33.39.

Disney shareholders didn’tappear to mind stomaching thehigher price as the stock rose1% to $107.15. Some analystssaid the move was foolish. “Wedidn’t like the deal at the priorprice, and we like it substan-tially less now,” said DougCreutz of Cowen & Co. The ana-lyst said a Disney-Fox tie-upisn’t the way to win the direct-to-consumer fight.

A continuing bidding war

between Disney and Comcastcould strain both companies’balance sheets. Disney Chief Fi-nancial Officer ChristineMcCarthy said the company nolonger expects to complete a$20 billion share repurchaseannounced with the initial dealin December.

Moody’s placed Disney on re-view for a credit-rating down-grade on Wednesday, citing itsdiscomfort with how long itwould take Disney to return toinvestment-grade leverage. S&PGlobal Ratings said it couldlower its ratings on Disney de-pending on the final deal.

More stock in the deal hastax advantages for Fox share-holders, such as the Murdochfamily, who have held Fox’sstock for a long time and thusface a potentially large capitalgain to pay taxes on if it is soldfor cash. Mr. Murdoch and hisfamily have a 17% economic in-terest in 21st Century Fox. 21stCentury Fox and Wall StreetJournal-parent News Corpshare common ownership.

Disney said the stock portionof the deal is expected to betax-free to 21st Century Foxshareholders.

“The deal on the table hasone negative, and that is that,with New Fox, all the share-holders have to pay a tax,” saidMario Gabelli, chairman andCEO of Gamco Investors, whichowns Fox stock. However, headded, “that was the same asthe Comcast bid,” which wasall-cash.

—Austen Huffordand Dana Mattioli contributed

to this article.

Clash of the Media TitansComcast and Disney are in a heated bidding war for Fox assets thatcould test their balance sheets and investors' patience.

Share valueFox premium†‡Total added debt†Mix

Fox stake incombined company

$35 a share11.9x$79.0 billion100% cash

0%

$65.0billion

Comcast bid

Bid value

$29.54* a share9.6x$13.2 billion100% stock

25%

$52.4billion

Old Disney bid

$38 a share12.9x$49.3 billion50% cash50% stock19%

$71.3billion

AcceptedDisney bid

THEWALL STREET JOURNAL.Sources: the company; Jefferies (premium and debt)

*Based on Disney's last closing share price when the deal was announced †At the time ofthe offer ‡EBITDA multiple

Disney agreed to payFox shareholdersroughly 50% in cashand 50% in stock.

WORLD NEWS

NY


a bottle of beer.Medical marijuana has been

legal in Canada since 2001 forpatients with valid prescrip-tions.

The legislation means

across Canada, adults will beable to purchase nonmedicinalmarijuana from authorizeddealers, and possess as muchas 1.1 ounces of the drug whenin public. Households will also

be able to grow as many asfour cannabis plants for per-sonal use, from seeds or seed-lings from a licensed supplier.

The government has alsoproposed legislation aimed at

“wholesale shift in how ourcountry approaches cannabis.It leaves behind a failed modelof prohibition that’s made or-ganized crime rich and left ouryoung people vulnerable.”

Canada’s approach standsin stark contrast to the Trumpadministration. Attorney Gen-eral Jeff Sessions has vowedto use federal law to get toughon marijuana, and he broughtan end to Obama-era protec-tions for the pot industry.

However, since January, hisown prosecutors have yet tobring federal charges againstpot businesses that are abid-ing by state law. Eight statesplus the District of Columbiahave legalized marijuana.

Marijuana legalization wasamong the high-profile prom-ises Prime Minister JustinTrudeau made during the 2015election campaign, which re-sulted in his Liberal Party win-ning a majority of seats in thelower house of Canada’s Par-liament.

Mr. Trudeau has said legal-izing and regulating marijuanawill help prevent abuse, notingit has been easier for youth tobuy a marijuana cigarette than

further cracking down ondrug-impaired driving, in aneffort to alleviate concernsfrom legalization.

The Canadian governmentestimated last year it expectsto initially collect roughly 400million Canadian dollars(US$301 million) a year in taxrevenue from marijuana. Can-ada’s provinces will get three-quarters of the annual receipts.

It will be up to Canada’s 10provinces and three territoriesto regulate the distributionsystem and determine the le-gal age at which someone canbuy the drug.

For instance, in Ontario,Canada’s largest province, theplan is to set up government-run stores to sell cannabis,and buyers must be at least 19years of age.

Leading up to the legaliza-tion date, Canadian stock mar-kets have been courting mari-juana company listings fromaround the world—with To-ronto emerging as a hotbedfor cannabis firms to raisecapital on the Toronto StockExchange and its smaller rival,the Canadian Securities Ex-change.

OTTAWA — Recreationalmarijuana use in Canada willbe legal in mid-October afterlegislation cleared its finalhurdle Tuesday night, markingwhat officials here say is awholesale shift in how thecountry approaches cannabisuse.

When the legislation kicksin, Canada will be the biggestnational government to legal-ize cannabis. Drug-policy ex-perts have said they expectcountries in Europe and else-where to look to the Canadianexperience for guidance oncannabis legalization.

“We are very pleased tohave reached this point in de-livering on this progressivepolicy promise to legalize andstrictly regulate cannabis,”said Judy Wilson-Raybould,Canada’s justice minister. Shesaid the legislation marks a

BY PAUL VIEIRA

Canada to Legalize Pot in Mid-OctoberNation marks shift inapproach to cannabisby clearing the wayfor recreational use

Crowds gathered on Ottawa’s Parliament Hill on April 20 for an annual rally to support legalization.

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WORLDWATCH

NORTH KOREA

Pyongyang ExpectedTo Transfer Remains

North Korea is expected totransfer the remains of more than250 service members to the U.S.within the next day or two, ac-cording to a U.S. official, in keep-ing with a joint statement byPresident Donald Trump andNorth Korea’s Kim Jong Un fol-lowing their summit last week.

The remains will be brought toOsan, a U.S. military air basesouth of Seoul, where they will berepatriated in a tarmac ceremonywith Gen. Vincent Brooks, thecommander of U.S. Forces Korea,then sent to Hickam Air ForceBase, Hawaii, to undergo scientifictesting to help with identification.

The preponderance of the more

than 250 sets of remains are be-lieved to be those of Americanservice members missing since the1950s-era Korean War.

—Gordon Luboldand Michael R. Gordon

INDONESIA

Robot Searches SiteOf Ferry Sinking

Rescue workers deployed aremotely operated vehicle anddivers in the deep waters of theworld’s largest volcanic lakeWednesday, uncertain how manypassengers may have beentrapped in a ferry that sank dur-ing one of Indonesia’s busiestholiday periods.

Officials said at least fourpeople died and 18 survivedwhen the small vessel over-

AFGHANISTAN

Taliban Kill DozensIn Attacks on Posts

Taliban fighters killed dozensof government soldiers in over-night attacks on two securitycheckpoints in northwestern Af-ghanistan, authorities and medi-cal personnel said Wednesday, inthe insurgent group’s first majorassault since refusing to extendan unprecedented three-daycease-fire.

Hundreds of militantslaunched the coordinated assaulton the guard posts in Badghisprovince, on Afghanistan’s borderwith Turkmenistan, earlyWednesday, then ambushed twoarmored vehicles sent to rein-force the troops during the four-hour siege. The attackers de-

stroyed the vehicles and killedthose inside, according to a gov-ernment soldier and Abdul AzizBeg, head of the provincial coun-cil.

At the time of the Taliban at-tacks, government forces wereobserving a cease-fire called byAfghan President Ashraf Ghani.

Mr. Beg said more than 30soldiers were killed in Wednes-day’s bloodshed in BalaMurghab, while an Afghan mili-tary official put the number ofdead soldiers at 20.

An employee at a local armyhospital where the bodies of thedead were transported andwhere wounded were beingtreated said at least 50 soldierswere killed and an additional 30wounded.

—Craig Nelsonand Habib Khan Totakhil

turned Monday night on LakeToba, on its way from the islandof Samosir to the mainland.They believe that many morewere on board when it went

down in high winds and roughly6-foot waves. Police said rela-tives have reported more than190 people missing.

—Ben Otto

Residents look on as authorities search Lake Toba, on the islandof Sumatra, for victims of Monday’s ferry capsizing.

DEDISINUAJI/EPA

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ERSTO

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IN DEPTH

Nothing toSay AboutThis Club

Mr. Bezos is renovating thehome to include 11 bedrooms,two dozen bathrooms, threekitchens, five staircases and apair of elevators.

Amazon’s advance onWashington began more thana decade ago with fights overinternet fairness rules andsales taxes for online pur-chases. It took off in the pastfew years, around the time thegovernment ramped up its useof cheaper, efficient cloud-based services, which are re-mote servers available for hireto store data and functions.

During the 2012 presiden-tial election, the company’scloud division, Amazon WebServices, provided the technol-ogy used in Mr. Obama’s re-election campaign. Around thesame time, Amazon was win-ning contracts with govern-ment customers from the Cen-tral Intelligence Agency to theSmithsonian Institution.

Overall, Amazon’s cloud-computing business with theU.S. government is expected togrow to $2.8 billion in 2018 and$4.6 billion in 2019, up fromless than $300 million in 2015,according to GBH Insights, theconsulting firm. Roughly 10% ofthe revenue and profits for theunit come from those govern-ment contracts.

Last year, Amazon pushed aprovision to allow federal em-ployees to buy a broad arrayof goods online, from cleaningsupplies to bottled water, in-stead of through usual bureau-cratic channels. An early draftin Congress drew oppositionfrom competitors such asHome Depot and Grainger be-cause it stated the contractcould be made without com-petitive bidding to “one ormore” online retailers “usedwidely in the private sector.”

Competitors dubbed it the“Amazon amendment” andwent to war. Rivals said itcould give Amazon a near-mo-nopoly on billions in sales andcomplained about the lack ofcongressional hearings andcareful study of the conse-quences.

They made such a fuss thatsenators on the Armed Ser-vices Committee called ameeting so critics could voicetheir complaints—a rare oc-currence. Lobbyists for Ama-zon’s rivals took turns criticiz-ing the measure.

Lawmakers have since ex-panded the proposal to allowfederal employees to buy sup-plies through multiple onlineretailers. Final details are stillbeing hashed out.

Political spendingCampaign donations by

Amazon’s political-action com-mittee, funded by its employ-ees and directed by the com-pany, have grown in recentyears, according to campaign-finance data collected by thenonpartisan Center for Re-sponsive Politics. In this year’scampaign, it has donated$637,500, with half going toDemocrats and half to Repub-licans. That is up from$515,000 in 2016 and $179,500in 2012, with a similar politi-cal split.

Meanwhile, Amazon’sspending on advocacy groupsis on the rise, disclosuresshow. In 2015, it reported giv-ing $10,000 or more to about47 groups. In 2017, it donatedto 82 groups, including con-servative-leaning entities thatcould help in battles with Re-publicans, such as the Ameri-can Enterprise Institute andthe Competitive Enterprise In-

quarters will generate 50,000jobs and more than $5 billionin investments over nearlytwo decades.

The change of heart tracksthe transformation of Amazonfrom a scrappy entrepreneur-ial outfit to one of America’smost powerful companies,with multiple businesses po-tentially affected by aggres-sive lobbying and others forwhich the government is a pri-mary customer.

The potential rewards areclear: By some estimates, theU.S. government spends up to$90 billion a year on informa-tion technology. Yet so is thepotential political blowback,both from rivals in Washing-ton and politicians, includingin the White House, who seethe company as too powerful.

Amazon has squared offwith Alphabet Inc.’s Google,Oracle Corp. and MicrosoftCorp. over lucrative govern-ment cloud-computing con-tracts. It is scrapping withfirms such as Home Depot Inc.and W.W. Grainger Inc. overoffice supplies and other prod-ucts, and has fought with com-panies like Walmart and eBayInc. over tax policies.

Inside the government,President Donald Trump isamong the company’s biggestchallenges, regularly attackingMr. Bezos and Amazon for arange of sins—avoiding taxes,shutting down traditional re-tailers and using the U.S.Postal Service “as their deliv-ery boy.” Vermont Sen. BernieSanders has recently taken onthe company for how it treatsworkers. Amazon has launcheda charm offensive with con-gressional leaders to try toshow that the company isgood for Main Street.

To aid its battles, Amazonnow has an army of nearly 100lobbyists at more than a dozenlobbying firms working on alist of issues including taxes,trade, government procure-ment, internet policy, droneregulation, grocery rules, mu-sic licensing and, more re-cently, food stamps.

Last year, the companyspent $13 million on lobbying,five times as much as it spentfive years earlier, putting it justbehind some of last year’s big-gest corporate lobbyists, in-cluding Google and AT&T Inc.

Personal tiesMr. Bezos, building his own

personal ties in the area, spent$250 million of his own moneyto acquire the WashingtonPost Co. in 2013, where he isoccasionally spotted in the of-fices. In January, he attendedan exclusive black-tie dinnergiven by the Alfalfa Club,which mixes media, govern-ment and corporate elites.Other attendees this year wereIvanka Trump, former Presi-dent George W. Bush, DefenseSecretary Jim Mattis, BillGates, Warren Buffett and MittRomney.

In 2016, he spent $23 mil-lion for one of the largesthomes in the city’s Kaloramaneighborhood, a 27,000-square-foot former textile mu-seum. Barack and MichelleObama live nearby, as doJared Kushner and Ms. Trump.


stitute. In 2015, it hired JayCarney, Mr. Obama’s formerpress secretary, as senior vicepresident of corporate affairs.

Around the same time, as apresidential candidate, Mr.Trump began attacking Ama-zon, writing on Twitter thatMr. Bezos was using the Wash-ington Post as a tax shelter.Mr. Bezos responded by sayinghe’d reserve Mr. Trump a seaton a Blue Origin rocket ship,adding “#sendDonaldtospace.”

Mr. Trump’s attacks on Mr.Bezos have increased in recentmonths, in part because he be-lieves Mr. Bezos uses theWashington Post to criticizehis presidency, according topeople familiar with the presi-dent’s thinking. Fred Ryan,publisher and chief executiveof the Washington Post, hassaid, “It is preposterous anddisingenuous to suggest thatThe Post is used to advanceJeff’s other commercial inter-ests.” Mr. Trump remains fix-ated on the company’s online-retail business. People close to

Jeff Bezos at Trump Tower for a meeting with President-elect Donald Trump in New York in 2016.

EVANVUCC

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DPRESS

and goofy hats that resemblethat resemble the Swedishchef character from “TheMuppet Show.”

Confidential interviewswith skittish club membershave uncovered more. Theclub meetings, held everyweek the House is in session,encompass an hour of drinks,dinner and conversation aboutpolicy and politics. They areheld on the Capitol’s firstfloor, in Room H-107.

Yet even the club’s name isa mystery. Washington’s se-cret club was co-founded in1949 by then-House membersRichard Nixon and GeraldFord. According to the Househistorian’s office, the groupgrew out of the oppositionfrom younger lawmakers to aveterans pension bill that had


been rammed through theVeterans’ Affairs Committeeby its powerful chairman.Questioning the bill’s needand cost, the junior membersassembled to sink the bill.They succeeded.

From that grew a club withno specific agenda, unlikemost groups on Capitol Hill.“It’s not like legislation comesout of it,” said one member.

The club’s aim is simply toprovide a venue for legisla-tors to meet, network andshoot the breeze. Its member-ship of a few dozen is built ev-ery year by invitation. Mem-bers tap a handful of recentlyelected House members whoseem to have promising politi-cal careers ahead of them.

Women have been includedsince the early 1990s, whenU.S. Rep. Tillie Fowler of Flor-ida and Ms. Ros-Lehtinen be-came the first female mem-bers, according to the book“Congressional Women: TheirRecruitment, Integration andBehavior” by Irwin Gertzog.

Beside secrecy, another clubrule is once a Chowder mem-ber, always a Chowder mem-

ber. Lawmakers who leave theHouse for the Senate or gover-norships—or even the privatesector—are forever welcomeat meetings.

That explains why formerSenate Majority Leader TrentLott of Mississippi, now a lob-byist, is often spotted in thehalls of the Capitol lateWednesdays.

Meetings take place in aconference room in the suiteof House Majority LeaderKevin McCarthy of California.Sitting House members havepriority to address the meet-ing, one of the few places inWashington where senatorsdefer to the lower chamber.

Members take turns provid-ing the chow, which leans ca-sual—sometimes from a localfast-food joint, paper napkinsincluded. Sometimes, mealsare shipped from a member’sdistrict.

Its select membership isheavy on Republican tradition-alists and power brokers, in-cluding the House committeechairs and members of theSenate GOP leadership. Its1970s rolls included luminaries

and sputter denials or no-com-ments. “If I were in Chow-der and Marching, I wouldthink it would be a place somefolks could go and talk aboutwhat’s going on politically intheir state and district,” saidone lawmaker.

Ms. Ros-Lehtinen, a centristRepublican who is sometimesat odds with her increasinglyconservative party, is retiringfrom Congress after this year.Still, she was reluctant to dishabout the club.

“You know, I’m already sounpopular with the GOP lead-ership, with the Trump WhiteHouse, I don’t think I can getanother arrow in my back,”she said, reaching for an ele-vator button to get away froma reporter.

She paused to reflect onhow the party has changedsince she was inducted morethan 20 years ago. “Once upona time, I was looked upon withgood light,” she said, “but nowI don’t think I could havemade it.” Then, as the elevatordoors closed, she delivered anon-denial denial: “I love thatimaginary organization.”

like Jack Kemp, Melvin Lairdand Robert Michel as well asMessrs. Nixon and Ford.

The club is a refuge for old-guard Republicans in Presi-dent Donald Trump’s Washing-ton, one old-time membersaid, a place for politicianswith a now-unfashionable loveof politics and governing.

“These are the people whoare institutionalists, not dis-

rupters,” the member said. “Ifthe president walked in andlooked at this group he’d say,‘This is the Swamp.’ They’dlook at him and say, ‘This isamateur night at the Bijou.’”

Meetings provide these Re-publicans a weekly escapefrom the political storms thatsweep daily across D.C.

Just asking about the clubmakes its members squirm

Richard Nixon, Gerald Ford pose with Chowder and Marching Club.

the president say that he andhis friends in the commercialreal-estate business believeAmazon has destroyed brick-and-mortar retailing.

Amazon last year contrib-uted about 4% of total U.S. re-tail sales, while its portion ofe-commerce totaled about43%, according to eMarketer.

At a conference in October2016, Mr. Bezos said heshouldn’t have joked aboutsending Mr. Trump to space.Still, trying to “chill the mediaand sort of threaten retribu-tion, retaliation, which is whathe’s done in a number ofcases,” he said, “it just isn’tappropriate.”

Mr. Trump’s behavior“erodes our democracy aroundthe edges,” Mr. Bezos added.Through an Amazon spokes-woman, Mr. Bezos declined tocomment.

Trump’s tweetsSince Mr. Trump won the

election, Mr. Bezos and otherAmazon executives haven’t re-sponded publicly to Mr.Trump’s tweets. Amazon execu-tives believe a public reactionwould draw more attention, ac-cording to people familiar withtheir thinking. Amazon’s strat-egy for Mr. Trump is to re-spond to inaccurate tweets byspeaking directly to lawmakersand reporters with correct in-formation.

“Don’t poke the bear,” saidone person familiar with Ama-zon’s strategy, “even if thebear is chewing on your arm,because he might eat yourhead.”

“We are working with thisadministration the same waywe have every other adminis-tration—we share our per-spective on issues that are im-portant to serving ourcustomers and to our employ-ees, and we work togetherwhere there is commonground,” said Brian Huseman,Amazon’s vice president ofpublic policy.

The president has directedhis anger at Amazon’s use ofthe Postal Service, which, ac-cording to analyst estimates,handled roughly half of Ama-zon’s estimated more than onebillion U.S. deliveries last year.Mr. Trump decries what hecalls the company’s “sweet-heart” delivery deals and hasordered an audit of the PostalService’s business with Ama-zon.

The Postal Service losesmoney, but its disclosuresshow that its deals with Ama-zon and other package ship-pers are a net benefit. Lossesare due to a decline in first-class mail and other problems.

Still, if Postal Service ratesgo up by even $1 a package, itcould cost Amazon an esti-mated $1.8 billion, according

to Deutsche Bank analysts.Amazon spent $21.72 billionon shipping world-wide lastyear.

A spokeswoman for Mr.Trump declined to comment,but referred the Journal toprior comments in which theWhite House has said that thePostal Service wasn’t intendedto be used as a mass distribu-tion system by Amazon.

In his tweets, Mr. Trump of-ten complains that Amazonavoids taxes, highlighting afight over whether statesshould be able to require onlineretailers to collect sales tax. Acase expected to be decidedthis month before the SupremeCourt, as well as legislation inCongress, could give statesmore leeway to do that. WhileAmazon sells many products toconsumers directly, indepen-dent merchants also sell on thesite. Amazon collects statesales taxes on its own sales, butin most states doesn’t collecton behalf of its merchants. Am-azon has lobbied for a uniformlegislative decision.

Perhaps a bigger risk forAmazon is the perceptionamong many legislators thatthe online retailer is growinginto a giant that destroysmalls, retail outlets and jobs.Amazon is seeking to changethe perception, with the aimof heading off possible anti-trust scrutiny.

Last year, Sen. Mike Lee, a

Utah Republican, took a walk-ing tour of Spanish Fork, Utah,to meet with local businessowners and discuss the impactof the internet and online re-tailing. Afterward, the senatorspoke with Caleb Light, the co-founder of home state com-pany Power Practical.

Mr. Light told the senatorthat his company, whichstarted out making power gen-erators that use heat to chargedevices, had almost shut downbecause it was unable to sellits products in retail stores.When it signed a deal to sellexclusively through Amazon,though, sales went up.

Mr. Light was invited byAmazon officials to the event,which was set up by one ofAmazon’s Washington tradegroups, the Internet Associa-tion. Mr. Lee chairs the Sen-ate’s antitrust subcommittee,which has power over anti-trust regulators.

Despite Amazon’s efforts,Vermont’s Mr. Sanders tookaim at Mr. Bezos last monthwith a video that illustratedthe extraordinary wealth ofMr. Bezos. “Thousands of Am-azon employees are forced torely on food stamps, Medicaidand public housing becausetheir wages are just too low,”Mr. Sanders says in the video.

The company sent twotweets to Mr. Sanders, sayingit had created more than130,000 full-time jobs in thepast year, and touting goodpay and benefits for its ware-house workforce.

“Please compare our me-dian pay & benefits to otherretailers,” the company said,adding an invitation for Mr.Sanders to visit one of itswarehouses.

Mr. Sanders accepted. Theyhave not yet scheduled a visit.

Lobbying expenditures Number of lobbyists hired

Growing PersuasionIn recent years, Amazon has built one of Washington's biggestlobbying operations.

Source: Center for Responsive Politics THEWALL STREET JOURNAL.

$20

0

5

10

15

million

2010 ’15

Amazon

$13.0

AT&T

$16.8

Oracle

$12.4

Google/Alphabet

$18.2million

120

0

30

60

90

2010 ’15

AT&T

112

Oracle

77

Google/Alphabet

102Amazon

94

President DonaldTrump is among thecompany’s biggestchallenges.

AmazonInvades theCapital

Note: Data for 2018 and 2019 are projections.

Amazon total revenue Amazon Web Services revenue Estimated government contractsfor AmazonWeb Services

In the CloudAs Amazon grows, its profitable cloud-computing division in particular has seen government business soar.

Sources: the company; FactSet (total revenue projections); GBH Insights (other projections) THEWALL STREET JOURNAL.

$300

0

50

100

150

200

250

billion

2014 ’15 ’16 ’17 ’18 ’19

$30

0

5

10

15

20

25

billion

2014 ’15 ’16 ’17 ’18 ’19

$6

0

1

2

3

4

5

billion

2014 ’15 ’16 ’17 ’18 ’19

CORBIS/G

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THEWALL STREET JOURNAL. * * Thursday, June 21, 2018 | A10A

OYSTER PERPETUAL

EXPLORER II

rolex oyster perpetual and explorerare ® trademarks.

GREATER NEW YORKAt least 350 children who

recently were separated fromtheir parents have passedthrough an East Harlem social-services agency during the lasttwo months, according to Mr.de Blasio. Of that group, morethan 230 children currentlyare receiving schooling, medi-cal and mental-health care atthe East Harlem location ofthe nonprofit Cayuga Centers.

The children have been asyoung as 9 months old, he saidduring a press conference aftervisiting the site Wednesday.

“This has all been happeningwithout the people of New YorkCity being told it by our federal

government,” he said. “We arelearning for the first time todaythe extent of this in the city.”

Mr. de Blasio, a Democrat,said his administration hasn’tbeen given any informationabout the hundreds of childrencoming through the city. OnTuesday, Steven Wagner, act-ing assistant secretary atHealth and Human Services’Administration for Childrenand Families, said the agency“would tend not to want toput separated children in NewYork because we want to keepthem closer to their parents.”

Cayuga Centers is just oneof 10 nonprofits in New York

state that have contractedwith the federal governmentto provide services and hous-ing for separated or unaccom-panied migrant children.

The social-services organiza-tion, founded in 1852 as a homefor orphaned children, operatesthe country’s largest transi-tional foster-care program forunaccompanied children, with396 short-term foster care bedsin Manhattan and the Bronx,according to a recent annual re-port. The organization also hassites in Florida and Delaware.

During his visit to the cen-ter, Mr. de Blasio said he saw aclassroom of roughly 40 chil-

dren, mostly from Guatemala.The teachers at the site werecompassionate and warm, butoperating under adverse cir-cumstances, he noted.

Officials of Cayuga Centerstold him that children come tothe agency with physical chal-lenges. The city has offeredmedical, mental-health and le-gal support to Cayuga Centersand all others operating in thecity, the mayor said. The chil-dren go to the center duringthe day, and live in fosterhomes, he said.

A spokeswoman for the Of-fice of Refugee Resettlement,an arm of the federal Adminis-

tration for Children and Fami-lies, didn’t respond to a re-quest for comment. CayugaCenters didn’t return requestsfor comment Tuesday.

Mr. de Blasio said the EastHarlem Cayuga Center was thelargest provider of these ser-vices in the city, and officialsplanned to visit the other cen-ters that are contracted to takein children. The 10 groups thatprovide services to separatedand unaccompanied childrenhouse them in either fosterhomes or group-care settings,according to a person whoworks for one of the agenciesthat has a federal contract.

New York City Mayor Billde Blasio on Wednesday calledon the federal government to“come clean” and detail the lo-cations of the more than 2,000migrant children who havebeen separated from their par-ents after illegally crossing theU.S.-Mexican border.

BY MELANIE GRAYCE WESTAND KATIE HONAN

MayorWants Answers onMigrant ChildrenDeBlasio says federalofficials havewithheldinformation aboutyoungsters in the city

CHRISTINABATE

R

‘We want to makesure we have a seatat the table to crafta viable solutionthat preserves theacademic integrity

of specializedschools.’

Christina Bater, managingdirector of Barrett AssetManagement, went toBronx High School of

Science

‘I feel verystrongly about it.In the course ofreading manyhundreds of

comments…I havelearned moreabout how weended up here.’

Boaz Weinstein, a hedge-fund manager, went to

Stuyvesant

‘The mayor’slegislative pushconcerning howeight well-

performing schoolsoperate isn’t aserious policyproposal; it’s a

headline.’

U.S. Rep. Grace Meng, aQueens Democrat, went to

Stuyvesant

‘Hopefully, morechildren in

underserved areaswill be identifiedand given theopportunity forenriched...academicprograms.’

State Sen. Toby AnnStavisky, a Democrat,went to Bronx HighSchool of Science

RICHARDBRIAN/R

EUTE

RS

CHERISSMAY/N

URPHOTO

/ZUMAPRESS

NEW

YORKSENATE

A federal appeals court lastyear overturned their convic-tions and that of former NewYork Assembly Speaker SheldonSilver, after the U.S. SupremeCourt narrowed the definitionof some public-corruptioncrimes.

The retrials of Messrs. Skelosand Silver are viewed as tests ofthe new legal standard. Lastmonth, after a retrial, a juryconvicted Mr. Silver, a Manhat-tan Democrat, of seven countsof honest-services fraud, extor-tion and money laundering.

During opening statementsWednesday, Assistant U.S. At-torney Douglas Zolkind saidDean Skelos threatened and in-timidated three businesses thatcould benefit from laws hepushed as a senator. Prosecutorssaid the companies feared hecould take official governmentaction against them if theydidn’t help his son.

“It wasn’t just wrong—justbusiness as usual—it was cor-rupt,” Mr. Zolkind said. “Sen.Skelos added pressure; Adamgot paid. It was a golden oppor-

tunity.”Prosecutors said Glenwood

Management, a real-estate de-veloper, paid Adam Skelos morethan $200,000; AbTech Indus-tries, an Arizona-based environ-mental-technology companyhired him and later won a $12-million Nassau County contractfor storm water products; andPhysicians’ Reciprocal Insurers,a medical-malpractice insurancecompany, paid him more than$70,000 to “barely show up.”

AbTech and Glenwood didn’trespond to requests for com-

ment. A spokesman for Physi-cians’ Reciprocal Insurers de-clined to comment.

Defense lawyers said theSkeloses’ behavior wasn’t crimi-nal. Attorney Robert Gage saidDean Skelos never intended tointimidate anyone and that thecompanies could have declinedhis requests to help his son.

Attorney Julian Broad saidAdam Skelos relied on his fa-ther’s contacts in his career.“This is how politics works,”Mr. Broad said. “Was there acriminal exchange? No.”

The retrial of former NewYork state Senate MajorityLeader Dean Skelos beganWednesday with argumentsabout whether a father’s advo-cacy for his son was politics asusual or a federal crime.

Mr. Skelos, a Nassau CountyRepublican, and his son, Adam,are being tried for a secondtime in federal court in Manhat-tan. They were convicted in2015 of extortion, bribery andother crimes.

BY GERALD PORTER JR.

Former Senate Leader Skelos’s Retrial Kicks Off

As soon as Albany postedprovisions that would eliminatethe admissions test for eightspecialized public high schoolsin New York City at about 10p.m. one recent Friday, heads ofthe alumni associations of Stuy-vesant, Brooklyn Tech and BronxScience began trading late-nightemails and phone calls.

They sprung into action tokeep the test. They released ajoint opposition memo. Theydispatched a lobbyist to pleadtheir case with state lawmak-ers. Brooklyn Tech alumni havesent legislators thousands ofemails to argue for the test,says Larry Cary, a labor lawyerand head of the Brooklyn TechAlumni Foundation.

Their argument: The sought-after schools should be far morediverse but the proposedchanges would introduce subjec-tive measures and could admitstudents who aren’t preparedfor the schools’ academic rigor.

Mayor Bill de Blasio ischampioning the bill, sayingthat using only one exam toselect students has been anunjust barrier to talentedblack and Latino teenagers.The Democratic mayor, whoseson graduated from BrooklynTech, wants to admit appli-cants based on a mix of coursegrades and state exam scores,so that the top 7% of eighth-graders from each middleschool citywide would get of-fers. In time, by Mr. de Blasio’sestimate, about 45% of offersto these eight schools wouldgo to black and Latino stu-dents, up from 9% now.

The measure is expected tobe debated in the winter legis-lative session. The alumnigroups say they will devise abattle plan. “We want to makesure we have a seat at the tableto craft a viable solution thatpreserves the academic integ-rity of specialized schools,”said Christina Bater, presidentof the Bronx High School ofScience Alumni Foundation.

Advocating to keep the testPleaseturntopageA10B

BY LESLIE BRODY

Alumni Fight School Admissions Changes

Facing major funding chal-lenges, including the need for$43 billion to modernize thecity’s subway and bus systemsduring the next 15 years, Met-ropolitan Transportation Au-thority commissioners laid outplans Wednesday to speed upconstruction and procurementmethods and cut costs.

“Frankly, we’ve been ourown worst enemy,” Commis-sioner Scott Rechler said of theagency’s major contracting pro-cesses during an MTA boardmeeting in lower Manhattan.

Years of bad decision-mak-ing, some of it well-inten-tioned, had created needlesslylengthy and overly expensiveprocesses, he said. “We can’task the public to give usmoney if we can’t prove thatwe are going to spend thatmoney wisely,” he added.

Mr. Rechler is chairman ofthe Regional Plan Association,an urban-planning group thatpublished a report this yearthat found New York’s new sub-way and commuter-rail projectsare twice as expensive as thoseof cities such as London andParis. It said the higher costswere partly tied to entrenchedpractices and procedures.

The MTA runs the country’slargest public-transit system,including New York City’s sub-way and buses, two commuterrailroads and nine bridges andtunnels, with an annual oper-ating budget of $16 billion.

During the past six months,commissioners have pickedover the authority’s procure-ment, contracting and project-management procedures in abid to improve efficiency. Theysaid their recommendationswill stir competition and reduceproject timelines and costs.

Mr. Rechler told board mem-bers that some MTA contractsfor major projects such as newstations, tracks and tunnels areoverly onerous. As a result, hesaid contractors apply a 25%“MTA premium” to projects. Healso criticized the agency’s inef-ficient planning, weak projectmanagement and overly lengthyprocess for making changes toconstruction projects.

Commissioner Charles Moer-dler said New York City Transit,which oversees the subway andbuses, has a procurement time-line that could be shortened by53%, to 132 days from 278 days,without legislation or regulatorychanges. Future proposals in-clude introducing an electronicsystem to expedite the agency’spaperwork approval process.

BY PAUL BERGER

MTA VowsTo ImproveContractProcesses

Brooklyn Technical High School is one of New York City’s eight selective secondary schools opposed to eliminating admissions testing.

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A10B | Thursday, June 21, 2018 * * THEWALL STREET JOURNAL.

GREATERNEWYORKWATCH

NEW YORK CITY

Teachers Will GetPaid Parental Leave

New York City will provide sixweeks of parental leave at fullsalary for all of its public schoolteachers.

The agreement was an-nounced Wednesday by Demo-cratic Mayor Bill de Blasio, unionand school officials.

The contract covers about120,000 workers. They include79,000 teachers, plus UnitedFederation of Teachers-repre-sented school nurses, therapists,guidance counselors, secretariesand others.

The benefit will take effecton Sept. 4.

Birth parents and non-birthparents will get the paid leavefor the birth of a child. It also willapply to the adoption or foster-ing of a child under the age of 6.

The city estimates that morethan 4,000 new parents a yearwill use the benefit.

—Associated Press

TRANSIT

Part of Ceiling FallsAt Subway Station

A chunk of ceiling collapsedat the Borough Hall subway sta-tion in Brooklyn on Wednesdayafternoon, sending debris rainingdown onto a platform andslightly injuring one person.

The head of the subway sys-tem, Andy Byford, said it wastoo early to determine the cause

of the collapse, but that therewas evidence of water damage.He said structural engineerswere assessing the ceiling.

A Metropolitan Transporta-tion Authority spokesman said aman suffered a minor shoulderinjury because of the collapse,which happened just before 3:20p.m. on the northbound platformfor the 4 and 5 line.

The man declined medical at-tention and left the station, theMTA said.

—Paul Berger

CONNECTICUT

Two More HopefulsMake Primary Ballots

Two more names will be onthe ballot for governor whenConnecticut voters turn out forthe primaries in August.

Bridgeport Mayor Joe Ganim, aDemocrat, and former hedge-fundmanager David Stemerman, a Re-publican, each gathered enoughsignatures through petition drivesto compete in the primaries. The

office of the secretary of thestate says both will be on ballotsfor the Aug. 14 primaries.

Mr. Ganim is forging aheadwith a political comeback afterserving seven years in prison forpublic corruption. He will faceNed Lamont, the Democrats’ en-dorsed candidate for governor.

Mr. Stemerman will competein a five-way race with othersincluding the Republicans’ en-dorsed candidate, DanburyMayor Mark Boughton.

—Associated Press

A man was slightly injured Wednesday when part of the ceiling fell at the Borough Hall station.

ERIC

CHAN

‘Caddyshack’ Actor Looks BackMichael O’Keefe reflects on the goofball comedy and his return to the New York stage in ‘First Love’

Actor Michael O’Keefe at the Cherry Lane Theatre, where he is starring in the play ‘First Love,’ and below right with Chevy Chase in a scene from ‘Caddyshack.’

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has brought together alumniassociations from three highschools that have long been ri-vals.

Asian-American civil-rightsgroups also have rallied tosave the exam, saying the pro-posed overhaul would unfairlysqueeze out their hardworking,high-achieving children. Now,62% of the 15,540 students atthe eight schools are Asian.

The alumni associationsaren’t typically out protesting.They raise money for studentenrichment, facilities upgrades

ContinuedfrompageA10A

Stuyvesant High School BlackAlumni Diversity Initiative, iscalling for universal screeningof pre-kindergarteners in un-derrepresented communitiesfor gifted programs. Parents ofhigh performers could get coun-seling on options that wouldput the children on a path tospecialized high schools.

All neighborhoods shouldhave accelerated instruction foradvanced students in middleschool, Ms. Davis-Clarke said,adding there aren’t enoughgifted programs in predomi-nantly black and Latino areas.Just 21 public middle schools—or 4% of city middle schools—accounted for about half of thespecialized high school offers in2016. “We want to see a returnto local gifted programs so ev-ery school has the opportunityto be a feeder school,” she said.“We want to fix the pipeline.”

will continue to meet with somealumni. Prominent graduateshave written editorials, includ-ing Boaz Weinstein, a hedge-fund manager who sits on theStuyvesant alumni board. U.S.Rep. GraceMeng, a Queens Dem-ocrat who went to Stuyvesant,weighed in with a statementsupporting the test, and StateSen. Toby Ann Stavisky, a Demo-crat who graduated from BronxScience, joined a recent rally.

The alumni associations seeother steps the city could taketo increase student diversity.

The Brooklyn Tech AlumniFoundation points to its pipe-line program that attracts low-income black and Hispanicmiddle schoolers for two-yearsof training on Saturdays andduring summers in science,technology and math.

Pamela Davis-Clarke, an at-torney and a founder of the

and alumni outreach.Soo Kim, an investment

manager at Standard Generaland president of the StuyvesantHigh School Alumni Associa-tion, said the bill’s quick rolloutthis month allowed for too littleinput from alumni and affectedfamilies. “There’s nobody onour side that doesn’t value di-versity,” he said. “But this isnot how good policy is made.”

Assemblyman Charles Bar-ron, a Brooklyn Democratsponsoring the bill, said thereis plenty of time for publichearings, the details could stillbe revised, and many alumniand students backed him.“There are a lot of supporterswho believe in equal accessand multiple measures” of aca-demic ability, Mr. Barron said.“We’re winning people over.”

Jaclyn Rothenberg, a CityHall spokeswoman, said officials

I doing?”About 10 years ago, I did a

TV pilot and the wardrobedesigner said, “I’m a big‘Caddyshack’ fan,” and I waslike, “Thanks…whatever.”

But then she said, “My fa-ther just died of leukemia.And the last two monthsthat he was in the hospital,we would all gather in hisroom and watch ‘Caddy-shack.’ And it was one of thefew chances for him to getover the fact he was dyingand have some laughs. Itbonded us as a family.”

I really lost it when shetold me that. And ever sincethen my whole inner land-

scape about my connectionto the movie has changed.

Regarding “First Love,” youdon’t see too many worksabout romance in later life.Why is that?

We live in a youth-ob-sessed culture. And mostmainstream media is gearedto those types of audiencesthat have those types of ex-pectations. And I think Chuckis an expert at subvertingpeople’s expectations.

What drew you to the play?I was already a huge fan

of Chuck’s as a writer and aperson. And the history of

the Cherry Lane in New Yorktheater and world theater isimpeccable. It’s seen the firstproductions of plays by Ten-nessee Williams and EugeneO’Neill and Edna St. VincentMillay and W.H. Auden andSamuel Beckett and SamShepard. That doesn’t getany better.

And the part is, in a way,the most challenging partI’ve ever had in the theater.My goal as an actor is to tryand bring a certain authentic-ity and verisimilitude to whatI do. And Chuck’s writing isso powerful and far-reachingthat you really have to digdeep to reach those goals.

Michael O’Keefe may for-ever be identified with therole of Danny Noonan, theyoung caddie in “Caddyshack.”

But in the nearly four de-cades since the release ofthe goofball comedy thatstarred Chevy Chase, BillMurray and Rodney Danger-field, the actor has built asolid career that makes thepart seem more like a pauseon the green.

Mr. O’Keefe, 63 years old,has worked in dozens offilms, playing alongside ev-eryone from Jack Nicholsonin “Ironweed” to GeorgeClooney in “Michael Clay-ton.” He has been on thesmall screen as well—as aregular on the original“Roseanne” and, more re-cently, on series rangingfrom “Homeland” to “Mas-ters of Sex.”

But the actor, who wasraised outside New York Cityand now calls upstate NewYork home, has also found aplace for himself in the the-ater, with several appear-ances on Broadway. He is re-turning to the stage for anew work, “First Love,” byveteran playwright CharlesMee—or “Chuck,” as Mr.O’Keefe refers to him—thatis being staged at the CherryLane Theatre. True to its ti-tle, the play looks at first ro-mance, but through an un-likely lens—the lovers,played by Mr. O’Keefe andactress Angelina Fiordellisi,are in their 60s.

The Wall Street Journalcaught up with Mr. O’Keefeat the Cherry Lane. Here areedited excerpts from theconversation.

Do you look back on “Caddy-shack” with fondness or doyou think, “What the heck was

BY CHARLES PASSY

AlumniChallengeSchool Plan

District Is EyedAs Diversity Model

New York City school offi-cials pitched a new plan to di-versify public middle schoolson Manhattan’s Upper WestSide on Wednesday as amodel for the city.

The Department of Educa-tion plan for District 3, whichincludes southern Harlem, cameafter months of heated publicmeetings. It requires each mid-dle school to give priority for aquarter of its seats to low-in-come, low-performing studentswho apply, starting with sixth-graders entering in fall of 2019.

It is the city’s first district-wide middle school plan for di-versity. Brooklyn’s District 15,

which includes Park Slope, isexploring ways to diversify itsmiddle schools as well.

The change would exposemore children to peers from dif-ferent backgrounds and givedisadvantaged students betteraccess to high-performingschools, said some parents whosupport the plan. But othersworry the proposal would re-duce the number of seats avail-able for their high-achieving stu-dents in sought-after schools.

Many parents have ques-tioned how students who arefar behind grade level would farein schools with acceleratedclasses, and how teachers wouldadapt. Education officials saidfaculty would get new trainingon academic interventions, andsome schools would offer moretutoring and Saturday programs.

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LIFE&ARTS

selves, but a volcanic eruptionthreatens to wipe them out. That re-news a crucial question for dinosaurlovers, chief among them OwenGrady, the trainer/whisperer playedslyly/sweetly by Chris Pratt, andBryce Dallas Howard’s Claire Dear-ing, the operations manager of thedefunct park. Do these animals,cloned from ancient DNA, deservethe same protection as the rest ofthe planet’s species? The questiontakes on a certain, dare I say it,gravitas as the movie manages toevoke plenty of empathy for theplus-size creatures. They’ve beenbrought to the screen this timearound through elegant puppetrymore often than computer-gener-ated imagery, with impressive re-sults. When Owen returns to the is-land with Claire, he reconnects withBlue, the supersmart raptor who fig-ured importantly in the previous in-stallment, and a convincingly deep

PleaseturntopageA12

THINK OF “JURASSIC World:Fallen Kingdom” as a display of de-voted animal husbandry—a motion-picture studio doing every damnthing it could think of to keep itsmost profitable menagerie from go-ing extinct. After a quarter-centurythe franchise may be terminallylong in the teeth; much of this fifthiteration is absurd, both intention-ally and un. Yet it’s also funny, in-triguingly dark and visually sump-tuous. The first word of dialogue is“relax,” which serves as good ad-vice, since the special effects lookspecial once again, and all the badguys get eaten eventually.

An imminent threat of extinctiondrives the narrative. It’s three yearsafter the previous film, “JurassicWorld,” and the collapse of thetheme park on Isla Nublar. The di-nosaurs have the island to them-

BY JOE MORGENSTERN

PEPMONTS

ERRAT

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Chris Prattas OwenGrady

THE MIDDLE SEAT | By Scott McCartney

What the AirlineKnows AboutTheGuy in Seat 12A

YOUR FLIGHT ATTENDANTwishes you happy birthday. Is thatcute or creepy?

Airlines know a lot about you,from date of birth and home ad-dress to travel patterns, vacationpreferences, beverage purchases andwhether your last flight was goodor bad. Now the latest generation ofhand-held devices used by flightcrews has an overhead bin full of in-formation about each passenger.

Carriers are using it in an effortto improve customer service. Theycan congratulate customers onreaching 3 million lifetime miles ortoast a couple’s wedding anniver-sary. At some airlines, they can tellif you really paid extra for that ex-tra-legroom seat or are travelingon a restricted basic economy

ticket. Someday soon it may be,“Having the usual vodka tonic to-night, Scott?”

Right now, airlines are trying tofigure out when personalized inter-actions could be considered inva-sive, amid growing concerns abouthow companies like Facebook andothers are using personal data.While many travelers are pleased tosee their loyalty acknowledged,they’d all rather have upgrades. Andplenty of others prefer a bit of ano-nymity once they get on an airplaneand leave town.

United rolled out a new app toits flight attendants earlier thisyear with so much informationabout people, the airline has beenreluctant to turn on all the func-tionality. The tool can show flight

attendants information on eachfrequent flier’s five previousflights—green if it was a goodflight, yellow or red if somethingwent wrong, like a delay. ButUnited is worried some customersmight consider that stalking.

“There’s a point where youdon’t want to make people feellike, ‘Gee they know everythingabout me and they’re tracking ev-erything I do,’ ” says John Slater,United’s senior vice president ofinflight services.

Personal milestones like birth-days are left to the judgment offlight attendants. They can decidewhether they think a customerwould appreciate the recognitionor recoil, he says.

The information is added to

phones and tablets used to chargecustomers for food and beveragepurchases. The devices can giveflight attendants real-time infor-mation on tight flight connectionsfor passengers, confirm whether awheelchair has been ordered for acustomer and help keep track ofunaccompanied minors.

Many nowallow flight at-tendants to offerinstant compen-sation for mala-dies like spilledcoffee or brokenentertainmentscreens.

Better serviceonboard in coachwill go to those with higher status.Top-tier frequent fliers, as well asthose with special needs, will getmore personalized attention, air-lines say.

Carriers say they don’t flag“problem” passengers—perhapsfrequent complainers or people in-volved in confrontations in thepast. Airlines do ban people fromtheir flights for altercations orabuses, and the Transportation Se-curity Administration flags prob-lem travelers.

But airlines are making it easierfor flight crews to report problemswith passengers. Instead of paper-work completed after a trip, Amer-ican Airlines’ third-generationhandhelds can submit all kinds of

reports, from catering goofs to on-board incidents, says Jill Surdek,vice president for flight service.

Alaska Airlines says that earlierthis month it gave its flight atten-dants an app on their hand-helddevices specifically to report sex-ual harassment, making it quickerand easier to alert the company toproblem passengers. Alaska hashad several high-profile issues in-volving passengers accused of ha-rassing flight attendants, as wellas a case of a passenger accused ofharassing another passenger.

The airline investigates everysituation, says Andy Schneider,Alaska’s vice president of people,and decides whether to take ac-tion, including banning someonefrom flights either temporarily orpermanently.

United’s new system has acolor-coded seat map showing sta-tus—a black seat is a Global Ser-vices frequent flier, United’s toptier. The seat map has icons forwheelchairs and lap children. Aseat with a dog face means thecustomer has a pet onboard. Mil-lion-mileage levels are also de-picted—seat 7C has “3M” on it for3 million miles.

Connecting flight informationcan be shown. Green seats havegood connections, yellow seatshave connections that could be injeopardy and red is reserved forvery tight connections.

Letting flight attendants knowsomething about each passenger“allows them to engage with cus-tomers in a meaningful way,”United’s Mr. Slater says.

JetBlue uses tablets mounted onthe top of beverage-service cartsso flight attendants get a hands-free visual picture of who’s who.“The ability for crew members toview a customer’s name is huge,especially in coach,” says ChrisMcCloskey, JetBlue’s director of in-flight experience.

The seat map will show a birth-day cake in a celebrant’s seat.Flight attendants can offer a com-plimentary buy-onboard productor a card signed by the crew.

More personalization is coming.One goal: tracking onboard pur-chases. If a customer orders thesame drink repeatedly, offer theusual. “There is definitely an op-portunity for us to leverage thedata that we have on customers alittle bit more,” Mr. McCloskeysays. At the same time, the airlineis analyzing how far it can go.

Airlines acknowledge the de-vices have made the job more

complex forflight attendants.Sara Nelson,president ofthe Associationof FlightAttendantsunion, says thedevices can re-duce situationalawareness.

If flight attendants have tostudy the screen to correctly rec-ognize each customer, they maynot be spending as much timestaying alert to what’s going on inthe cabin.

She says flight attendants gen-erally like these new tools becausethey let them do their jobs moreeffectively.

Still, Ms. Nelson says, “I’m alittle shocked there hasn’t beenmore backlash. I think the publichas generally decided they likethe personalized service, they liketo be able to resolve their issuesfaster, not have to tell people asmuch. And they’ve sort of sacri-ficed their privacy for thoseconveniences.”

FILM REVIEW | By Joe Morgenstern

‘JURASSIC’: REASONABLY EDIBLE AND CREDIBLE

Flight attendants nowhave more information

about passengers.How much is too much?

DOG TRACKSThey know ifyou have a peton the flight.

Your Life on a Flight Attendant’s Tablet

HIGH ROLLERSThey know ifyou’re a topfrequent flier.

B-DAY ALERTThey know if

it’s yourbirthday.

GATE MATESThey know ofyour tightconnection.

CHAIR AWAITSThey know ifyou need awheelchair.


and screen productions fea-turing the Beatles and otherclassic music acts haven’t.ABBA has never beentreated with much gravitas,so there’s no built-in out-rage about messing with itsmusic, said Stockholm-basedABBA expert Carl MagnusPalm. “ABBA songs weren’treally regarded as sacred,”said Mr. Palm, who has writ-ten or co-written eightbooks about the group.“There wasn’t this mythol-ogy around them.”

“Mamma Mia!” thrives onnostalgia for a band thatbuilt a global audience whileit lasted from 1972 to 1982but never staged a bigcomeback.

During ABBA’s run, Mr.Andersson and Mr. Ulvaeuswere married to Ms. Lyn-gstad and Ms. Fältskog, re-spectively. Both couples di-vorced while the band wasstill together. The foursomedeclined interview requestsfor this article.

Ms. Craymer had met Mr.

relationship resumes on bothsides of the species divide.(Neal Scanlan was the crea-ture supervisor.)

The director was theSpanish filmmaker J.A.Bayona (“The Orphanage,”“The Impossible”). He isgood with action—fireballsand lava flows send all crea-tures nasty and nice intoheadlong flight—and allowshuman moments to breatheand resonate. The firsthalf—much stronger in dra-matic terms than the sec-ond—starts with an evacua-tion on a scale slightly moremodest than Dunkirk. Theplan is to move the scalyevacuees to a sanctuary fi-nanced by Benjamin Lock-wood (James Cromwell), aninvalid zillionaire who has alot to answer for since thedays when he partneredwith Richard Attenborough’sJohn Hammond in the ill-fated company that createdJurassic Park. (The script,by Derek Connolly and ColinTrevorrow, has no answerfor the question of whyLockwood wasn’t part of theaction way back when.) Butthe lure of these fabulousbeasts leads more dubious

ContinuedfrompageA11

LIFE & ARTS

Andersson and Mr. Ulvaeusin 1982 while the ABBAsongwriters were workingon the musical “Chess,”which she would eventuallyhelp produce in London.ABBA had been the sound-track to Ms. Craymer’s teensgrowing up in north London.She began to pursue a pos-sible musical after meetingthe songwriters and workedto convince Mr. Anderssonand Mr. Ulvaeus to run withher idea. Her inspiration foran ABBA musical was ini-tially sparked by the theatri-cality of the band’s heart-break anthem “The WinnerTakes It All.”

“I couldn’t get the songout of my head—I felt ithad a big story there abouta woman and a breakup,”she said.

Once “Mamma Mia!” de-buted in 1999 in London,where it is still running,New York beckoned. But Mr.Andersson and Mr. Ulvaeuswere in no hurry to returnto Broadway after “Chess”closed two months afteropening there in 1988, Ms.Craymer said.

Instead, “Mamma Mia!”went to Toronto. A touringcompany performed it inSan Francisco. When it gotto Broadway in October2001, ticket lines snakedaround the block from thetheater. The musical, whichclosed in 2015, becameBroadway’s ninth-longest-running production. Thestage musical has opened inmore than 440 cities world-wide in 16 languages.

“There wasn’t a particularmaster plan,” Ms. Craymersaid of the musical’s origins.“I remember thinking, ‘If itruns nine months, I’ll justabout be OK.’ ”

FILM

MammaMia, HowCan I Resist Two?

Lily James, center,stars in ‘Mamma Mia!

Here We Go Again.’

A “MAMMA MIA!” sequelseemed inevitable. The filmwas the highest-grossinglive-action movie musicalwhen it debuted in 2008.The stage show that in-spired it still runs aroundthe globe. The title songeven says: “Here I go again.”

Instead ofarriving over-night, though,it took adecade.

The waitfor “MammaMia! Here WeGo Again”speaks in partto the brandcontrol that has sustainedthe “Mamma Mia!” machinefor nearly 20 years. The se-quel, featuring songs by theSwedish pop group ABBA,opens July 20.

“There’s always a Swed-ish caution there,” producerJudy Craymer said of work-ing with ABBA on the stageand screen ventures. “Every-one was like, ‘Don’t do an-other ‘Grease 2.’ ”

The “Mamma Mia!” enter-prise is formidable. Thestage musical came first, de-buting in 1999 in London. Amother-daughter story setaround a young woman’ssearch for her real fatherbefore her wedding on a fic-

tional Greek island, it hasgrossed more than $2 billionworld-wide. The film adap-tation, premiering nearly adecade later, grossed morethan $600 million globally.

One reason for its longev-ity: Creators of “MammaMia!” have maintained tightoversight of the contentfrom the start. Ms.Craymer—who came up

with the ideafor an ABBAmusical andenlisted theband’s song-writers BennyAnderssonand Björn Ul-vaeus—in-sisted onkeeping the

original creative team ofwriter Catherine Johnsonand director Phyllida Lloydfor the first film.

“I never dared let it outof my sight,” said Ms.Craymer, a 60-year-old pro-ducer who in the 1990sfunded her quest for themusical by selling her Lon-don apartment.

Despite approaches bystudios in the early 2000s,Ms. Craymer said she, Mr.Andersson and Mr. Ulvaeusnever sold the film rights. In2006, they forged a partner-ship with Universal Pictures.

Describing Ms. Craymer,actor Pierce Brosnan said:“She is ‘Mamma Mia!’ She is

“Everyone was like,‘Don’t do another‘Grease 2,’ ” says

a producer.

BY ELLEN GAMERMAN

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the Mamma and she is theMia.” Mr. Brosnan, who ap-peared in the first “MammaMia!” film alongside MerylStreep, said as soon as heheard that Ms. Streep was re-turning for the second movie,he was on board as well.

Sequels can be risky ven-tures, and an original film’salchemy can’t always be re-created. “I think a lot offans are anxious that thismustn’t spoil the legacy of‘Mamma Mia!’” said ChrisWilliams, a 30-year-old Lon-doner who started the fangroup ABBAtalk, adding thathe does not expect to thesequel to disappoint.

Producers secured a newlineup of stars to appear inthe sequel alongside the orig-inal cast. The new movie fea-tures Cher as the mother offree-spirited Donna—a roleoriginated in the first film byMs. Streep. Lily James por-trays Donna as a youngwoman in the film’s flash-back sequences. “The story isvery much about three gener-ations of women and mother-hood,” Ms. Craymer said.

The movie will featuresome songs that weren’t inthe first film, includingCher’s take on the 1970s hit“Fernando,” about a Mexi-can freedom fighter, as wellas crowd-pleasers from theoriginal movie.

“Mamma Mia!” has per-sisted in ways that stage

characters to devious deeds(chief among the villains isRafe Spall’s Eli Mills) andbends the plot back towardthe goal of the previousfilm—weaponizing the di-nos, or worse.

The culmination of thissection is a cattle auctioncrossed with “King Kong,”with one caged monster af-ter another put on roaring,head-tossing display for anaudience of arms dealers,animal traffickers and as-

sorted international trash.The sequence looks great—the cinematographer, OscarFaura, makes most of themovie look great—but con-tains a bizarre bafflement;one prominently exoticspecimen goes for a winningbid of $10 million. Really? Amere 10 mil for a literallypriceless prize? It’s the mostflagrant lowballing since thecrazed general played by Ed

Harris in “The Rock” set$100 million as his price fornot attacking San Franciscowith nerve gas.

Mr. Pratt’s charm wouldhave been the saving gracein “Jurassic World” if thatfilm hadn’t been beyondsaving. In this one he ischarming, once again; deli-cate in his approach tophysical comedy (slowly ro-tating one leg, as if in a bal-let, out of the way of aslithering lava field) and

touching in his faithfulfriendship with the raptorBlue. Ms. Howard has un-dergone a welcome trans-formation. The most notablepart of her previous perfor-mance was her high heels;when she wasn’t runningaround the island in them,she was standing tall butsuperfluous in dialoguescenes where no oneseemed to have told her

what to do. Here, in flats,she gets a lift from Claire’sclear focus—save the dino-saurs no matter what—andbecomes a strong, attractiveforce in the process.

All of that said, the latterstretches of “Fallen King-dom” fall into “Night at theMuseum” chaos, with most ofthe island’s displaced popula-tion rampaging through avast gothic mansion. It’s as ifall concerned on the creativeside threw up their hands,then tossed in anything thatmight lead to a setup for

film number six.The scattershot qual-

ity is crazy-making, butstill entertaining if youkeep your expectations incheck. I laughed a lot(though not at a horrificvision of dinosaurspacked into a kind ofgas chamber), appreci-ated the scenery and en-joyed the presence ofBenjamin Lockwood’sgranddaughter, Maisie (Is-abella Sermon), a moralforce in her own right and alinchpin of the plot. JeffGoldblum makes little morethan a cameo appearance asthe chaos theoretician IanMalcolm, who hasn’t beenseen in Jurassic precinctssince “The Lost World” in1997. But Dr. Malcolm, nowan éminence grise, gets towarn that we’ve entered anew era in which geneticpower has been unleashed.Meaning watch out, this oldfranchise hasn’t gasped itslast gasp.

A MostProfitableMenagerie

The Indoraptor from ‘JurassicWorld: Fallen Kingdom’

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Meryl Streep, who starred in the first ‘Mamma Mia!,’ appears in the sequel.

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TheWSJ Daily Crossword | Edited by Mike Shenk

1 2 3 4 5 6 7 8 9 10 11 12 13

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 65 66

Across1 Uproar

5 Idle inHollywood

9 Goes with thewind

14 Capital that willhost the 2019Pan AmericanGames

15 Cantina snack

16 Its anthem is“Jana GanaMana”

17 Mr. or Ms., e.g.

18 Extra seat belt?

20 Repulsively slickgumshoes?

22 Base boss

23 Spotlight hogs

Previous Puzzle’s Solution

24 Sauceroccupant

27 ___ Reader(alternativemagazine)

29 Alternative toa snake

31 12-territorysection of a Riskboard

34 Image of Pluto,say

36 Contest venues

37 Minor no-nosinvolving partysalsa?

40 Exercise in thepool

41 Hold back

42 Sermonender?

43 “Silver Bells”lyricist Ray

44 Hall of FameCub Sandberg

46 JFK or LBJ, e.g.

47 Gatsby’sportrayer in 1949

50 Game VIP

54 Remnants of atoad’s skintreatment?

57 Printer’s anti-embellishmentpolicy?

60 Item on a card

61 Promising place

62 Sea lettuce, forone

63 Fill up

64 Slip settings

65 Twain’s jumpingfrog

66 Scratches (out)

Down1 They havesupport staffs

2 Scales up?

3 “Jurassic Park”preserver

4 President HoracioCartes, e.g.

5 Crafty site

6 List of cons

7 Bucky Beaver’sbrand

8 Rebound

9 Thin puff

10 Colony members

11 WPA supporter

12 Hermana de papá

13 Easy mark

19 Rosy-fingeredgoddess

21 Lot location

24 “Shut yer yap!”

25 Hardly fit

26 Entourage

28 “JAG” spinoff

29 Bow’s husbandon “Black-ish”

30 Like some stocksand souls

31 Promoted

32 Boiling point?

33 Riyadh religion

35 It might bedropped for atrip

36 Private group?

38 Modemmeas.

39 Cheap campaignad

45 Mint

47 Arles article

48 Go over like___ balloon

49 Alfalfa’s love

51 Emulate a frog

52 Chopin piece

53 He shared the1956 ticket withAdlai

54 Winter Palacefigure

55 “___ to Hold”(Deanna Durbinfilm)

56 Nonstick brand

57 Pitcher’s lid

58 Peyton’s brother

59 Put away

s

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

A C T S S H A G M I S E RS H I P P A C E A L E R TH O P O N A N A I R P L A N EO P T I C G I G O L O SR I O L O B O E L E G I S TE N E O V A R Y I D L E

P O M E S I C E I NS K I P B R E A K F A S T

P E E N S A V A I LF R E E E N T E R O A TC A P A B L E R O M A N C E

S P R O U T S E L E C TJ U M P I N T H E S H O W E RU V U L A E A T S N A D AG A M E R R I O T E Y E D

BACK-TO-BACK | By Samuel A. Donaldson

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

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Saxophonist KamasiWashington’s new albumis ‘Heaven and Earth.’

G doesn’t fall into this category), but nowMr. Washington is changing that. In 2015,the previously unheralded saxophonistshowed up on Kendrick Lamar’s megahit “ToPimp a Butterfly” and released his breakoutalbum, “The Epic.” This comparative new-comer, previously limited to low-profilesideman stints and self-produced projects,suddenly started appearing at rock festivalsand on TV shows, in some cases reachingaudiences that may never have seen a saxo-phone before.

I can only applaud the mastermind whocame up with the title “Heaven and Earth”for Mr. Washington’s new release, a record-ing that is every bit as all-inclusive as itsname implies. If I ran a record store Iwouldn’t know where to put Mr. Washing-ton’s recordings on display: Is this stuff jazz,

or R&B, or some new kind of classical mu-sic? Can we invent a genre called “all of theabove”?

Close your eyes, put on some headphonesand sink into this expansive project, whichwill take you on a mini-tour of the world ofmusic. Along the way, you will encounterAfro-Cuban vamps, seraphic choir inter-ludes, catchy pop melodies, funky old-schoolgrooves, soundtrack-style mood music, high-octane saxophony, tinkly ambient sounds,military march beats, spoken-word exhorta-tions, prog-rock riffs, and in-your-facebursts of noise.

Mr. Washington has built his reputationon large-scale endeavors of just this sort.“The Epic” included 173 minutes of music onthree discs. I note that the average MajorLeague Baseball game lasts 172 minutes—

NO ONE CAN ACCUSE Kamasi Washingtonof lacking confidence. The cover of his latestrecording depicts the saxophonist literallywalking on water. That’s a bit too smug formy tastes, but perhaps a suitable marketingangle for an artist who has been lauded asthe savior of jazz.

I don’t think jazz needs saving—dozens ofrising stars in the genre are creating fresh,exciting music that deserves to be heard—but if Mr. Washington delivers on his poten-tial to bring hip-hop and rock fans into thejazz camp, he will have earned some claimto the title of miracle worker.

It’s been a long time since pop cultureembraced a serious jazz saxophonist (Kenny

BY TED GIOIA

MUSIC REVIEW

KamasiWashington:Musical MiracleWorker?

draw your own conclusions from that. Inany event, our saxophonist needs a largerroster than the New York Yankees. For “TheEpic,” he supplemented a 10-piece jazz bandwith a 32-piece orchestra, and a 20-personchoir. His new two-disc release is just as la-bor intensive—the personnel listing suppliedby his record label fills up an eight-pagedocument—and makes clear that Mr. Wash-ington’s musical vision may be evolving butcertainly isn’t downsizing.

Listening to “Testify” from Mr. Wash-ington’s “Earth” disc, I thought for a mo-ment I was hearing an old Earth, Wind andFire hit. In fact, the chords and groovearen’t much different from “That’s the Wayof the World.” On the other hand, “WillYou Sing,” from “Heaven,” could accom-pany some sci-fi religious ritual from an-

other planet, and showcases the powerfulAfrofuturist vibe that is a recurring themein this artist’s work. But Mr. Washington ismost compelling when he features his saxfront and center. On “One of One” hematches his horn against the supersizedensemble in a battle to see who canachieve the greatest intensity—and Mr.Washington’s saxophone proves more thancapable of besting the other 40-plus musi-cians on the track.

Not many artists have risen to the chal-lenge of combining dozens of contrastingstyles into a coherent musical vision. TheBeatles pulled it off, incorporating every-thing from British music-hall entertainmentto Indian sitar into their kaleidoscopicsoundscapes. In the jazz world, Miles Davisbuilt his legacy on an ever-changing style,but never tried to put all of his posturesinto a single album. Charles Mingus perhapscame closest to turning a grab bag of ap-proaches, from Dixieland to atonality, into aunified jazz stance. Mr. Washington is on asimilar mission, aiming for a style that tran-scends styles.

I see Mr. Washington as a kind of ambas-sador reaching across the boundaries thatdivide the music world into isolated nichesand genres. Everybody wins in this game ofaural diplomacy. The jazz world always ben-efits from a dialogue with popular music. Infact that’s how the art form started morethan a century ago. And commercial genresgain in vitality and expressive force bylearning from what jazz has to offer.

Can this ambitious saxophonist really pulloff such a high-stakes détente? That’s a tallorder for a musician still in the early stagesof his career. But if anyone can do it, it’s Ka-masi Washington. Keep him in your sights,because a miracle may be about to happen.

Mr. Gioia writes on music, literature andpop culture. His next book, “Music: ASubversive History” (Basic Books), will bepublished next year.

LIFE & ARTSDURIM

EL


SPORTS

absence of the U.S. seems to elicit aparticular kind of indifference.

“Does anyone care? Not thatmuch,” said the veteran Dutch man-ager Guus Hiddink, who has coachedthree different nations at the tour-nament. “Holland didn’t make it ei-ther—and that was a big deal.”

Americans normally travel tothe World Cup in huge numbers. InBrazil four years ago, U.S. jerseysseemed to pop up at every gameand in every airport. The same wastrue in South Africa in 2010. Per-haps due to the frostiness betweenthe U.S. and Russia, U.S. fans aresimply harder to pick out here.More likely, they haven’t bothered.

The U.S. was second only toRussia in ticket sales, according toFIFA. But spend any time wander-ing around Moscow bars, Russianairports or stadium concoursesand it becomes apparent thatthose landed in the hands of a dif-ferent set of American fans en-tirely: Ones who root for theAmericas to the south.

Since the tournament kicked off,Moscow has turned into a fiesta ofMexicans, Argentines, Brazilians,Colombians, Uruguayans, and, im-probably Peruvians, who are at theWorld Cup for the first time since1982.

If the U.S. had sneaked into the32-team field, it might have stoodan outside chance of surviving thegroup stage. But would anyonemiss the same old team that hasn’t

Thursday, June 21(All times Eastern)8 a.m.: Denmark vs. Australia (FS1)

11 a.m.: France vs. Peru (FOX)

2 p.m.: Argentina vs. Croatia (FOX)

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VALBOCHKOV

riors. The entire league is tired ofthe Warriors. Even the Warriorsare tired of the Warriors.

But their pick in this draft is toobig to ignore. It could help deter-mine how long their dynasty lasts.The player lucky enough to slip tothe Warriors at the end of the firstround won’t be the most talentedrookie or the most importantrookie in the long term. If all goesto plan for Golden State, though,he will be essential immediately.

This sounds like a strange thingto say about a team that has wonback-to-back titles and three of thelast four championships, but theWarriors could really use somemore talent alongside StephenCurry, Klay Thompson, DraymondGreen and Kevin Durant. One of thelessons of the last NBA season isthat they are not infallible. The restof the league is getting better—the76ers, the Celtics, the Rockets, thewhatever team has LeBron James—and that means even the Warriorshave to get better this summer.

The draft is their first chance toimprove. It’s also one of their last.

The most they can offer any freeagent is their taxpayer mid-level ex-ception, a mouthful that amounts to$5.3 million, and the only methodof enhancing their roster otherwiseis through minimum contracts toveterans who believe that playing inthe Warriors’ basketball heaven is

worth the millions they might haveto sacrifice. Their options are lim-ited. “Things you’d normally have,”Myers said, “we don’t have.”

But they do have a draft pick.And they’re counting on produc-tion from that draft pick as soonas possible.

The Warriors have some experi-ence plucking undervalued talentin the draft. It happens to be thereason this budding dynasty existsto begin with.

It only becomes more outrageousevery year that Curry and Thomp-son were drafted after 17 players,including several who no longerplay in the NBA, and DraymondGreen was somehow the 35th pickin his own draft. But grand larcenyis almost required for teams asgood as the Warriors. The San An-tonio Spurs stole Tony Parker witha 28th pick before they pulled offthe heist otherwise known as ManuGinobili with a 57th pick.

While the stakes are obviouslyhigh on Thursday for teams likethe Phoenix Suns, SacramentoKings and Atlanta Hawks—the dif-ference between the right pick andwrong pick for them is the differ-ence between Greg Oden andKevin Durant—this draft is crucialfor the Warriors in a subtle way.

“That’s how you keep your win-dow open longer,” Myers said.“You may get lucky and get a

Draymond. You never know.”The longer he’s in the job, Myers

said, the more he appreciates thedraft process: the scouting tripsthat allow him to think about thefuture, the long days and nights intheir war room, the debates withhis colleagues in the front office herarely sees during the season. Theyhave no idea which of their favor-ite prospects will be around at 28,but the Warriors concentrate on ahandful of players and try every-thing in their power to nab one.

That was tricky last year consid-ering they didn’t have a pick whenthe night began. But the Warriorspaid $3.5 million to the ChicagoBulls for the 38th pick, and there isnothing but lots of money stoppingthem from buying another second-round pick this year.

It has already paid off for them.The Warriors turned all that cashinto Jordan Bell, and he turned outto be worth the splurge. Bell had aclearly defined role as a rookie. Hefit. He played key minutes duringthe playoffs. He made real contri-butions in their title run. And thenhe appeared to cost the Warriorsanother $3.5 million in champagneand cognac at their championshipparade.

The people responsible fordrafting him were already back towork by then. They were searchingfor the next Jordan Bell.

WORLD CUP

REST OF THEWORLDDOESN’TMISS U.S.

MoscowWHEN THE U.S. failed to qualifyfor the World Cup on a damp nightin Trinidad and Tobago, it immedi-ately became the country’s biggestsoccer disaster since the nationalteam took the field in denim-printjerseys in the 1990s.

After making it to the tourna-ment seven straight times over thecourse of 24 years, the U.S. consid-ered itself part of the World Cupfurniture. Broadcasters boughttelevision rights for hundreds ofmillions of dollars. Missing out, thethinking went stateside, would setback the development of Americansoccer, cost officials their jobs, andleave the rest of the planet won-dering where on Earth thoseplucky Yanks had disappeared to.

Now, with the tournament in fullswing, it turns out the rest of theplanet doesn’t actually care.

“Nobody’s going to miss theUnited States,” said former U.S. na-tional team midfielder Stu Holden,who is in Russia as an analyst forFox.

The U.S. isn’t the only World Cupregular spending the summer athome. Italy, a four-time champion,was knocked out in qualifying afterlosing a playoff to Sweden. And theNetherlands, a three-time finalistand vastly influential soccer nation,missed the cut last October. But the

BY JOSHUA ROBINSON

won a World Cup knockout gamesince 2002?

“We were on a great run withseven consecutive World Cups upuntil this one,” Holden said. “Inmany senses, it’s given us a littlebit of a wake-up call. It sucks notto be invited to the party.”

So the U.S. is going to hold itsown party—even if it is eight yearsfrom now and totally a coinci-dence. Long before it knew thatthe national team wouldn’t passmuster for Russia, the U.S. com-mitted to a joint bid with Canadaand Mexico to host the World Cupin 2026. The three-country pro-posal was chosen by soccer’s worldgoverning body last week.

In the present, the U.S. is looking

for silver linings where it can. (Un-like Italy, whose main sports dailymarked its defeat with the headline,“Italy, this is the apocalypse.”) Be-cause it wasn’t a World Cup country,the team became a sought-after op-ponent for friendly matches, facingoff against France earlier this month.The federation is also taking time fora reassessment of the program.

Which is all well and good. Butthere are 32 other countries in theworld, from Brazil to Australia toEngland, who happily consider itnot their problem.

“Not to see countries like thatthere, it’s sad and it’s a shame.But at the same time, there’s noroom for sentiment,” said the for-mer England striker Ian Wright,

who watched his national teamstay home during the 1994 WorldCup. “We’ve missed tournaments,whether it’s because of form orour players aren’t good enough.It’s something that they have toget over.”

—Anatoly Kurmanaevcontributed to this article.

Fans cheer prior to a World Cup match between Sweden and South Korea at Nizhny Novgorod Stadium.

JOELMARKLU

ND/B

ILDBYRAN/ZUMAPRESS

NBA

TheWarriorsWant toWin the DraftThe most important picks: The Suns at 1, the Kings at 2, the Hawks at 3 and...the Warriors at 28

ONE MORNING last week, theGolden State Warriors held theirchampionship parade. Their coachesand executives were back in the of-fice by that afternoon. They had anNBA draft workout to attend.

The squeeze between their lat-est title and the draft on Thursdaynight left them almost no time tocelebrate. The Warriors werescouting prospects and plottingdraft strategies while they werestill in the playoffs, and it becametheir exclusive focus as soon asthe NBA Finals were over. “Rightaway,” Warriors president of bas-ketball operations Bob Myers said.“Like, the flight home.”

The draft is a powerful tool forthe league’s awful teams since it al-lows them to be less awful with asingle decision. But it’s oddly imper-ative for the best team in the league,too. That is the peculiar thing aboutthis draft: There has never been amore intriguing No. 28 pick.

“We’re looking for a guy thatcan play,” Myers said. “Which is alittle unusual.”

OK, we know what you’re think-ing: Is this really a story about theWarriors on the exact day of theNBA calendar when the Warriorsare supposed to be irrelevant? Andwe get it. You’re tired of the War-

BY BEN COHEN

From left to right, Stephen Curry,Kevin Durant, Draymond Greenand Klay Thompson.

WORLD CUP

RONALDOSTRIKES AGAIN

MoscowTHE WORLD CUP isn’t big onsentimental goodbyes for soccer’sall-time greats. So it’s by nomeans certain that this tourna-ment will end in a blaze of gloryfor Cristiano Ronaldo. But it’ssure starting to look that way.

In the second game of what islikely the final World Cup of hiscareer, the 33-year-old Ronaldoscored his fourth goal of the tour-nament, sending Portugal on itsway to a 1-0 win over Moroccothat leaves the team on the brinkof the knockout round.

Just as in his first game, when astunning hat trick secured a drawagainst Spain, it didn’t take Ron-aldo long to make his mark. Fourminutes in, Portugal won a corner,and when the ball was pumpedinto the box, Ronaldo muscled freeof his marker and planted a stoop-ing header high into the net.

It was a goal emblematic of theplayer he has become in the twi-light of his career. Though Ronaldobroke onto the scene as a jet-heeled, gel-haired winger withspeed to burn, he has morphedinto an apex penalty-box predator.The opener here was his secondgoal of the tournament from 12yards or closer.

Late in the game, a free kick onthe edge of the Morocco penaltyarea offered Ronaldo a chance toput the game to bed. This time,the spectacular finish eluded him.Ronaldo’s low shot hit the defen-sive wall and when he challengedMorocco’s Nourredine Amrabat forthe loose ball, he threw himself tothe floor despite minimal contact.Despite his protestations to thecontrary, no penalty was givenand, as play was allowed to con-tinue, Ronaldo allowed himself awry smile. The defining moment ofanother World Cup game alreadybelonged to him.

In other action in Group B,Spain edged Iran 1-0, following a54th minute goal by Diego Costa,his third goal of the tournament.

BY JONATHAN CLEGG

CristianoRonaldo

MATT

EOCIAMBELLI/NURPHOTO

/ZUMAPRESS


The FallingTide of GrayVicksburgBy Samuel W. Mitcham Jr.(Regnery, 402 pages, $29.99)

BOOKSHELF | By Russell S. Bonds

OPINION

O n July 3, 1863, Gen. George Pickett’s famous chargecrested and broke at the Battle of Gettysburg—amoment that tradition would name the “High Water

Mark of the Confederacy.” At almost the same hour, 900miles to the southwest, Union Gen. Ulysses S. Grant andConfederate Gen. John C. Pemberton met to discuss termsfor the capitulation of the Rebel stronghold at Vicksburg,Miss. The formal surrender would take place the next day,July 4, marking the end of a nine-month campaign thatbroke the South in two and opened the Mississippi River toUnion navigation from source to mouth.

The town of Vicksburg had long been a critical strategicpoint in the war’s Western Theater, situated atop a 200-footbluff on a bend in the river and held firm by the Confeder-ates into 1863, even as New Orleans and Baton Rouge andMemphis fell. For Abraham Lincoln, Vicksburg was crucial.

“The war,” he said, “can never bebrought to a close until that keyis in our pocket.” Jefferson Daviscalled it “the nail-head that holdsthe South’s two halves together.”Other observers were even moregrandiose in their description ofthe river landing turned citadel:“The Gibraltar of the West,” theycalled it.

The struggle for Vicksburg haslong been overshadowed by Gettys-burg, the war’s greatest battle. Grant’sown “Personal Memoirs” stand as themost widely read account of theoperations in Mississippi, and Edwin C.

Bearss’s monumental Vicksburg trilogy(1985-86) dominated the field for years. This century

has brought campaign studies by William Shea and TerrenceWinschel and by Michael Ballard, as well as renewed focus onstrategy in the barrage of recent biographies of Grant—most ofthem sympathetic to the blue commander. General readersinterested in the campaign can enjoy two excellent narrativetreatments: novelist Winston Groom’s “Vicksburg, 1863” andShelby Foote’s classic “The Beleaguered City.”

In “Vicksburg: The Bloody Siege That Turned the Tide ofthe Civil War,” Samuel W. Mitcham Jr., a retired professorand prolific chronicler of World War II, re-examines thestruggle, making clear at the outset his mission. “Here,” hesays, “the Rebel side will be told.” He also seeks to re-evaluate—and defend—the shaky generalship of theSouthern commander Pemberton.

Mr. Mitcham’s title sells his book short, as he covers notonly the seven-week siege that led to the city’s downfall butthe full, grinding campaign across the bayous and battle-fields of Mississippi and Louisiana. “The work of reducingVicksburg will take time and men,” Grant had written inJanuary 1863, “but it can be accomplished.” The Confederateofficer assigned to block Grant from his goal was himself aYankee—Philadelphia-born John Pemberton, who “marriedSouth” and sided with his wife’s people after Fort Sumter.

Mr. Mitcham thoroughly recounts the series of battlesleading to the gates of Vicksburg and illuminates someunderappreciated aspects of the war, especially the clashesbetween Federal and Confederate riverboats and ironclads,and the various operations (most of them failures) impro-vised by Grant and his naval partner Adm. David DixonPorter that foreshadowed modern amphibious warfare.

Mr. Mitcham’s prose is straightforward, and he turns anice phrase—he describes one faltering infantry charge that“choked on its own blood.” But his arguments and quotationsare thinly sourced—the endnotes provide a sort of sidebarcommentary, not the detailed citations typical for a scholarlyhistory. The book’s maps are sparse and sketchy. In addition,and most unfortunately, Mr. Mitcham’s efforts to tell the“Rebel side” and correct the record are themselves an over-correction, and his depictions of Union forces and leaderstoo often devolve into caricature. Grant is “desperate,” notdetermined; Sherman displays “his characteristic over-bearing cruelty”; Federal prisons are “Lincoln’s dungeons.”

Union forces certainly deserve criticism for their hard-handed treatment of civilians, but the constant aspersions onall things Northern are overkill. Indeed, Mr. Mitcham’s bookis in danger of being swamped by its agenda at the start: Heuses the term “politically correct” or “political correctness”nine times in a bellicose four-page introduction. The viewthat the war was about slavery is “the politically correctparty line,” he says. Historical balance requires more thanjust sectional bias in the other direction, and Mr. Mitcham’scharged perspective calls into question his analysis.

The swampy expeditions, riverboat duels and months ofmaneuvering gave way to a siege whose end seemed inevi-table, as Grant finally boxed Pemberton’s graybacks insidethe city. Mr. Mitcham argues that Pemberton did all he couldin the face of overwhelming numbers and limited tacticaloptions. Yet he goes far beyond excuse-making, and hisanalysis of Pemberton’s shortfall crescendos to a full-throated yet weakly supported alternate history. “HadPemberton’s orders been obeyed,” he asserts, “Vicksburgwould have held, . . . the South might have won its indepen-dence, and John C. Pemberton today would be hailed as ahero of the extant Confederate States of America.”

Despite the odds and the incoming ordnance, the citizensof Vicksburg retained their pluck and defiance to the bitterend. “The Great Ulysses—the Yankee Generalissimo sur-named Grant—has expressed his intention of dining inVicksburg . . . and celebrating the 4th of July,” the VicksburgDaily Citizen wrote on July 2. “Ulysses must get into the citybefore he dines in it. The way to cook rabbit is, ‘first catchthe rabbit.’ ”

Two days later Grant caught his rabbit—taking nearly30,000 Rebel prisoners—and Independence Day turned toash on the banks of the Mississippi. Pemberton was left athis headquarters, “sitting in a damask-cushioned, armedrocking-chair,” Mr. Mitcham writes, one witness recallinghim as “the most discontented looking man I ever saw.”

Grant, now famous for forcing surrenders, would soon moveeast to face Robert E. Lee. The residents of Vicksburg wouldnot celebrate the Glorious Fourth for the next 81 years.

Mr. Bonds is the author of “War Like the Thunderbolt:The Battle and Burning of Atlanta.”

The surrender of Vicksburg, Miss., to Unionforces the day after the Battle of Gettysburgeffectively broke the Confederacy in half.

Depoliticize the Nation’s Highest Honor

E very country has a non-military award for itsmost distinguished citi-

zens. In Britain it’s the Orderof Merit or a peerage. Francehas the Académie française. Inthe U.S., it’s the PresidentialMedal of Freedom.

Traditionally, the winnersof the medal are announced onJuly 4. But last year PresidentTrump didn’t award any,which did nothing to improvehis standing with our coun-try’s cultural elite. He alsoputs ketchup on his steaks. Aphilistine, in short.

Matthew Arnold popular-ized the term “philistine” in“Culture and Anarchy” (1869).He was thinking of religiousDissenters with a severelydour sense of pious duty andlittle use for culture. They hadmissed all that literature, artand music might contribute toa well-lived life. Today thereare plenty of people like theDissenters around. They’re the

ones who see everything interms of politics.

Robert De Niro has a waywith words, as we’ve discov-ered, but did he really deservethe Presidential Medal of Free-dom in 2016? What about El-len DeGeneres the same yearor James Taylor in 2015? Gothrough the list and it’s hard

to avoid thinking that thismedal is really about politics.At a minimum, winners havegotten a big leg up from theirpolitical views, like the writerswho win the Nobel Prize inLiterature because they’refrom a Nordic country.

A good way of thinkingabout prizes for eminent peo-ple is to apply the anti-Nobeltest. Forget about the winners.Think about all those who

deserved a Nobel but didn’t getone. Leo Tolstoy, James Joyce,Marcel Proust, Anton Chekhov,W.H. Auden—losers all. It isn’ta list that endears one to theSwedish Academy.

To apply the same test tothe Presidential Medal of Free-dom, ask of whom in 50 yearspeople will exclaim, “You meanhe never won it!” It’s easyenough to come up with a listof worthies in literature, music,scholarship and cinema.

In 2068, who among today’swriters will be remembered?Not many, I think, but CormacMcCarthy is one. In music,Philip Glass and John Adamsdeserve the medal. HistorianGordon Wood has watched hisdiscipline be taken over bypractitioners of race, class andgender, but he continues to re-mind his readers of the great-ness of the Founders. And ifMr. Trump is looking for anentertainer to recognize, whowouldn’t want to hear ClintEastwood growl “Make myday!” at the White House?

I have one last person inmind. Among other things, thePresidential Medal of Freedomis awarded for especially mer-itorious contributions to na-tional security, and usuallyeach year’s ceremony includesa military leader. This July 4,in recognition of a lifetime ofdistinguished service and torepair a rhetorical misstep,President Trump shouldaward the medal to Sen. JohnMcCain.

Mr. Trump wants to makeAmerica great again. Butwhat is greatness, if not aculture the world admires andheroes such as the ones listedhere? When everything else isforgotten in 2068, these arethe achievements that will beremembered.

Mr. Buckley is the author of“The Republican WorkersParty: How the Trump VictoryDrove Everyone Crazy, andWhy It Was Just What WeNeeded,” forthcoming fromEncounter.

By F.H. Buckley

The Medal of Freedomshouldn’t be an awardfor right-thinking.

W.C. Fields,the great andwise film co-median, oncesaid that doinga scene withchildren wasperilous be-cause they willsteal it. Some-one shouldhave warned

the Trump White House.No doubt buried somewhere

inside the administration’s“zero tolerance” policy on ille-gal border crossings is an im-portant issue related to therule of law or national sover-eignty. Just don’t expect any-thing resembling seriousthought to compete with im-ages of kids in Border Patrolprocessing cages.

President Trump signed anexecutive order Wednesdayending the parental separa-tions. Reassembling these fam-ilies may slow the bleeding forRepublicans, but it won’t solveanything related to illegal im-migration.

In 1986, after a mighty leg-islative struggle during theReagan administration, Con-gress passed the Simpson-Mazzoli Immigration Reformand Control Act. Its purposewas to control the flow of ille-gal immigrants into the U.S.More than 30 years later, weare putting them in holdingpens.

Neither liberal fixes norconservative restriction hasaccomplished anything.

For eight years, the U.S. hada liberal president in BarackObama, and immigration re-mained a mess. Conservativetalk radio turned it into a po-litical weapon built around oneword—“amnesty”—which has

Kids in Cagesproduced one thing: legislativegridlock.

With Mr. Trump, the U.S.has possibly the most restric-tionist president since Repub-lican Chester Arthur signedthe Chinese Exclusion Act in1882, banning immigrantsfrom China as a threat to U.S.labor.

Mr. Trump’s attorney gen-eral, Jeff Sessions, was themost restrictionist member ofthe Senate during the Obamayears. Sen. Sessions’s commu-nications director, StephenMiller, is now PresidentTrump’s primary adviser onimmigration policy.

It remains a mess. Justmaybe, we are doing some-thing wrong.

A strong clue to what’swrong emerged from Home-land Security SecretaryKirstjen Nielsen’s press confer-ence at the White House thisweek. Well, it wasn’t a pressconference. It was more like aMaoist struggle session, withfew straight questions. Exam-ple: “President Trump has hada lot to say the last few daysabout immigration, but he’s of-fered no compassion to thefamilies that are being sepa-rated. Do you know why thatis?”

Still, a light went on whenSecretary Nielsen said the sepa-rated children were being caredfor by the Department of Healthand Human Services. HHS wasinvolved in this, too?

For more than 30 years, our“solution” to the illegal immi-gration problem has been tothrow wave after wave of fed-eral bureaucracies at it. Whatcould go wrong? More accu-rately, how could it not getworse?

Among the proposals to

emerge from the Senate thisweek were . . . build more de-tention facilities and hire 375more immigration judges.That’s the answer: moreswamp!

President Trump recognizeswhat a fiasco this approach is.Arriving Tuesday on CapitolHill to meet with Republicans,he said: “It’s been a really bad,bad system, probably theworst anywhere in the world.We’re going to try and see ifwe can fix it.”

Mr. Trump’s well-known al-ternative is to build a wall be-tween Mexico and the U.S. Butanother Trumpian solution isavailable: Let the Americaneconomy fix it.

During the Obama years, arecurring complaint by someconservatives was that illegalimmigrants had taken jobsfrom unemployed Americans.Donald Trump, while runningfor president, could not haveforeseen how his economicpolicies—a rollback of virtuallythe entire Obama regulatoryregime and a large tax cut—would effectively eliminatethis issue in 18 months.

Today there are more jobsavailable than there are un-employed people. The unem-ployment rate for black Amer-icans 16 or older was 5.9% inMay, the lowest since 1972.The overall unemploymentrate, at 3.8%, is expected tofall further.

One reality remains, how-ever: Thousands of Americanemployers in agriculture, hos-pitality, construction, landscap-ing and manufacturing in virtu-ally every U.S. state still needthe kind of labor those immi-grants provide, such as fixingroofs, cutting grass, cleaninghotel toilets, and sorting crabsand fish. In the Trump econ-omy, most Americans don’tneed to do this work. Butsomeone’s gotta do it.

We have run the experimenton letting the federal bureau-cracies solve the illegal-immi-grant problem and haveproved conclusively: Theycan’t. So why not give the mar-ket a chance to solve it?

Give these adults work visasthat let them enter and exitthe country at legal entrypoints as the labor market re-quires. A reason they bringtheir children with them isthat if they leave the U.S. now,there is no legal way to re-en-ter for work.

Yes, there are details, butsurely this market-based solu-tion would be easier to adminis-ter than the never-ending trav-esty at the Mexican border.

El Salvador, Guatemala andHonduras would benefit sociallyand politically if more of theseworking-class people could gohome legally. What’s left behindthere now are the dregs andgangs who drive constantstreams of people north.

We can either let theworld’s strongest economycontrol the immigration flow,or let politicians and bureau-crats keep trying. The latterwill produce another bog ofembarrassment, like the onewe all stared at in Texas thisweek.

Write [email protected].

There is a Trumpiansolution to illegalimmigration: Let theeconomy control it.

WONDERLANDBy DanielHenninger

W ith most primariesover, congressionalcandidates are now

making decisions about the arcof their fall campaigns. For Re-publicans, the results will turnon how they emphasize theeconomy, lay out an agenda insync with their state or dis-trict, and attract independentswing voters who like Presi-dent Trump’s policies morethan they like him. The immi-gration maelstrom also loomslarge over key races.

Republican Senate challeng-ers in red states like North Da-kota and West Virginia arecompeting on favorable terrain:Mr. Trump and his policies arepopular. But in both cases theDemocratic incumbent is per-sonally well-liked. Republicanscan win if they convey disap-pointment with their opponentmore than anger. Rep. KevinCramer is showing real skill atthis in North Dakota, calmly fo-cusing on the many instances inwhich he and incumbent Demo-cratic Sen. Heidi Heitkamp havevoted the opposite way. Thismakes it possible for voters toconclude that while they likeMs. Heitkamp, they don’t agreewith how she votes.

In states like Indiana andMontana, which Mr. Trumpcarried by double digits, Sen-ate Democrats have launchedearly personal attacks ontheir Republican challengers.

Make 2018 About Taxes, Not MigrationThe most laughable of these isIndiana Sen. Joe Donnelly’stelevision ad attacking Repub-lican Mike Braun because hisauto-parts chain sells itemsmade abroad. One wonderswhen Mr. Donnelly—whosefamily-owned business out-sources jobs to Mexico—willintroduce a bill making it ille-gal to have foreign-made com-ponents in your car.

These attacks bespeak theDemocrats’ desperation tobury their challengers beforethey gain traction. Voters canexpect many more such as-saults. The Democratic SenateMajority PAC announced lastweek that it reserved $80 mil-lion in TV ads inside nine bat-tleground states. But the Dem-ocrats may have shown theirhand too soon. Such earlypromises can end up derailingcampaigns, as in 2016, whenthe PAC made a similar pledge,only to jerk $20 million fromOhio and $6 million from Flor-ida in October. This effectivelyended the campaigns of strug-gling Democratic candidates inthose states.

With consumer confidence

at its highest levels since theturn of the century, the strongeconomy is Republicans’ great-est asset. It also has lifted Mr.Trump’s approval numbers.According to the Real ClearPolitics average, 50.4% ofAmericans approve of his han-dling of the economy, whileonly 43.6% don’t. The presi-dent’s overall approval ratingis 43.5%, close to his standingat his inaugural.

Although the GOP tax cut isone of the principal drivers ofthe strong economy, publicopinion remains mixed: Thelatest Monmouth UniversityPoll found that 34% approve ofthe tax reform while 41% disap-prove. Oddly, approval wasdown six points from Mon-mouth’s April poll, but disap-proval was also down threepoints. The number with noopinion had grown by half.

This shows Republicans musttalk more about their bill. MostDemocrats will never be con-vinced, but the independentswho will decide if the GOPkeeps its congressional majori-ties are open to supporting. Re-publicans must articulate itsbenefits and describe the conse-quences if Democrats repeal it.But this is hard to do when theGOP’s biggest megaphone—theWhite House—has been focus-ing on a defense of separatingchildren from their parents atthe southern border.

Congressional Republicansunderstand the danger from

this issue to the GOP’s electionhopes. A Tuesday Quinnipiacpoll found that 66% of votersopposed the administration’spolicy, including 68% of inde-pendents. Opposition is espe-cially intense among suburbanRepublican-leaning independentwomen. While 55% of Republi-cans support separating chil-dren from parents at the bor-der, most also will back thepresident if he brings this state-sponsored cruelty to an end.

Republicans must avoidmaking the midterms about ahideously unpopular immigra-tion policy. The best way to dothat is to pass the House’scompromise legislation. Thebill ends family separation,gives Dreamers a path to citi-zenship, limits chain migration,ends the diversity lottery, andfunds the wall. The measurewon the president’s supportTuesday night. If it passes theHouse, Republicans will havesecured a double-victory: Theycan take credit for supporting abipartisan solution to one ofAmerica’s thorniest issueswhile clearing the way for a fallelection fought principally overthe economy. This outcome iswithin reach, but only with thepresident’s support.

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

Republicans must sellthe booming economyand put the borderissue to bed.

By Karl Rove


Legalizing Marijuana: The Pros and ConsPatrick Kennedy and Kevin Sabet’s

“This Is No Time To Go to Pot” (op-ed, June 15), at long last, takes onseveral key deceptions about mari-juana, and these men have the cre-dentials to speak.

But where are the others? The neu-rologists? The pediatric psychiatrists?The Business Roundtable groups andchambers of commerce which also arecompetent and which should have apassionate professional interest inmaintaining drug-free workplaces andsafeguarding our youth? It is hightime they joined in allocating re-sources to stop this juggernaut.

Why is it important to keep off-duty marijuana use illegal? Because,while there is a strong and demon-strated relationship between off-dutydrug use and productivity, qualitycontrol, absenteeism, workers’ compclaims, workplace accidents andother business metrics that affectprofitability, it is difficult and expen-sive to prove from an evidentiaryperspective a specific correlation inany specific case.

Human resource departments andemployers will lose the ability to takereasonable employment action in reli-ance on a no-drug-use policy ruleagainst marijuana and will no longerbe able to decide not to hire thosewho flunk the pre-employment drugtests or who happen to show mari-juana after being tested after an on-duty accident or random screen.

NANETTE RUTKA HIKADEAnn Arbor, Mich.

The authors suffer from the sameconfirmation bias and first-orderthinking that begot the demonstrablyunsuccessful war on drugs and hassustained it, to tragic effect, fornearly 50 years. Despite enormousexpense and countless American liveslost to street violence and incarcera-tion, access to and abuse of mari-juana and other drugs remains asprevalent as ever. Why, then, do intel-ligent people refuse to accept thatthe goals of the antidrug crusade ha-ven't been, and cannot be, achievedby prohibition?

The authors’ parade of horribles isuncompelling when compared withthe actual devastation wrought by thewar on drugs. Do Messrs. Kennedyand Sabet really prefer the gangs thathave defiled neighborhoods andblighted inner cities, and the drugcartels that have terrorized wholecountries, to a few marijuana dispen-saries engaging in unsavory businesspractices? And what about the trade-off between a small uptick in mari-juana-related traffic fatalities on theone hand, and tens of thousands ofmurders committed by drug pushersand traffickers, enriched and enabledby America’s misbegotten drug poli-cies, on the other? Should the profitsof the drug trade flow to murderersand narco-terrorists, or to the coffersof state and federal governments?

In their hubris, American policymakers have selected the wrong an-swer to each of these questions. For-tunately, we seem to be at an inflec-

tion point, with more and moreAmericans opening their eyes to thefutility of marijuana prohibition andits appalling unintended conse-quences. It’s time for prohibitioniststo face the fact that all we have toshow for the war on drugs is collat-eral damage. It’s past time to end it.

JAMES LIDDELLWashington

What’s understated is the poten-tial major negative health effects,particularly in connection with de-veloping brains (into the middle20s), such as permanently impairingbrain functioning and cognition andincreasing the likelihood of seriouspsychotic disorders like schizophre-nia, bipolar disorder and paranoia. Isseverely damaging the health of ournation’s youth and causing major in-jury to society worth tax revenueand income to the self-serving mari-juana industry?

STANLEY A. COOK, PH.D.McLean, Va.

In 1994 as a NYPD narcotics detec-tive, I did a study of prisoners ar-rested for drug crimes for a statisticsclass I was taking at night. Nine of 10users stated they started with mari-juana, 70% started using betweenages 10-15, and 92% before the age of21. Society must educate our youthbefore the ravages of drugs becomeirremediable.

AL SCHILLEStaten Island, N.Y.

It makes sense to make marijuanareadily available as a less harmful al-ternative to truly harmful drugs suchas opiates. Why would a drug pushercarry marijuana in his inventory whenyou can buy it over the counter?

Messrs. Kennedy and Sabet are be-hind the times.

MATT RYANBremerton, Wash.

In Colorado the number testingpositive for marijuana in fatal crasheshas risen each year from 2013 (47) to2016 (115), more than doubling (145%)in those four years. Of the 547 trafficfatalities in 2015, 99 were due to mar-ijuana, 187 to alcohol and 35 to both.The most common drug in all fatalcrashes is marijuana.

There are also other health-relatedissues to consider. The cardiovascularand cancer risks inherent in smokingtobacco also apply to marijuana.While cigarette smokers inhale moresmoke, marijuana smokers hold it lon-ger in their lungs. Marijuana can alsodemotivate individuals. They losetheir ambition and competitiveness.

RYAN SEARLE, M.D., ABEMNewburyport, Mass.

According to Messrs. Kennedy andSabat, cannabis legalization is “afailed experiment.” But in Washingtonstate, which like Colorado legalized in2012, support has increased from 56%to an astounding 78%. Some failure!

PAUL KUHNNashville, Tenn.

LETTERS TO THE EDITOR

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

THEWALL STREET JOURNAL

Pepper ...And Salt

Suicide Not Just About the Depressed PersonKarl Rove’s compelling “My Mom’s

Suicide Was Preventable” (op-ed,June 14) explores the complex rea-sons leading to suicide and the “per-sonal and solitary” decision processinvolved.

Additionally, the prevention of sui-cide can be surprisingly variable, aswas the case with my 53-year-old pa-tient suffering from a painful andjust-diagnosed metastatic pancreaticcancer. “I gotta gun, Doc,” he said asI walked into his hospital room on

my morning rounds, “just let meoutta here.” I looked at him closely,he had made the decision and it wasfinal. There would be no debate. Theroom was silent until I asked, “Haveyou thought about your wife andwhat this will do to her for the restof her life?”

His tears came quickly, he hadnot thought about his wife, he hadnot thought about his children, hehad not thought about anyone buthimself.

We talked. He stayed in the hospi-tal as I controlled his pain. His wifeand children visited him over thenext several days—until I finally in-creased his pain medication as heand his entire family finished sayinggoodbye, and he then died a peace-ful death.

The thought of suicide is certainly“personal and solitary” but it also of-ten needs to be balanced with theunderstanding of the consequenceson family and loved ones. And, withthis understanding, many suicidesmay be prevented and the final mo-ments may then become a time oflove and personal dignity.

ROGER C. DUNHAM, M.D.Santa Barbara, Calif.

Judge Right in AT&T CaseBecause of Consumer Cost

Profs. Michael D. Smith and RahulTelang argue that the Justice Depart-ment should not have objected toAT&T’s acquisition of Time Warner,because the $85 billion deal wasn’t“merely to gain control of a businessin obvious decline [cable TV].” Thisargument is off-base (“Godspeed toAT&T-Time Warner,” op-ed, June 13).

Regardless of the purpose(s) ofthe acquisition from AT&T’s perspec-tive, if a result would have been anincrease in the cost of cable TV toconsumers, the acquisition wouldhave violated U.S. antitrust law, not-withstanding that cable TV is a de-clining business.

U.S. District Judge Richard Leonproperly found that the transactiondoesn’t violate U.S. antitrust law be-cause there is no good reason to be-lieve that it will increase the cost ofcable TV to consumers.

JEFFREY I. ZUCKERMANWashington

Trump’s Immigration Choice

P resident Trump on Wednesday walkedback his policy of separating immigrantchildren from their parents at the border

that had unitedmost of Amer-ica in opposition. This maymitigate some self-inflictedpolitical damage, but Congressought to go further and pass abill that fixes this and otherimmigration woes.

In classic Trumpian fashion, the Presidenttook credit for reversing a policy he had previ-ously said he couldn't reverse. “We’ve dealtwith a lot of different problems. This is one thathas been going on for many decades,” Mr.Trump said in theOval Office. “Sowe’re keepingfamilies together and this will solve that prob-lem. At the same time we are keeping a verypowerful border and it continues to be a zerotolerance. We have zero tolerance for peoplethat enter our country illegally.”

But this was a problem of his own creation,and “zero tolerance” is part of it. In May theJustice Department directed that all immi-grants apprehended at the border be prosecutedas criminals. But a 1997 consent decree knownas the Flores settlement prohibits the detentionof children. So the Department of Health andHuman Services took custody of the kids astheir parents were charged and processed fordeportation.

Homeland Security had previously kept fami-lies together in detention centers for a fewweeks and then released themwith anklemoni-tors. Restrictionists claimed letting immigrantsgo encouraged illegal immigration, though bor-der apprehensions had been falling for years un-til a modest surge in recent months.

About 2,300 kids have been separated fromtheir parents since May, and pictures of cagedtoddlers and recordings of crying babies haveresulted in the biggest public backlash of theTrump Presidency.

Mr. Trump’s executive order is clever in try-ing to duck the Flores settlement by assigningthe Defense Department to house the detainedfamilies, presumably in barracks. Meanwhile,the order instructs the Attorney General to askthe court to “modify” the Flores settlement toallow other detention solutions that keep fami-lies together. All of this should get the trauma-

tized toddlers out of the headlines.But the President will face another defeat of

his ownmaking onThursday if theHouse rejectsa compromise immigrationbill negotiated by GOP leaders.The bill tries to satisfy com-peting GOP factions by tough-ening enforcement whilegranting legal status to the 1.8million so-called Dreamers

who were brought here illegally as kids.Restrictionists as ever are playing their “am-

nesty” song, though the bill fulfills all of Mr.Trump’s priorities including cutting family-based migration, ending the diversity lotteryand authorizing $25 billion for a border wall.Theirmain gripe is that Dreamers could eventu-ally qualify for green cards and thus have apathway to citizenship. The claim is that thissupposedly rewards “lawbreakers,” thoughsomeone else brought them here.

Even President Trump has endorsed a path-way to citizenship for Dreamers. Restrictionistsalso cavil that the bill doesn’t eliminate family-basedmigration in toto, but that isn’t amajorityposition even in the GOP. The bill re-allocates88,000 visas for family preferences and the di-versity lottery to Dreamers.

What the GOP restrictionists really want isto deport all illegal immigrants, no matter theharm to families or how long they’ve been here.They also want to reduce legal immigration, aslegislation sponsored by Judiciary ChairmanBob Goodlatte would do. His bill includes an e-Verify mandate on employers, slashes family-based preferences and boosts interior enforce-ment. This is unacceptable to Members whorepresent immigrant communities or farm fami-lies that need more workers.

The leadership’s bill has a shot if Mr. Trumpwould offer some full-throated protection toMembers against the restrictionists. The Presi-dent huddledwith Republicans on Tuesday andendorsed both bills, but that is a cop-out. It’s anexcuse for conservatives to vote for Goodlatte,though they know it will fail.

If Mr. Trumpwants a solution for Dreamersand his borderwall, he needs to say publicly andclearly that the “amnesty” charge is a distor-tion. Otherwise he’ll get nothing andDemocratswill run against GOP failure in November.

Does he want his borderwall and a Dreamersolution, or not?

Japan Wants Guest Workers

Immigration is a sensitive issue every-where and especially in Japan, wheremany citizens fear foreigners will bring

crime and disorder. So whydid Prime Minister ShinzoAbe, a nationalist, right-of-center leader, decide lastweek to admit 500,000 blue-collar guest workers by 2025?

In a word, demographics.Japan’s persistently low fertility rate, 1.43last year, caused the work force to shrink by13% since 2000. Companies are screaming forworkers, with an average of 1.59 jobs avail-able for each applicant. The unemploymentrate was 2.5% in April, the lowest among G-7nations.

The labor shortage is one reason Mr. Abe’sprogram of economic reform hasn’t revived an-imal spirits, with GDP contracting 0.2% in thefirst quarter. The lack of hotel staff is holdingback a boom in tourism. The average age of theJapanese farmer is 67. The lack of workers ishampering construction projects for the TokyoOlympics in 2020.

Mr. Abe’s plan will grant visas to workers inhotels, construction, shipbuilding, farming andelder care. The latter need is especially acutegiven Japan’s aging population. Some 28% ofJapanese are 65 or older, up from 24% in thepast five years, and the government expects ashortfall of 380,000 nurses by 2025.

Many firms already employ foreigners onstudent or trainee visas. Visitors to Tokyo canpractice their Chinese with the cashiers at con-venience stores, while Vietnamese toil in facto-ries, and restaurant waitresses hail from Nepal.The number of foreign workers in Japan hasnearly doubled over the past five years to 1.3million or 2% of the workforce largely due toshort-term visas. By comparison, 17% of U.S.workers are foreign-born.

The new program will offer workers morestability and rights by allowing them to stayin Japan up to five years. But to appease public

fears about the workers set-tling permanently, they willnot be allowed to bring familymembers.

Japan opened its doorswider to highly educatedworkers in 2012, making it

relatively easy for professionals to gain resi-dency. But only a few thousand applicants havetaken advantage. A 2016 survey by the IMDWorld Competitiveness Center found thathigh-skilled workers ranked Japan the least at-tractive among 11 Asian nations.

Part of the reason is Japan’s insular cultureand low level of English. South Korea, which isat an earlier stage of the same demographictransition, alreadywelcomes foreign blue-collarworkers. It also seems to be doing a better jobof assimilating high-skilled immigrants.

Unless Japanese havemore babies, the coun-try has little choice but to embrace immigra-tion. Government statistics show that to stabi-lize the population at 100million, Japan needs200,000 immigrants annually. The populationis declining bymore than 1,000 people per day.That is a serious threat to government finances,which are already in tatters with a national debtmore than 2.5 times annual GDP.

Prime Minister Abe deserves credit fortouching one of the third rails of Japanese poli-tics. But it’s telling that the Justice Ministrymooted the need to admit blue-collar workersin 2015 and the government only now workedup the courage to send a policy to parliament.Public attitudes are slowly shifting as Japaneserealize that barriers to immigration pose agreater threat to their way of life than accept-ing foreign workers. Mr. Abe could do more tolead that change.

The aging nation isembracing foreignersout of economic need.

A Spending Embarrassment

R epublicans have had a rough week,mostly of their own making, and onWednesday they added to their self-

punishment with a spendingfiasco in the Senate. Two GOPSenators blocked the TrumpAdministration’s rescissionspackage that would claw back$15 billion, much of whichwasn’t even likely to be spentunder current policy.

A Senate procedural vote tomove the rescis-sions package failed 48-50 after defections fromSusanCollins ofMaine andRichardBurr ofNorthCarolina. From what we’ve heard Ms. Collinswanted to keep the money on ice so if it isn’tspent as part of its current program she couldspend it later on other things. Finding fake “sav-ings” to spend elsewhere is a bipartisan tradition.Ms. Collins has helped to defeat a health-care billthat reformed Medicaid, death-tax repeal, andnow the rescissions package.

Mr. Burr revolted over a line item about theLand and Water Conservation Fund, a rescis-sion he wanted stripped from the package, and

so he blocked even a debate. Mr. Burr couldhave moved to strike the item on the floor andhe might have succeeded. The conservation

program is largely a slushfund for government landgrabs, but it’s politically un-touchable because it remindspeople of Old Faithful andcamping trips.

Mr. Burr thus tanked a $15billion package over a $16 million rescission,and only after putting his GOP colleagues on therecord for a tough vote. The House narrowlypassed the rescissions package, andmany vul-nerable Republican members now will be at-tacked by Democrats as having voted to slashspending without having accomplished any fis-cal discipline that excites the right.

Congress’swindow topass rescission requestswith a simplemajority under the CongressionalBudget and ImpoundmentControl Act of 1974 ex-pires on Friday. Aswith other projects this Con-gress, the GOP almost succeeded, only to see itblowup at the eleventh hour thanks to self-serv-ing Senators.

The GOP Senategives Democrats

more to cheer about.

REVIEW & OUTLOOK

OPINION


The ACLU Retreats From Free Expressionwhen the city attempted to denythem a permit to assemble. Respond-ing to intense post-Charlottesvillecriticism, last year the ACLU recon-sidered its obligation to representwhite-supremacist protesters.

The 2018 guidelines claim that“the ACLU is committed to defendingspeech rights without regard towhether the views expressed areconsistent with or opposed to theACLU’s core values, priorities andgoals.” But directly contradictingthat assertion, they also cite as areason to decline taking a free-speech case “the extent to which thespeech may assist in advancing thegoals of white supremacists or oth-ers whose views are contrary to ourvalues.”

In selecting speech cases to de-fend, the ACLU will now balance the“impact of the proposed speech andthe impact of its suppression.” Fac-tors like the potential effect of thespeech on “marginalized communi-ties” and even on “the ACLU’s credi-bility” could militate against taking acase. Fundraising and communica-tions officials helped formulate thenew guidelines.

One half of this balancing test is fa-miliar. The “impact of suppressingspeech”—the precedents that suppres-sion might establish, the constitu-tional principles at stake—is a tradi-tional factor in case selection. But,traditionally, the ACLU has not for-mally weighed the content of speechand its consistency with ACLU valuesin deciding whether to defend it.

Tension between competing val-ues isn’t new to the ACLU. Given its

decades-old commitment to defend-ing civil rights and liberties, the or-ganization has long navigated con-flicts between equality rights andfreedoms of religion, speech and as-sociation. The guidelines assert that“no civil liberties or civil rightsvalue should automatically be privi-leged over any other.” But it’s clearthat free speech has become secondamong equals. Where is the compa-rable set of guidelines explainingwhen the ACLU should decline to de-fend gay-rights claims that infringeon religious liberty or women’s-rights cases that infringe on dueprocess?

The speech-case guidelines reflecta demotion of free speech in theACLU’s hierarchy of values. Theirvague references to the “seriousharm” to “marginalized” people oc-casioned by speech can easily include

the presumed psychological effectsof racist or otherwise hatefulspeech, which is constitutionallyprotected but contrary to ACLU val-ues. Faced with perceived conflictsbetween freedom of speech and“progress toward equality,” theACLU is likely to choose equality. Ifthe Supreme Court adopted theACLU’s balancing test, it wouldgreatly expand government power torestrict speech.

In Brandenburg v. Ohio (1969), forexample, the ACLU defended the FirstAmendment rights of a Ku Klux Klanleader prosecuted for addressing asmall rally and calling for “reven-gence” against blacks and Jews. TheU.S. Supreme Court reversed Clar-ence Brandenburg’s conviction, nar-rowly defining incitement to violenceas speech both intended and likelyto cause imminent illegal action.

Brandenburg made an essential dis-tinction between advocacy and ac-tion, which progressives who equatehate speech with actual discrimina-tion or violence seek to erase.

The ACLU would be hard pressedto take Brandenburg’s case today,given its new guidelines. The organi-zation hasn’t yet endorsed a ban onhate speech, or a broader definitionof incitement. The guidelines affirmthat “speakers have a right to advo-cate violence.” But even if Branden-burg managed to pass the new bal-ancing test for speech cases, someparticipants at his rally were armed,and, according to the guidelines,“the ACLU generally will not repre-sent protesters who seek to marchwhile armed.”

All this is the ACLU’s prerogative.Organizations are entitled to revisetheir values and missions. But theyought to do so openly. The ACLUleadership had apparently hoped tokeep its new guidelines secret, evenfrom ACLU members. They’re con-tained in an internal document de-ceptively marked, in all caps, “confi-dential attorney client workproduct.” I’m told it was distributedto select ACLU officials and boardmembers, who were instructed notto share it. According to my source,the leadership is now investigatingthe “leak” of its new case-selectionguidelines. President Trump mightsympathize.

Ms. Kaminer, a former ACLUboard member, is author of “WorstInstincts: Cowardice, Conformity andthe ACLU” (2009).

By Wendy Kaminer

DAVID GOTHARD

T he American Civil LibertiesUnion has explicitly en-dorsed the view that freespeech can harm “margin-alized” groups by under-

mining their civil rights. “Speechthat denigrates such groups can in-flict serious harms and is intended toand often will impede progress to-ward equality,” the ACLU declares innew guidelines governing case selec-tion and “Conflicts Between Compet-ing Values or Priorities.”

This is presented as an explana-tion rather than a change of policy,and free-speech advocates know theACLU has already lost its zeal forvigorously defending the speech ithates. ACLU leaders previouslyavoided acknowledging that retreat,however, in the apparent hope ofpreserving its reputation as the na-tion’s premier champion of the FirstAmendment.

But traditional free-speech valuesdo not appeal to the ACLU’s increas-ingly partisan progressive constitu-ency—especially after the 2017 white-supremacist rally in Charlottesville.The Virginia ACLU affiliate rightlyrepresented the rally’s organizers

The organization declaresthat speech it doesn’t likecan ‘inflict serious harms’and ‘impede progress.’

Trump’s Tariffs Are a Defense Against China’s Aggression

T he Chinese government’s Madein China 2025 blueprint revealsBeijing’s audacious plans to

dominate emerging technology in-dustries. Many of these targeted sec-tors, such as artificial intelligenceand robotics, have clear implicationsfor defense. China seeks to achieve itsgoal of economic andmilitary domina-tion in part by acquiring the bestAmerican technology and intellectualproperty. President Trump’s new tar-iffs will provide a critical shieldagainst this aggression.

China acquires American technol-ogy in multiple ways. Theft, bothphysical and cyber, occurs throughorchestrated industrial espionagecampaigns. For years the U.S. intelli-gence community has acknowledgedChina as a persistent leader in eco-nomic espionage.

Many American companies areforced to accept technology transfersto gain access to the Chinese market.China’s foreign-ownership restrictionsrequire American firms to enter intojoint ventures as minority partners insectors that Beijing considers strate-gic. Other more indirect tools to coercetechnology transfer include adverse li-censing processes, discriminatory pat-ent restrictions, security reviews, dis-criminatory catalogs that restrictinbound foreign investment, and intru-sive testing requirements.

Once a foreign company enters ajoint venture in China, technology andIP transfers may occur through jointmanufacturing. A Chinese partnercould even use its access and proxim-ity to steal the technology outright. Alltoo often the Chinese “partner” be-comes a direct competitor, first in re-gional markets, then in global ones.

In 2010, for example, General Elec-tric formed a joint venture with thestate-owned Harbin Electric to manu-facture wind turbines. The ventureended after three years of sharingtechnology. As a result of deals likethis—and at least one conviction of aChinese wind-turbine maker for tradesecret theft—Chinese firms’ share ofthe international wind turbine mar-ket rose from 9% to nearly 25% overthe past decade.

China’s extralegal efforts to acquirecritical technologies are typicallyspearheaded by Chinese companiesand their agents, often with the assis-tance of legal U.S. residents or citizens.A poster child is Amin Yu. In 2016 shepleaded guilty to acting as an illegalagent of the Chinese government andconspiring to commit internationalmoney laundering. Ms. Yu illegally ex-ported commodities that help in theproduction of unmanned underwaterdrones. China is particularly interestedin this technology as it tries to gaincontrol of critical waterways, includingthe South China Sea.

China’s investment in strategic

technologies may ultimately pose thegravest danger to America’s manufac-turing and defense industrial base.Through years of unfair trade prac-tices and industrial espionage—build-ing on its already massive trade sur-plus—China has accumulated trillionsof American dollars. Now the Chinesegovernment is embarking on a high-tech shopping spree in the U.S.

Since 2012 China has made morethan 600 investments in advancedAmerican technology, worth close to$20 billion, according to the data ag-gregator CB Insights. Artificial intelli-gence, augmented and virtual reality,and robotics receive particular focus.China’s biggest sovereign-wealthfund, the China Investment Corp., hasdeployed a significant fraction of the$800 billion of assets under manage-ment for a venture fund focusing onSilicon Valley. The state-backed ven-ture fund Sinovation “has invested inalmost 300 startups—including 25 inartificial intelligence,” according to aJanuary 2018 report from Defense In-novation Unit Experimental.

These investments will lead to theU.S. being “colonized by purchaserather than conquest,” asWarren Buf-fett warned in a 2003 essay criticizingtrade deficits. It is precisely becauseChina has launched a sustained attackon America’s innovation base that Mr.Trump is imposing defensive tariffs.At the same time, there is bipartisanconsensus for strengthening and mod-ernizing the Committee on Foreign In-vestment in the U.S. The committeemust be able to review a broaderrange of investment from China andother countries to address national-and economic-security concerns. AsPresident Trump has said: Economicsecurity is national security.

The 25% tariffs recently announcedon $50 billion of China’s exports to theU.S. are targeted at high-tech indus-tries. These tariffs will form a criticalline of defense against predatory tradepractices China has used to the detri-ment of American industries.

Consider solar energy. China’s un-fair industrial policies have createdexcess global supply of solar panelsand displaced American firms. WhereChina had no companies in the top 10producers of solar panels, it now hassix, including the top two. China’s in-dustrial and military planners wantto do the same for other industries.The president simply won’t stand forthat.

How China responds to the WhiteHouse’s actions defending America’s

technological crown jewels will definethe future U.S.-China economic and na-tional-security relationship. Unfortu-nately, Beijing has initially respondedwith $50 billion of retaliatory tariffs,aimed partly at American farmers. Asthe president noted, this clearly sig-nals China’s determination “to keepthe United States at a permanent andunfair disadvantage.” That is why thepresident has directed U.S. Trade Rep-resentative Robert Lighthizer to iden-tify $200 billion of Chinese goods foradditional tariffs at a rate of 10%.

It has taken vision and courage forthe president to take these steps. Thefar easier course would be to continuethe relationship with China as his pre-decessors did. If China continues toescalate this trade dispute rather thantreat the U.S. fairly, Americans may fi-nally wake up to an economic and na-tional-security threat that the presi-dent has seen coming for decades.With its huge trade surplus with theU.S., China must know it has far moreto lose in this trade dispute.

The president won’t back downwhen America’s economic prosperityand national security are at stake.This is no time for miscalculation byChina—and past time for China toend its economic aggression.

Mr. Navarro is assistant to thepresident for trade and manufactur-ing policy and director of the WhiteHouse National Trade Council.

By Peter Navarro

Beijing seeks economicand military dominationby taking U.S. technologyand intellectual property.

OPINION

PUBLISHED SINCE 1889 BY DOW JONES & COMPANYRupert Murdoch

Executive Chairman, News CorpMatt Murray

Editor in Chief

Robert Thomson

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Chief Executive Officer and Publisher

EDITORIAL AND CORPORATE HEADQUARTERS:1211 Avenue of the Americas, New York, N.Y., 10036Telephone 1-800-DOWJONES

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To Help Iran, Angela Merkel Tries to Pull a Fast One With Swift

A s the U.S. moves to reimposesanctions on Iran, GermanChancellor Angela Merkel is

working behind the scenes to under-mine the effort. How President Trumpresponds could determine whetherhis strategy to put maximum pressureon the Islamic Republic will succeedor fail.

During briefings in Washington,German officials have indicated theirgoal: to ensure that Iran remains con-nected to the Swift system—formallycalled the Society for Worldwide In-terbank Financial Telecommunica-tion—that facilitates global financialtransactions. By protecting Iran’s ac-cess to the Swift network, Germanyhopes to preserve Europe’s ability to

pay for Iranian oil, and receive pay-ment for European exports, in contra-vention of U.S. sanctions. The Ger-mans know that any maximum-pressure campaign against Irancannot succeed if Iran remains con-nected to Swift.

Last month, in light of “U.S. sanc-tions which could target EU entitiesactive in oil transactions with Iran,”the European Commission encour-aged European Union members to ex-plore the idea of sending direct pay-ments to the Central Bank of Iran.Access to the Swift network makesthis possible. If such a payment weretransmitted, the U.S. could designatethe European country’s central bankas a violator of sanctions, blockingits access to dollars and isolating itfrom the international financial sys-tem. German leaders are betting the

Treasury Department would not takethe economic risk of doing so.

German leaders may not have con-sidered, however, the American alter-natives. Treasury could designate in-dividual central-bank officials assanctions violators, freezing theirU.S.-based assets and denying thementry to the country. Or other U.S.law-enforcement and regulatory bod-ies could take action. For example,federal prosecutors from the SouthernDistrict of New York, as well as prose-cutors from the Manhattan DistrictAttorney’s Office, have imposed seri-ous penalties against European banksfor facilitating illicit Iran-related fi-nancial activities. New York State’sDepartment of Financial Servicescould pursue similar action.

If a European central bank becamea channel for payments to Iran, the

risk is that other countries—China,Russia, India—would adopt a similarapproach to evading U.S. sanctions.The Trump administration’s strategyto put pressure on the Iranian regimewould slowly unravel.

The solution is to cut off Iran’s ac-cess to the Swift network. The Trea-sury Department has given Swift un-til Nov. 4 to disconnect Iran’s centralbank and other Iranian financial in-stitutions that are under sanctionsfor illicit activities. This action is per-fectly appropriate. Swift’s corporaterules prohibit its users from engagingin “conduct which is not in line withgenerally accepted business conductprinciples.” In the case of Iran, fla-grant examples include financing theAssad regime in Syria, subsidizingterrorism through the Quds Force,building ballistic missiles, and abus-ing human rights.

Since Swift provides the financial-messaging service for the EuropeanCentral Bank’s Target2 settlementplatform, ECB regulations should ap-ply here as well. The ECB’s terms andconditions for Target2 require users tocomply with all obligations to preventmoney laundering, terrorism financingand nuclear proliferation. If Iranianbanks are under sanctions for theseactivities, they should not be allowedto clear euro transactions.

In 2012, facing pressure from Con-gress, Swift asked the EU to issue aregulation ordering it to disconnect

Iranian banks. The EU obliged but re-scinded the order in 2015, as recon-nection to Swift was a key concessionof the Iran nuclear deal. This timearound, Swift won’t have the face-sav-ing luxury of an EU order, since Ger-many would block any such initiative.So what else can the Trump adminis-tration do to force Swift’s hand?

Swift is a cooperative, and its boardis made up of banks from around theworld. That gives the Treasury De-partment enormous leverage. UnderAmerican law, the Treasury can im-pose sanctions on Swift’s staff, offi-cials and directors. That could includefreezing their personal assets and re-stricting their travel to the U.S. TheU.S. could cut off their employers fromthe American financial system. TheTrump administration could create le-gal trouble for the two Americanbanks represented on Swift’s board,Citigroup and JP Morgan.

Swift operates under the laws ofBelgium, and the National Bank ofBelgium is responsible for its dailyoversight. The Treasury could declareeither of them an entity of money-laundering concern. Unless Belgianofficials order Swift to disconnectdesignated Iranian banks, the U.S.could hold them personally responsi-ble for aiding and abetting the eva-sion of sanctions.

Such steps may seem draconian.But Mr. Trump’s strategy to put max-imum pressure on Iran depends onthe robust enforcement of sanctions.As such, the U.S. has no choice but tomove aggressively against noncom-pliance—in Berlin, in Brussels andaround the world.

Mr. Goldberg is a senior adviserat the Foundation for Defense ofDemocracies, where Mr. Dubowitz ischief executive.

By Richard GoldbergAnd Mark Dubowitz

U.S. sanctions won’t biteuntil Tehran can no longeraccept oil paymentsfrom European buyers.

From a Monday Southern PovertyLaw Center statement accompanyinga $3.375 million legal settlement:

The Southern Poverty Law Centerwas wrong to include Maajid Nawazand the Quilliam Foundation in ourField Guide to Anti-Muslim Extrem-ists. . . . We have taken the time to domore research and have consultedwith human rights advocates we re-spect. We’ve found that Mr. Nawazand Quilliam have made valuable andimportant contributions to publicdiscourse, including by promotingpluralism and condemning both anti-Muslim bigotry and Islamist extrem-ism. Although we may have our dif-ferences with some of the positionsthat Mr. Nawaz and Quilliam havetaken, they are most certainly notanti-Muslim extremists.

Notable & Quotable

© 2018 Dow Jones & Company. All Rights Reserved. * * * * * THEWALL STREET JOURNAL. Thursday, June 21, 2018 | B1

TECHNOLOGY: SENSORS SHOW BEER KEGS THE WAY TO GO HOME B4

BUSINESS&FINANCE

TIFFANY’S NEW CAMPAIGNRINGS UP SALES

MARKETING, B2

Cboe Global Markets Inc. isrevamping a feature of one ofits most lucrative products, fu-tures on the Cboe Volatility In-dex, which have come underscrutiny because of manipula-tion allegations.

The exchange operator ismaking changes to a monthlyauction that determines finalprices of futures tied to theVIX, also known on Wall Streetas the “fear gauge.” Thechanges amount to tweaks toits architecture.

Cboe has already madesome adjustments to the tech-nology that underpins themonthly auction and is plan-ning to implement otherchanges that require regulatoryapproval. The VIX measures in-vestor anxiety by looking at theprices they are willing to payfor options tied to the S&P 500index. Because the VIX tends torise when stocks fall, and viceversa, its derivatives are popu-lar among traders to hedgeportfolios or bet on the futuredirection of market volatility.

The moves by Cboe come af-ter allegations of manipulationthat have plagued the monthlyauction in 2018. Volumes onVIX futures and options dwin-dled after hitting records thisyear. Fears of regulatory scru-tiny have swept trading desksas lawsuits emerged overCboe’s marquee VIX products.The allegations have weighedon the company’s stock. Cboe’sshares are down 16% this year,

PleaseturntopageB2

BY GUNJAN BANERJI

ChangesOn WayFor VIXAuction

Berkshire Hathaway Inc.,Amazon.com Inc. and JPMor-gan Chase & Co. named prom-inent surgeon and researcherAtul Gawande as chief execu-tive of their new venture thataims to overhaul workers’health care.

The appointment of Dr.Gawande is effective July 9,and the still-unnamed health-care initiative will be based inBoston, the companies said.

The selection of Dr.Gawande, a best-selling authorknown for his work on health-care quality, ensures the effortwill remain under a spotlight,and provides the most con-crete signal so far that thepartners’ ambitions go beyondconventional tweaks to em-ployer health-benefit plans. Dr.Gawande has little backgroundin the nitty-gritty of health in-surance or running a majorcorporate operation, but he iswell regarded across thehealth industry and has movedhis ideas forward throughnonprofits he founded.

The leaders of the threepartner companies, includingWarren Buffett at BerkshireHathaway and JPMorgan CEOJames Dimon, have spokenabout the need to rein inhealth-care costs and improvecare using new approaches.“We said at the outset that thedegree of difficulty is high andsuccess is going to require anexpert’s knowledge, a begin-ner’s mind, and a long-termorientation,” said Jeff Bezos,founder and CEO of Amazon, inprepared remarks Wednesday.“Atul embodies all three, andwe’re starting strong as wemove forward in this challeng-ing and worthwhile endeavor.”

Dr. Gawande practices gen-eral and endocrine surgery atBrigham and Women’s Hospi-tal in Boston and is a profes-sor at the Harvard T.H. ChanSchool of Public Health and

PleaseturntopageB5

BY ANNA WILDE MATHEWS

Author toRun NewHealthVenture

excluding interest, taxes, de-preciation and amortization.

A spokesman for Guggen-heim said the firm listens topeople who propose acquisi-tions of stakes from time totime, adding “we have no fur-ther comment.”

A spokeswoman for MunichRe declined to comment.

The deal with Munich Re issimilar to one of the most im-portant transactions inGuggenheim’s history.

Guggenheim entered the as-set-management business

PleaseturntopageB2

The talks with Munich Reare still preliminary, and it isunclear they will lead to a deal,the people said. Potentialterms couldn’t be learned.Guggenheim is privately held,and it isn’t known how big of astake the firm would be willingto sell to Munich Re or otherpotential investors.

Asset-management firms’values can range widely, basedon the fees they earn on the as-sets they oversee. Bankers esti-mated that firms typicallycommand eight to 10 timestheir annual earnings in a deal,

for insurance companies, pen-sion funds and all types of in-vestors. A major acquisitionwould help the firm bring inmore fees, insulating it fromthe profit-margin pressures allmanagers have faced as ex-change-traded funds and otherlow-cost, index-tracking invest-ments gained popularity.

Guggenheim has grown rap-idly in the past decade, thanksin part to its investment arm’sperformance. But regulatoryscrutiny and internal battleshave overshadowed those high-lights in recent years.

said.As part of the agreement,

Munich Re would receive eq-uity in Guggenheim, the peoplesaid. Munich Re, whose invest-ments business manages $290billion, is one of several Euro-pean and Asian firms thatGuggenheim has talked to in itsbid to broaden the reach of itsasset-management businessoutside the U.S., the peoplesaid.

Guggenheim is one of thebiggest U.S. money managers,running or consulting onroughly $305 billion in assets

S&P 2767.32 À 0.17% S&PFIN g 0.31% S&P IT À 0.33% DJTRANS À 0.09% WSJ$ IDX À 0.08% LIBOR3M 2.332 NIKKEI (Midday) 22734.28 À 0.79% Seemore atWSJMarkets.com

Guggenheim Partners LLCis in talks to buy the asset-management arm of Germaninsurer Munich Re AG, in adeal that would double thefirm’s investments business,people familiar with the matter

BY JUSTIN BAERAND MARGOT PATRICK

Guggenheim, Munich Re Talk DealU.S. firmwants to buyasset-managementarm of insurer, doublingsize of that business

THEWALL STREET JOURNAL.Sources: FactSet (S&P 500, retail ETF); University of Michigan (sentiment); SIX (stocks); Commerce Department (retail sales)

SDPR S&PRetail ETF

S&P 500

Index performance

Shares of some apparel and department stores have kept pacewith Amazon.com despite expectations the online giant would driveold-line rivals out of business. Some specialty retailers have surgedwhile Home Depot has failed to cashin on a hot U.S. housing market.

University of Michiganconsumer-sentiment index

U.S. retail sales, change from a year earlier

Share-price performance

10

–4

–2

0

2

4

6

8

%

January February March April May June

60

0

20

40

%

January February March April May June

Macy’s

Dillard’sAbercrombie& Fitch

Amazon.com

Home Depot

10

–10

–5

0

5

%

’10 ’15 ’182008

100

50

60

70

80

90

’10 ’15 ’182008

Retailers Defy Predictions of Their Demise

carries other kinds of valuethat Comcast can’t match—namely, time value and cer-tainty value. Disney has asix-month head start onComcast in terms of regula-tory review, which means thedeal could close much soonerthan it would with Comcast.Disney also should have aneasier time with regulators.

Comcast’s consent decreewith the Justice Department,which placed restrictions onthe company following its ac-quisition of NBCUniversal, isabout to expire. If it acquiresFox, Comcast will have in-creased incentive and abilityto raise prices. And Disney isoffering stock and cash,which can lower Fox share-holders’ tax burden.

Fox Executive Chairman

Everyone knows that Ama-zon.com has left retailers fordead. Just don’t tell investors insome stocks of big store chains.

Shares of retailers are enjoy-ing their biggest rally in years,an unexpected turnaroundfueled by strong earnings, buoy-ant consumer confidence and anationwide shopping spree.

The SPDR S&P Retail ETF isup 11% this year, more than tri-pling the S&P 500’s 3.5% gain.During Tuesday’s market rout,the retail ETF fell less than the

broader market. Share pricesof department stores such asMacy’s Inc. and Dillard’s Inc.have risen more than 55% thisyear, even edging out Ama-zon.com Inc.’s 50% advance.

The sector’s big gains rep-resent an abrupt reversal fromprevious years, when competi-tion from e-commerce giantslike Amazon pounded manytraditional retailers, from teenapparel to auto-accessorymakers. The S&P Retail Indexunderperformed the S&P 500in four of the past five years.

Retail’s sudden resurgence

is sparking a debate overwhether flush-feeling consum-ers can keep the rally going, orif a series of temporary factorsboosted the stocks in a waythat is likely to fade in thesecond half of the year.

Some investors have foundreasons to be optimistic. Forone, many retailers postedbetter-than-expected earningsreports: Macy’s, Home DepotInc. and Walmart Inc. all re-ported same-store sales risingin the latest quarter. That haslifted share prices for somestocks whose valuations had

fallen to single digits last year.Retail sales—a measure of

what Americans spend on ev-erything from cars to clothingto sporting goods—rose 5.9%from a year earlier, accordingto the Commerce Department.Analysts attributed the gains,which marked the biggest one-month jump since November,to a combination of risingwages, low unemployment andtax cuts that have left manyAmericans with more moneyto spend—all things that re-tailers hope will keep businessat their stores humming.

“It is nice to see that con-sumer confidence is improv-ing…and that [consumers are]voting on apparel certainly is ahelp in the industry,” said FranHorowitz-Bonadies, chief exec-utive officer of Abercrombie &Fitch Co., on the firm’s earningscall at the start of the month.

Still, some analysts cautionthat retail’s recent reboundcould be temporary, drivenheavily by factors such as one-time gains from the U.S. taxoverhaul rather than funda-mental changes in the industry.

PleaseturntopageB2

BY AKANE OTANI

INSIDEHEARD ON THE STREET | By ElizabethWinkler

Don’t Count Comcast Out YetIf Walt Dis-

ney is hopingthat its newlyjuiced bid for21st CenturyFox assets

will crush Comcast into sub-mission, it is likely to be dis-appointed.

The new offer, more than$70 billion in cash and stock,represents a 9% premiumover Comcast’s offer of $65billion and a 36% premium toDisney’s original offer of$52.4 billion. But Comcastwon’t be cowed so easily.With its pay-TV business un-der pressure, it wants to di-versify and gain scale. Thereare no other media assets asdesirable as those at Fox.

So Fox and Disney can ex-pect Comcast to come run-ning back with a new offer.The question is how high itwill go.

Bidding could reach up to$80 billion, according to ana-lysts. That could mean Com-cast counters with a 10% pre-mium or so on Disney’s latestbid, dangling Fox an offer inthe low-to-mid $40s a share.(Disney’s new bid is $38 ashare.) Fox shares rosenearly 8% on Wednesday inanticipation.

That will put pressure onDisney. But Disney’s offer

Rupert Murdoch clearly pre-fers to sell to Disney forthese reasons. But a sky-highComcast bid will make thattricky. Is it worth it to Disneyto top $80 billion, endanger-ing its credit rating? Thatdepends on how well it man-ages the Fox assets.

If Disney doesn’t want toreach above $80 billion, oneoption may be to look for de-tente with Comcast by split-ting up Fox’s assets.

The obvious one to let gois Sky, the British broad-caster, which is 39%-ownedby Fox. Fox is bidding to ac-quire the remaining 61%,which would then be handedover to Disney in a deal. ButComcast also has bid to buyall of Sky at £12.50 ($16.46) ashare, higher than Fox’s pro-posal of £10.75 a share.

Comcast is eager to go in-ternational, and with Sky itcould. If Comcast Chief Exec-utive Brian Roberts is feelingvery jilted, he could also de-mand Star India, Fox’s busi-ness in India. By relinquish-ing them, Disney could getwhat it most wants—the filmand TV studios—at a decentprice, rather than engagingin a destructive bidding war.

If everyone can’t be per-fectly happy, then at leastthey can get close to it.

$50

30

35

40

45

’182017

Wish Upon a Star21st Century Fox’s share price

Source: SIX

Disney bids $71 billion

Comcast bids $65 billion

Disney bids $52.4 billion

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B2 | Thursday, June 21, 2018 * * * * THEWALL STREET JOURNAL.

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.

AAbercrombie & Fitch...B1Alcoa..........................B12Alta FundamentalAdvisers....................A5

Altice Europe..............B3Amazon.com...A1,B1,B12AMC EntertainmentHoldings....................B3

American EagleOutfitters..................B2

Aon............................B10Apollo GlobalManagement ............A5

Apple....................B2,B12AT&T.....................B2,B12

B - CBain.............................B2Bank of America.......B12Berkshire Hathaway...B1Boeing .......................B12BP..............................B10Cboe Global Markets..B1Comcast..........A1,B1,B12Compagnie FinancièreRichemont.................B2

Cosco Shipping Holdings.....................................B3

D - FDeutsche Bank............B2Dick's Sporting GoodsB2Dillard's.......................B1Doug Creutz................A8

Facebook......................B4Fast Retailing .............B4Fidelity Investments B11

GGazprom Neft...........B10General Electric.B11,B12General Mills...............B5Goldman Sachs Group............................. B5,B12Guggenheim Partners.B1

H - IHome Depot................B1hyperWALLET Systems...................................B11Hyundai Motor............B2IDG Capital Partners B11Instacart......................B2

J - KJPMorgan Chase.........B1Kia Motors..................B2KKR..............................B3

L - MLVMH Moet HennessyLouis Vuitton............B2

Macy's.........................B1Marathon Petroleum..B5Microsoft...................B12MSCI..........................B10Munich Re...................B1

N - ONetflix.........................A1News Corp.................B12

Nike...........................B12Oracle ........................B12Orient Overseas(International)..........B3

PPacBridge CapitalPartners....................A5

PayPal........................B11Premier Exhibitions....A5Procter & Gamble.....B12

SShenzhen Hexun HuaguIT.............................B11

Sky...............................B1SoftBank Group..........B4Sony...........................B12Southwest Airlines....A5Supervalu....................B2

T - VTesla............................B3Tiffany.........................B2Trian Fund Management...................................B1221st Century Fox...................... B1,B11,B12VISA..........................B12

W - XWalgreens BootsAlliance............B11,B12

Walmart......................B1Walt Disney................ A1,B1,B11,B12Xiaomi.......................B11

INDEX TO PEOPLE

BY SUZANNE KAPNER

Makeover Rings True for Tiffany

High-end jewelry sales were among the fastest-growing categories in the luxury industry last year.

HEC

TORRETA

MAL/AGENCE

FRANCE

-PRESSE/G

ETT

YIM

AGES

APPLE

Sesame WorkshopForms Partnership

Apple Inc. said it is forming apartnership with Sesame Work-shop to create children’s pro-gramming for its planned sub-scription video service.

The pact is the latest in a slewof deals Apple has struck forcontent including an agreementlast week for Oprah Winfrey tocreate programming for the as-yet unnamed video service.

Under the terms of the con-tract, Apple has ordered multipleseries from Sesame Workshop,the nonprofit media and educa-tional organization best knownfor the long-running show “Ses-ame Street.” Shows will be live-action, animated as well as onefeaturing puppets, according to aperson close to Apple.

“Sesame Street” isn’t part ofthe agreement. That show airson AT&T Inc.’s HBO and on PBS

as part of a five-year partner-ship struck in 2015.

The Sesame agreement indi-cates that Apple’s service will bebroad-based. It has also orderedsitcoms and dramas aimed at anadult audience, including a pro-gram about the morning TVnews business starring JenniferAniston and Reese Witherspoon.

Apple has committed tospending $1 billion on content.Its video play is being overseenby former Sony TV executivesJamie Erlicht and Zack Van Am-burg. The pair were involved inthe development of several suc-cessful shows at Sony, including“The Crown” and “Breaking Bad.”

—Joe Flint

SUPERVALU

Instacart to ProvideService for Stores

Supervalu Inc. said it reachedan agreement with online gro-cery provider Instacart Inc. to

service the more than 3,000grocery stores supplied by thefood wholesaler.

The third-party service willprovide online delivery and in-store pickup options.

—Heather Haddon

AUTOS

South Korean CarsTop a J.D. Power List

South Korean auto makerstopped an annual survey of carbrands that have the fewestproblems within the first fewmonths of a purchase.

Hyundai Motor Co.’s luxurydivision Genesis Motors rankedfirst on J.D. Power’s Initial Qual-ity Study, followed by Kia Mo-tors Corp. and Hyundai-brandedvehicles. Genesis sold 20,000vehicles in the U.S. last year, butHyundai-brand vehicles are morepopular, with nearly 665,000units sold in the U.S. in 2017.

—Adrienne Roberts

BUSINESSWATCH

Food wholesaler Supervalu made a deal with Instacart for online delivery and in-store pickup options.

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Percentage of householdsheaded by married couples

Sources: Census Bureau (married households);SIX (Tiffany)

Thinking Outside the Blue BoxA change in Tiffany's marketing strategy has helped revive sales ofengagement rings despite historically low marriage rates.


Tiffany & Co. share price

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while rivals have posted gains.Chicago-based Cboe in-

formed trading firms aboutsome of the alterations Tues-day. Some are designed to luremore participation to themonthly auction, which in par-ticular has come under fire forbeing antiquated and prone tospitting out unusual results.Traders have pointed to someof these results as signs of sus-picious activity.

The company recently com-pleted a planned transition ofmonthly S&P 500 index optionstrading to a more electronicsystem. Though U.S. stock andoptions exchanges have largelyswitched to electronic modelsand floor-based activity hasdwindled across the board,Cboe’s S&P 500 options tradingpits are one of the few lastlively ones in the industry.

More robust participationby traders can reduce irregu-larities with the final VIX fu-tures prices, like the odd resultin April that got traders acrossWall Street wary.

The May auction went moresmoothly after a planned tech-nology transition in late April.More traders also participatedin the May auction, said CboePresident Chris Concannon inan interview this month.

Another recent changeboosts the number of times theexchange sends signals to trad-ers pertaining to S&P 500 op-tions orders to encourage par-ticipation in the auction andresponses to buy and sell or-ders.

ContinuedfrompageB1

ChangesAre ComingFor the VIX

ment, the bank said it “ispleased to resolve the NYDFS’investigation into historicalpractices relating to its FXbusiness and that the NYDFShas recognized our extensivecooperation and remediation.”

The settlement resolves thelast active regulatory probeinto Deutsche Bank currency-trading practices.

“the potential to improperlydisadvantage customers andimproperly affect markets.”

The civil investigation cov-ered the years 2007 to 2013,during which Deutsche Bankwas the world’s largest cur-rency trader.

Deutsche Bank said the set-tlement is covered by existinglegal provisions. In a state-

to the fine in a consent orderwith New York’s Departmentof Financial Services. In astatement Wednesday, the reg-ulator said Deutsche Banktraders and salespeople soughtto skew foreign-exchangeprices and charge excessivespreads.

The regulator cited othercontrol failures that it said had

The U.S. marriage rate isstuck at historic lows, butsales of engagement rings atTiffany & Co. have jumped 11%this year, snapping three yearsof declines.

The reversal has little to dowith new products or prices.Instead, the 181-year-old jew-eler has changed the way ittalks to customers, with ad-vertisements that featuremore minorities and same-sexcouples. It is a big departurefrom the Tiffany ads of yore,with model-perfect Caucasiansin poses of marital bliss.

“We had played it a bit tooconservatively,” said Ales-sandro Bogliolo, a retail-indus-try veteran who took over asTiffany’s chief executive in Oc-tober. “You have to take somerisks and evolve the brand.”

According to the U.S. Cen-sus Bureau, 48% of Americanhouseholds are married, downfrom 78% in 1950. That hasbeen a challenge for a busi-ness that gets one-quarter ofits sales from engagementrings and wedding bands.

So far, the new CEO’s effortsto breathe life into the brandseem to be working. Tiffany’scomparable sales from e-com-merce and stores open at least12 months rose in the most re-cent holiday period, the firstquarterly gain since October2014. They picked up steam inthe quarter ended April 30,gaining 10%, while net incomejumped 53% to $142 million.

The strong results havepushed Tiffany’s stock to all-time highs, although Mr. Bo-gliolo warned that profit isunlikely to grow as fast for theremainder of the year, as thecompany invests in technol-ogy, marketing and store dis-plays. Shares are currentlychanging hands above $135, upfrom about $90 a year ago.

The turnaround comes ashigh-end jewelry sales aresurging. The category wasamong the fastest-growing inthe luxury industry last year,according to Bain & Co. Andthe pace is continuing thisyear, with LVMH Moët Hen-

nessy Louis Vuitton SE andCie. Financière Richemont SAreporting double-digit growthin their watch and jewelrybusinesses.

Tiffany is getting an addedboost from its marketing over-haul, analysts say. “They arereaching different people,”said Paul Lejuez, a Citi manag-ing director.

To mark the launch in Mayof the first jewelry collectionby new creative chief ReedKrakoff, Tiffany painted itssignature blue on everythingfrom corner bodegas and taxisto its Fifth Avenue flagship. Indigital ads, a blue-clad ElleFanning dances to rapperA$AP Ferg’s remix of the song“Moon River,” which Audrey

Hepburn sang in the 1961movie “Breakfast at Tiffany’s.”

Some consumers aren’t surewhat to make of the new, edg-ier Tiffany. “Their latest cam-paign is shocking,” said Ina Ma-maliga, a 27-year-old freelancecopywriter in New York. “It’sreally cool, but it’s not theirstyle. Before, they didn’t needto show off so much.”

Mr. Bogliolo, a former Bul-gari executive who was mostrecently CEO of clothing com-pany Diesel SpA, said he ismodernizing rather than up-ending Tiffany’s image. Unlikeits European rivals, Tiffany“has always been a place whereeverybody is welcome,” he said.

To a certain extent, he isriding on the coattails of hispredecessor, Frederic Cumenal,who had hired Mr. Krakoff, thedesigner who helped turnCoach into a retail juggernaut;recruited Lady Gaga to star ina series of ads; and testedsome same-sex marriage mar-keting before he was oustedlast year. At the time, Tiffanysaid it was disappointed withits financial results and neededto move faster. Mr. Cumenalsaid he is gratified that strate-gies set in motion under histenure are working.

New York’s financial-ser-vices regulator said it finedDeutsche Bank AG $205 mil-lion over allegations it soughtto manipulate currency pricesand mislead clients while fail-ing to protect confidential cus-tomer information.

The German lender agreed

BY JENNY STRASBURG

Deutsche Fined for Currency Failings

2017, a number of those namesare doing better,” said JimTierney, chief investment offi-cer of concentrated U.S.growth at AllianceBernstein.

He remains cautious on re-tail in the longer term, liken-ing its recent performance to a“dead cat bounce”: a short re-bound following a sharp andprolonged selloff.

Macy’s, which fell 30% in2017 even as the S&P 500jumped 19%, is up 57% this yearafter closing dozens of storeswhile sales at its remainingstores have rebounded. In May,its same-store sales surpassedanalysts’ estimates, thanks to apickup in spending by interna-tional tourists, revamped shoeand fine jewelry departmentsand customers’ increasedspending on full-priced goods.

Specialty retailers also havefared well. Dick’s SportingGoods Inc. is up 28% after los-ing 46% in 2017, buoyed by re-ports showing profits growingeven as its hunting businesssuffered following a decision totighten gun policies. Teen re-tailers Abercrombie & Fitchand American Eagle OutfittersInc., which both posted better-than-expected same-store salesfor the latest quarter, are up58% and 31%, respectively.

ments and out of active manag-ers. Strong performance and afocus on fixed income, whereinvestors have been less willingto spurn funds for exchange-traded funds, have helped insu-late Guggenheim.

Guggenheim has faced someinternal issues, too. The firmnamed Alexandra Court, a ris-ing star at the firm’s Europeanbusiness, to global head of in-stitutional distribution in 2016,but changes imposed by Ms.Court, including restrictions onhow investment staff could in-teract with investors, and apersonal relationship withGuggenheim Chief ExecutiveMark Walter, rankled employ-ees, The Wall Street Journalhas reported. She went onleave last summer and left thefirm earlier this year, Guggen-heim has said.

At the same time, the Secu-rities and Exchange Commis-sion has opened a formal in-vestigation into Guggenheim’sasset-management arm and isprobing certain transactionstied to the firm and its execu-tives, the Journal has reported.Guggenheim said it is cooper-ating in the inquiry.

Guggenheim appointedJerry Miller, a former DeutscheBank executive, as president ofits investments arm in 2017.Later that year, the firm soldits exchange-traded funds busi-ness to Invesco Ltd. for $1.2billion, narrowing its focus.

Munich Re is similarly look-ing to narrow its focus afterlast year produced record pay-outs by many insurance com-panies for hurricane damageand losses.

The firm is one of theworld’s largest providers ofproperty-and-casualty insur-ance and reinsurance.

nearly two decades ago by ac-quiring the investing opera-tions of another insurer, Sam-mons Enterprises. As part ofthe deal, Sammons became thefirm’s largest shareholder.Guggenheim has since ex-

panded dramatically, in partthrough a series of insurance-company takeovers that in turntapped its investments arm tomanage their assets. The busi-ness has since broadened tooversee the accounts of pen-sions and other institutionsand offers an array of mutualfunds to retail clients.

Led by Scott Minerd, thefirm’s investment chief,Guggenheim’s asset-manage-ment arm has earned a reputa-tion as a savvy investor inbonds and other fixed-incomesecurities. The unit oversees$250 billion in assets, up fromjust $35 billion a decade ago.

The Guggenheim business’sgrowth has been an anomaly inan otherwise tough decade formany asset managers. Trillionsof dollars have flowed intolow-cost, index-tracking invest-

ContinuedfrompageB1

AAmburg, Zack Van......B2Aron, Adam.................B3Auden, James...........B10

BBantick, Paul.............B10Bertelsen, Chris........B11Bezos, Jeff..................B1Bogliolo, Alessandro...B2Buffett, Warren..........B1

CCombs, Todd................B5Concannon, Chris........B2Court, Alexandra.........B2Courtney, Tim...........B11Cumenal, Frederic.......B2

DDimon, James.............B1

Donavan, Emy...........B10E - F

Erlicht, Jamie..............B2Every, Michael ..........B11Fort, Shannan...........B10

GGabelli, Mario.............A8Galoma, Thomas di...B11

HHafeez, Bilal .............B11Herlin, Greg.................B4Huang, Roger..............B5

I - KIger, Bob......................A8Khoman, Ehsan.........B10

M - NMcCarthy, Christine....A8

Miller, Jerry ................B2Minerd, Scott..............B2Murdoch, Rupert.........A8Nikias, Costa...............B4

O - PO'Rourke, Michael ....B12O'Shea, Phil ................B4Pavlik, Robert ...........B12

R - SRakau, Oliver..............A7Son, Masayoshi ..........B4

TTrippe-Smith, Adam...B4Tripp, Martin...............B3

W - YWalter, Mark...............B2Yanai, Tadashi.............B4

“Retail has received a sec-ond wind from the tax cuts,which we think will ultimatelyfade,” said Morgan Stanley an-alysts in a recent report. Someanalysts are forecasting asteep deceleration in earningsgrowth for the sector in com-ing months. “If so, look for thestocks to roll over as well,” theMorgan analysts wrote.

Other analysts point to thedollar as a reason why the rallymay not last. While many re-tailers cited dollar weakness asboosting spending by foreigncustomers during the latestquarter, the currency has sincerebounded. Further dollar gainswould make retailers’ goodsmore expensive to customersabroad, potentially slowingsales at companies with largemultinational presences.

“People are saying, OK,these guys aren’t going awaynow, so after the tremendouspressure we saw in 2016 and

ContinuedfrompageB1

RetailersDefy TalkOf Demise

GuggenheimAnd InsurerSeek Deal

The firm is one of theU.S.’s biggest moneymanagers, with $305billion in assets.

THEWALL STREET JOURNAL. * * Thursday, June 21, 2018 | B3

BUSINESS NEWS

premium formats and only letssubscribers see the same filmonce, a limitation AMC isn’tplacing on its new program.

As with MoviePass, AMCStubs A-List could be a boonto Hollywood studios if it sig-nificantly increases atten-dance.

MoviePass currently hasmore than 3 million subscrib-ers and has said it is on trackfor more than 5 million byyear-end. “We are absolutelythrilled that AMC has finallystepped up to embrace amodel that we’ve known allalong will be the future of our

industry,” said a MoviePassspokesman. He added that thecompany believes it is “thebest way to pave a path of suc-cess for independent and smalltheater chains, where we willcontinue to focus our efforts.”

Major studios typically re-ceive around 60% of the ticketprice for movies they release.AMC’s average ticket pricewas $9.78 in first quarter ofthis year, the company said.

That means AMC would belosing money with heavy usersof its new subscription pass. Itcould make that up, however,with subscribers who see few

or no movies in certainmonths, as well as with con-cession sales from increasedattendance.

When MoviePass slashed itsprice to $9.95 for one film aday last August, AMC said,“That price level is unsustain-able and only sets up consum-ers for ultimate disappoint-ment down the road.”

On a conference call withanalysts Wednesday, AMC chiefexecutive Adam Aron said thenew program “is being done ata sustainable price point wherewe can be very confident thatwe will be profitable.”

BY COSTAS PARIS

China Shipper Faces U.S. ScrutinyPotential buyer offersto put terminal in atrust to allay concernsabout national security

The Long Beach, Calif., terminal is part of Cosco’s proposed deal for an Asian rival, which holds a concession to operate the facility.

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its goals,” Mr. Musk wrote.“With 40,000 people, the worst1 in 1000 will have issues.That’s still ~40 people.”

Tesla said in its suit that Mr.Tripp began working at Tesla’sbattery factory outside ofReno, Nev., in October 2017 asa process technician. The com-pany alleges that Mr. Tripp wasreassigned to a new role inMay after his managers said hehad performance problems,and was disruptive and com-bative with colleagues.

“Tripp retaliated againstTesla by stealing confidentialand trade-secret informationand disclosing it to third par-ties, and by making false state-ments intended to harm thecompany,” the lawsuit said.

Tesla’s investigators inter-viewed Mr. Tripp on June 14and June 15, during which heallegedly admitted hacking andtransferring the data, the law-suit said.

The disruption comes asTesla is trying to ramp up pro-

Asked on Twitter whetherhe was referring to Mr. Trippin his memo, Mr. Musk didn’tdirectly answer yes or no, butsuggested there were multiplepeople attempting to harmTesla. “There is more, but theactions of a few bad apples willnot stop Tesla from reaching

to be on the lookout for possi-ble saboteurs, noting that anemployee had been found con-ducting an “extensive and dam-aging sabotage” to the com-pany’s operations and hackinginto the company’s manufac-turing operating system to ex-port data.

Tesla Inc. in a lawsuitWednesday accused a formeremployee of hacking into theelectric-car maker’s computersystem to steal company dataand send it to an unnamedthird party.

The lawsuit, filed in federalcourt in Nevada, says the for-mer employee, Martin Tripp,admitted to writing software tohack the Silicon Valley com-pany’s manufacturing operat-ing software and transferringseveral gigabytes of data to“outside entities,” includingdozens of confidential photo-graphs and videos of the manu-facturing system. He alsowrote a computer code to ex-port Tesla data off its network,Tesla alleged in its suit.

A Tesla spokesman declinedto comment further. Mr. Trippdidn’t have a comment.

Earlier this week, Chief Ex-ecutive Elon Musk in a memoto employees cautioned them

After previously saying sub-scription service MoviePassdidn’t pose a significantthreat, the largest cinemachain in the U.S. is taking it ondirectly.

AMC Entertainment Hold-ings Inc. is launching a new of-fering that lets customers seeup to three movies a week for$19.95 a month at any of itsU.S. theaters. Called AMC StubsA-List, the new service has sev-eral advantages over Mov-iePass, including the ability tobook tickets days in advance, todo so in an app without a spe-cial debit card and to see filmsin premium formats such as3-D or IMAX at no extra charge.

MoviePass can be used oncea day. It charges $9.95 amonth and works at 91% of the5,773 theaters in the U.S. AMChas 659 locations in the U.S.and Canada, according to theNational Association of The-atre Owners. Many of its loca-tions have multiple auditori-ums, giving it about 20% ofthe nation’s screens, accordingto company data.

To obtain a ticket withMoviePass, customers have touse a debit card in person onthe same day they want to seea film at most theaters, excepta small number with which thecompany has special arrange-ments allowing for in-app res-ervations. In addition, Mov-iePass doesn’t work with

BY BEN FRITZAND ERICH SCHWARTZEL

New AMC Service Takes On MoviePass

The cinema chain is launching a subscription service for moviegoers, priced at $19.95 a month.

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duction of its Model 3 sedan bythe end of June to 5,000 unitsin a single week, a goal thathas eluded it for six monthsand placed great pressure onits finances.

Tesla’s battery factory hasbeen a trouble spot for Model 3production.

Tesla’s lawsuit alleged thatMr. Tripp made false claims indisseminating the informationhe took, including that punc-tured battery cells had beenused in some Model 3 cus-tomer vehicles, and that heoverstated how much scrapmaterial Tesla generated dur-ing the manufacturing process.

Business Insider earlier thismonth published a story it saidwas based upon internal Teslarecords claiming that a mispro-grammed robot was puncturingthe battery cells used in cars,and that “an insane amount ofraw material” was beingscrapped at the Nevada factory.The lawsuit doesn’t mentionthe article.

cording to the Journal of Com-merce.

Cosco has minor invest-ments in other U.S. ports, in-cluding another pier at LongBeach as well as at the ports ofLos Angeles and Seattle. Theseassets haven’t been part of thediscussions, the people said.

The proposed Cosco dealalso would need approval fromChina’s Ministry of Commerce,which is waiting for CFIUS’sruling. Cosco expects the Min-istry of Commerce to approvethe deal by the end of June.

—Joanne Chiuand Kate O’Keeffe

contributed to this article.

goods that would be penalizedwith tariffs.

“We don’t expect the tariffsissue to become a barrier inthe Cosco-OOIL deal,” said asenior Cosco official, whoasked not to be named. “Wehave fulfilled what CFIUS hasasked.”

A takeover of Orient Over-seas would make Cosco theworld’s third-biggest containeroperator in terms of capacity,behind Denmark’s Maersk Lineand Switzerland-based Medi-terranean Shipping Co. It alsowould create the second-big-gest mover of U.S. importswith an 11.8% market share, ac-

Broadcom Ltd.’s $117 billiontakeover of chip rival Qual-comm Inc. and the sale ofMoneyGram International Inc.to Chinese billionaire JackMa’s Ant Financial ServicesGroup.

Its review of the shippingdeal comes at a tense time be-tween the U.S. and China, withleaders threatening to imposenew tariffs and regulators onboth sides of the Pacificweighing in on more matters.

President Donald Trump es-calated a trade conflict withChina this week, asking his ad-ministration to identify a newlist of $200 billion in Chinese

which is led by the TreasuryDepartment. A spokesman forthe Treasury didn’t immedi-ately provide comment.

The Long Beach terminal isone of the few in the U.S. thatis almost fully automated andcan handle some of the largestcontainer vessels. The terminalis expanding to accommodateships carrying more than20,000 boxes each.

Cosco is looking for a buyerfor the facility, another personsaid. Global port operators es-timate the terminal is worthup to $1.5 billion.

CFIUS has scuttled severalrecent transactions, including

Chinese state-run CoscoShipping Holdings Co. has of-fered to put a large containerterminal in Long Beach, Calif.,in a U.S.-run trust to allay na-tional-security concerns aboutChinese ownership of the facil-ity, according to people famil-iar with the matter.

The terminal is part ofCosco’s proposed $6.3 billionpurchase of an Asian shippingrival, which holds a long-termconcession to operate the facil-ity at the Port of Long Beach,one of the biggest gatewaysfor imports into the U.S. Coscointends to sell the terminal ifthe deal goes through.

Its takeover of Orient Over-seas International Ltd., an-nounced in July 2017, is under-going a review by theCommittee on Foreign Invest-ment in the U.S., a federalpanel that vets foreign pur-chases of American companieson national-security grounds.

Cosco executives met withCFIUS officials last week inWashington and proposed toplace the Long Beach terminalin a third-party trust underU.S. management for up to ayear until it is sold, one persondirectly involved in the mattersaid. “Cosco will have no in-volvement or influence in thetrust,” this person said. “It alsofiled a number of amendmentspreviously required by CFIUS.”

It isn’t clear if that wouldsatisfy concerns at CFIUS,

BY TIM HIGGINS

Tesla Accuses Former Employee of ‘Sabotage’

The electric-car maker claims also that company data was stolen.

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Altice Europe NV agreedto sell parts of its telecommu-nications-tower businesses inFrance and Portugal foraround €2.5 billion ($2.89 bil-lion) in a bid to pare the com-pany’s heavy debt load.

The Amsterdam-listed tele-com operator said it wouldfirst bundle the tower assetsinto two separate companies,SFR TowerCo in France andTowers of Portugal in Portugal,before selling off the stakes.

Private-equity giant KKR &Co. will take a 49.99% stake inAltice’s French cellphone-tower business, while a con-sortium including MorganStanley Infrastructure Part-ners and Horizon Equity Part-ners will buy 75% of Towers ofPortugal, Altice said onWednesday.

“These transactions under-line our commitment to de-lever and proactively manage

our balance sheet while high-lighting the significant under-lying value of Altice Europe’sbusiness,” Altice founder Pat-rick Drahi said.

The Wall Street Journal hadpreviously reported that thedeals were in the works.

The deals mark a reversalfor Altice, which made a stringof eye-catching acquisitionsfrom 2014 to 2016, includingdeals for Cablevision SystemsCorp. in the U.S. and telecomSFR in France.

With investors pressuringthe company to cut debt latelast year, Altice placed a num-ber of noncore assets on theblock in an attempt to improveits balance sheet. This monththe company completed aspinoff of Altice USA Inc., thelisted company that houses itsAmerican assets.

In addition, Altice has indi-cated it would be open to of-fers for its business in the Do-minican Republic. Alticebought the business for €1.1billion from French telecom ri-val Orange five years ago.

Altice posted stronger-than-expected quarterly results lastmonth, but has increased itsnumber of subscribers inFrance at the expense of reve-nue per user, a closely watchedmetric in the telecommunica-tions industry.

BY NICK KOSTOVAND BEN DUMMETT

AlticeSellsAssets toCut Debt

The sale of stakes inthe company’s towerbusinesses will raisenearly $2.9 billion.


TECHNOLOGY WSJ.com/Tech

WOLLONGONG, Australia—New technology could helpbrewers hold on to kegs untiltheir usefulness is truly tappedout.

Kegs frequently go missingen route from brewery to barand back again. Now startupsfrom the U.S. to Australia aredeveloping sensors to helpbeer companies track theirproperty.

“I think that most of thetime people don’t understandthat kegs are really valuable tobreweries,” said Phil O’Shea,owner of Five Barrel Brewingin this city south of Sydney. “Ifa keg is looked after, then itcan last 10 years or more.”

Large breweries buy tens ofthousands of steel kegs everyyear, at about $100 apiece. Asmany as 10% go missing annu-ally, brewers say. The barrels,often stored outside whenempty, can be mistakenly col-lected by another brewery orstolen for home brewing orother purposes. Internet vid-eos show how to make a firepit, a pot and even a urinal outof a beer keg.

Mr. O’Shea, whose breweryhas about 300 kegs, said 20 to30 kegs have gone missingsince it opened more than twoyears ago. That loss led him tohelp Binary Beer, a Wollon-gong startup, test an early

BY MIKE CHERNEY

Five Barrel Brewing is testing out sensors that transmit data about a keg’s location using a new mobile network in Australia.

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videos—videos taller thanthey are wide to suit userswho are holding their phonesupright.

IGTV initially won’t featureads and the company isn’tpaying creators directly to usethe feature. But InstagramCEO Kevin Systrom said he ex-pects the company eventuallywill introduce ads and poten-tially provide a share of that

revenue to creators who poston the site.

“That is obviously a veryreasonable place to end up,”Mr. Systrom said during anews conference.

By increasing the lengthand quality of video on Insta-gram, the image-sharing socialmedia network may have itseyes on the multibillion-dollarmarket for TV advertising.

Marketers have so far beenslow to shift their budgetsfrom TV to new video formats,but upfront spending of digitaladvertising is increasing.

With IGTV, Instagramseems poised to compete withother tech platforms, such asSnapchat and YouTube, thathave housed video from high-profile individuals and mediaorganizations for years.

prototype of its keg sensor.Designed to run on batter-

ies that will last up to 10years, Binary Beer’s sensortransmits data about a keg’slocation using a new mobilenetwork from Vodafone GroupPLC for low-power devices.Brewers can track the loca-tions of their kegs in real timeon a computer or smartphone,while also accessing informa-tion like temperature so theycan tell whether their beer isbeing stored correctly.

Some investors think theresults so far are promising.Binary is backed by global ven-ture-capital fund Artesian,while C-Keg, a startup based inKirkland, Wash., has supportfrom Seattle-area tech inves-tors, according to C-Keg ChiefExecutive Greg Herlin. Kegstar,a Sydney-based keg-rental

business owned by logistics gi-ant Brambles Ltd. that recentlyexpanded to the U.S., is look-ing to develop a similar sensor.

Mr. O’Shea said he is inter-ested in the technology butthat cost will determinewhether he purchases any sen-sors.

The sensors must alsobroadcast from diverse envi-ronments: a refrigerated stor-age area, a basement cellar oran alley behind a bar whereempty kegs are often stashed.And “security of data would bean overarching concern,” saidCosta Nikias, a brewery con-sultant who founded La SirèneBrewing near Melbourne. Acompetitor with unauthorizedaccess to the data might beable to see where a rival isselling beer, said Mr. Nikias,who isn’t involved with any of

the startups.Kegstar said it reduced its

keg-loss rate to about 2% byusing radio-frequency ID tagsand bar codes on its more than400,000 kegs. An averagebrewer “doesn’t have a team ofpeople sitting there ringing upvenues, ringing up warehousesand chasing up empty kegs,”said managing director AdamTrippe-Smith.

Still, Kegstar’s trackersmust be hand-scanned by a de-vice and they don’t broadcastlocations in real time. So-called active tags, which auto-matically send data in realtime and might use Wi-Fi andBluetooth technology, can costsignificantly more than pas-sive tags that need to bescanned. Mr. Trippe-Smithsaid his company expects toinvest in higher-tech sensors.

Tech to Track Errant KegsStartups aim to helpbreweries save moneyby reducing loss ratesfor the containers

Bar CrawlSeveral startups, including Binary Beer in Australia, hope new technology can reduce the number of kegsthat go missing.

Source: Binary Beer THEWALL STREET JOURNAL.

Cell tower

Beer kegs withtracking sensors

A brewer onhis cellphone

Cloud storage

A device weldedto the keg beamsout locationdata.

The data are sentover a newmobilenetwork forlow-power devices.Batteries can lastup to 10 years.

The data arerelayed fromthe networkto the cloud.

A mobile-phoneapp displays thekeg’s location inreal time.

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ness,” such as the company’scash-cow mobile-phone ser-vice in Japan.

Since Mr. Yanai joined Soft-Bank’s board in 2016, Mr. Sonhas spent $32 billion to ac-quire U.K. chip designer ArmHoldings and started the Vi-sion Fund with help fromSaudi Arabia’s sovereign-wealth fund.

SoftBank has a market capi-talization of ¥9.1 trillion ($83billion) based on Wednesday’sclosing price of ¥8,259 in To-kyo. The shares closed up 2.3%after Mr. Son’s presentation.

Mr. Son said there wasplenty of room to grow, callingshared-workplace providerWeWork “the next Alibaba.”

And he asked investors totrust his instincts. “The pre-monition that something willwork bubbles up inside me,”he said.

For startups, he said, cashflow was less important thanleadership and a stellar busi-ness model. “You have to feelit, like in ‘Star Wars’—feel theforce.”

Shareholders interviewedafter the meeting echoed bothMr. Son and his critic Mr. Ya-nai, saying they believed inthe SoftBank chief but worriedhe was moving too fast.

“I agree with Mr. Son thatsome of these investments willbear fruit over the long term,”said Hisako Yonemura, a re-tiree living in western Tokyo.“But I want to know whereSoftBank will be in a couple ofyears.”

Alibaba founder Jack Ma,an outside director at Soft-Bank, defended Mr. Son, not-ing that he made an early in-vestment in the Chinese e-commerce giant in 2000,which has grown thousands oftimes over.

“I respect Masa’s courageand vision,” Mr. Ma said, usingMr. Son’s nickname. “Mostpeople think we are crazy, butI don’t think we are crazy. Webelieve the future.”

TOKYO--A SoftBank GroupCorp. director told the Japa-nese giant’s shareholders thatits breakneck investment paceworries him, highlighting ten-sions over Chief ExecutiveMasayoshi Son’s penchant forbig bets in loss-making start-ups.

“Please don’t think you canrest easy,” Tadashi Yanai, wholeads clothing retailer Uniqloand serves as an outside direc-tor on SoftBank’s board, saidat the company’s annual meet-ing.

The $92 billion SoftBankVision Fund that Mr. Sonstarted last year with Saudihelp has invested in some ofthe world’s most valuablestartups, including Uber Tech-nologies Inc. and WeWork Cos.SoftBank also controls SprintCorp. in the U.S.

At SoftBank’s annual meet-ing in Tokyo on Wednesday,Mr. Son said the group wouldunlock new value throughloose alliances among its dis-parate investments, comparingit to self-propagating bacteria.

“I want to create a group oftop-ranked companies,” hesaid. “This is how we win, howwe succeed.”

Mr. Son said SoftBank’sshares were undervalued com-pared with the value of itsholdings in tech companiessuch as Alibaba Group HoldingLtd. and Yahoo Japan Corp.Likening the group’s shareprice to a garden vine thattwists and turns but ulti-mately heads upward, he saidshareholders could relax.

That statement drew aquick retort from Mr. Yanai, alongtime friend of Mr. Son’swho has positioned himself asan in-house skeptic of Soft-Bank’s strategy.

“I get so worried when Iwatch what Mr. Son does. Iworry if things will really beall right, just like all of you,”Mr. Yanai told shareholders.“Please don’t think you canrest easy after today’s presen-tation.”

Mr. Yanai, who is alsochairman of Uniqlo parentcompany Fast Retailing Co.,didn’t spell out his worries onWednesday, but he has previ-ously taken issue with Soft-Bank’s favoring of technologyinvestment over “real busi-

BY MAYUMI NEGISHI

SoftBank’s PaceOf InvestmentVexes Director

‘I get so worriedwhen I watch whatMr. Son does,’shareholders are told.

Facebook Inc.’s Instagramlaunched a new hub for long-form video, the company’s lat-est attempt to tap growing de-mand among consumers andadvertisers for mobile video.

The new hub, called IGTV, isa stand-alone app as well as asection of the primary Insta-gram app, both allowing usersto post high-definition videos.Some of the most influential“creators” on Instagram al-ready are slated to create con-tent for the feature, includingLele Pons, an actress andmodel who has 25.2 millionfollowers.

The content on IGTV is var-ied. On Wednesday, Instagramexecutives showed reportersvideo clips featuring wildlifeexplorers and amateur cooks.

Each of Instagram’s 1 billionmonthly active users—a tallyrevealed Wednesday—will beable to view the video byswiping through a section inthe app.

IGTV is focused on vertical

BY BENJAMIN MULLINAND DEEPA SEETHARAMAN

Instagram Gives Videos More Room

CEO Kevin Systrom said the new IGTV hub for long-form video may eventually introduce ads.

JEFF

CHIU/A

SSOCIATE

DPRESS

vider through a subpoena,warrant or other official re-quest. Each carrier has a dedi-cated legal team that evalu-ates the requests.

911 calls: Emergency callsare routed to public-safety an-swering points, which can ob-tain the caller’s location with-out consent. This is so thatfirst responders can quicklyfind people who are unable todescribe their location.

Companies: Data middle-men like LocationSmart andZumigo Inc.—the two whowere cut off—can access infor-

mation on cellphone users’whereabouts in situationswhere the company seekingthe information might notknow which carrier to ask.Trucking companies, e-com-merce websites, jail wardensand online lotteries all pull thedata though these aggregatorsbut are supposed to seek thedevice user’s consent beforedoing so.

Marketers: Carriers also sellbulk data on groups of cell-phone users to marketers. Thisallows a fast-food chain to sendads to a user who has driven

past a restaurant several times,for instance. Carriers usuallyopt their customers into theseprograms by default.

Apps: Software companieslike Google and Uber Technol-ogies Inc. keep tabs on theirusers another way. Instead ofasking carriers for datagleaned from cell-tower inter-actions, they get users toshare their location throughcellphone software that usesGPS and Wi-Fi signals to moreaccurately pinpoint custom-ers. Carriers aren’t involved inthis data sharing.

Three big U.S. wireless carri-ers have said they will stopsharing customers’ locationswith two data middlemen afterdiscovering the information hadbeen mishandled. Carriers likeVerizon Communications Inc.and AT&T Inc. get a variety ofrequests for their customers’whereabouts. How they responddepends on who is asking.

Investigators: Law-enforce-ment officers can request acustomer’s current or past lo-cation from a cellphone pro-

BY DREW FITZGERALD

Carriers Handle Location Data in Varied Ways

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THEWALL STREET JOURNAL. Thursday, June 21, 2018 | B5

At B-Schools, Leaders Are Hard to FindSome of the nation’s most prestigious M.B.A. programs are seeking deans who are willing to run them

Yale’s enrollment and se-cured major gifts fromalumni donors like IndraNooyi, chief executive ofPepsiCo Inc. Before Yale, Mr.Snyder led similar business-school turnarounds at theUniversity of Chicago andUniversity of Virginia.

Many deans have had atough run. Soumitra Dutta’sabrupt resignation from thetop post at Cornell Univer-sity’s SC Johnson College ofBusiness prompted adminis-trators to lure a former deanout of retirement to take over.

Wisconsin School of Busi-ness has yet to restart itssearch for a dean to replaceAnne Massey, who resignedin December, after four tu-multuous months on the job.It cost the school $188,000to recruit Ms. Massey from aprofessorship at Indiana Uni-versity last year, according

to a spokesman.At least three recent deans

discussed axing the expensiveprogram after a sustaineddrop in Wisconsin’s M.B.A.applications, according topast and current administra-tors of one of the nation’soldest business schools. Tu-ition and university-trans-ferred funds amounted tohalf of the school’s $65.4 mil-lion in revenue for 2016. Add-ing philanthropic gifts andalumni donations, Wisconsinwas still short of its $68.7million in expenses, which in-cluded nearly $20 million insalaries for nonfaculty staffand student-support person-nel, according to financialstatements obtained by TheWall Street Journal.

Ms. Massey, who didn’trespond to requests to com-ment, led a proposal in Octo-ber to halt M.B.A. admis-

sions while reviewingWisconsin’s degree pro-grams, striking a nerve withalumni and donors. Shedropped the proposal oneweek after a Wall StreetJournal article broke thenews to many outside theMadison campus, and leftthe job two months later.

Most deans are formerprofessors who swap re-search for a packed scheduleof recruiting and networkingevents and a $100,000 payraise, and are earning$279,000 on average, AACSBdata show.

Brigitte Madrian, a public-policy professor at the Har-vard Kennedy School of Gov-ernment, will take overBrigham Young University’sbusiness school as its first-ever female dean in 2019. Shewill succeed Lee Perry, who at67 said he is planning a briefreturn to teaching, after 20years in various professor andadministration roles there.“Although I feel young andhearty, I know I have a shortrunway ahead of me, and Iwant it to end teaching here,”he said, noting his long-heldpreference for the classroom.

JAMESYA

NG

Help WantedHere’s a list of some of theuniversities seeking a dean torun their business school in2018:

University of California,Berkeley

University of California,Los Angeles

California State University,Fullerton

Cornell UniversityMissouri State UniversityNiagara UniversityNorthwestern UniversityUniversity of Notre DameUniversity ofWisconsin-Madison

Yale University

Borrowing Benchmarks | WSJ.com/bonds

MoneyRates June 20, 2018

Key annual interest rates paid to borrowor lendmoney inU.S. and internationalmarkets. Rates beloware aguide to general levels but don’t always represent actual transactions.

InflationMay index ChgFrom (%)

level April '18 May '17

U.S. consumer price indexAll items 251.588 0.42 2.8Core 257.469 0.17 2.2

International rates

Week 52-WeekLatest ago High Low

Prime ratesU.S. 5.00 4.75 5.00 4.25Canada 3.45 3.45 3.45 2.70Japan 1.475 1.475 1.475 1.475

PolicyRatesEuro zone 0.00 0.00 0.00 0.00Switzerland 0.50 0.50 0.50 0.50Britain 0.50 0.50 0.50 0.25Australia 1.50 1.50 1.50 1.50

Overnight repurchaseU.S. 1.93 1.78 2.18 1.01

U.S. government rates

Discount2.50 2.25 2.50 1.75

Federal fundsEffective rate 1.9500 1.7300 1.9500 1.0700High 2.1500 1.9500 2.1500 1.3125Low 1.9000 1.6900 1.9000 0.9700Bid 1.9000 1.7100 1.9200 1.0500Offer 2.1500 1.7200 2.1500 1.0700

Notes ondata:U.S. prime rate is the base rate on corporate loans posted by at least 70%of the 10 largestU.S. banks,and is effective June 14, 2018.Other prime rates aren’t directly comparable; lending practices varywidely by location; Discount rate is effective June 14, 2018.DTCCGCFRepo Index is DepositoryTrust&Clearing Corp.'sweighted average for overnight trades in applicable CUSIPs. Value traded is inbillions ofU.S. dollars.Federal-funds rates are Tullett Prebon rates as of 5:30 p.m. ET.Futures on theDTCCGCFRepo Index are traded onNYSELiffeUS.Sources: Federal Reserve; Bureau of Labor Statistics; DTCC; SIX Financial Information;Tullett Prebon Information, Ltd.

Treasury bill auction4weeks 1.815 1.790 1.815 0.85013weeks 1.900 1.910 1.910 1.00026weeks 2.075 2.075 2.080 1.105

SecondarymarketFannieMae30-yearmortgage yields30days 4.192 4.232 4.344 3.25360days 4.217 4.258 4.371 3.281

Other short-term rates

Week 52-WeekLatest ago high low

Callmoney3.75 3.50 3.75 3.00

Commercial paper (AA financial)90days 2.13 2.20 2.31 1.14

LiborOnemonth 2.08363 2.07325 2.08788 1.21556Threemonth 2.33188 2.34063 2.36906 1.28944Sixmonth 2.50088 2.50013 2.52375 1.44500One year 2.77250 2.76688 2.78031 1.69511

Week —52-WEEK—Latest ago High Low

Euro LiborOnemonth -0.398 -0.400 -0.397 -0.420Threemonth -0.366 -0.350 -0.349 -0.389Sixmonth -0.311 -0.305 -0.297 -0.339One year -0.236 -0.229 -0.182 -0.263

Euro interbankoffered rate (Euribor)

Onemonth -0.370 -0.370 -0.366 -0.374Threemonth -0.323 -0.321 -0.321 -0.332Sixmonth -0.268 -0.268 -0.267 -0.279One year -0.182 -0.181 -0.151 -0.194

Value 52-WeekLatest Traded High Low

DTCCGCFRepo IndexTreasury 1.921 33.390 2.068 1.013MBS 1.928 89.574 1.994 1.030

Open ImpliedSettle Change Interest Rate

DTCCGCFRepo IndexFuturesTreasury Jun 98.080 unch. 884 1.920Treasury Jly 97.965 -0.010 839 2.035TreasuryAug 97.965 -0.015 1309 2.035

Week —52-WEEK—Latest ago High Low

Harvard Medical School, as wellas a writer for the New Yorkermagazine. He founded AriadneLabs and has been executive di-rector of the nonprofit center,which focuses on efforts to im-prove care and reduce medicalerrors, for six years.

In addition to running thenew venture, Dr. Gawande willcontinue to practice surgeryand keep his position as a pro-fessor at Harvard, as well asretain a role at Ariadne Labsas chairman, according to Ari-adne Labs.

In January, Amazon, Berk-shire and JPMorgan an-nounced they teamed up tofigure out how to reducehealth-care costs and improvecare for their hundreds ofthousands of U.S. employees.The companies said the entity

ContinuedfrompageB1

glected since taking over theschool in 2008: playing gui-tar and advising startups.

Mr. Lyons, 57 years old,said he isn’t interested indean jobs outside of Berke-ley, his alma mater; he saidhe took a pay cut of morethan 50% to join the schoolfrom his C-suite position atGoldman Sachs Group Inc.

Not everyone shares Mr. Ly-ons’s view of the dean job as a“passion project.” Early in thesearch for his successor, Mr.Lyons recommended econom-ics professor Catherine Wol-fram raise her hand. She saidshe was too much of an intro-vert, and couldn’t give up theresearch that first drew her toacademia. “Rich is the rare ac-ademic who also has greatpeople skills, and can give aninspirational, rousing speech,”Ms. Wolfram said.

Deans must now work to

raise bigger sums of moneywhile building new degreesin fast-growing fields, suchas data analytics, as theysearch for untapped revenue.Some schools, including theUniversity of Iowa and WakeForest University, are cuttingtraditional M.B.A. programs,despite opposition from grad-uates who are saddened tosee a treasured piece of theirschool and résumé disappear.

“Being the dean is becom-ing harder,” said EdwardSnyder, who in March an-nounced the coming schoolyear would be his last run-ning Yale University Schoolof Management. “The expec-tations of the various con-stituencies you serve haveall dialed up, and it keepsgetting a little more difficultto meet those expectations.”

Since taking over in 2011,Mr. Snyder has boosted

There is something missingat dozens of business schoolswhere high-profile corporatechiefs and prominent govern-ment officials have gone topolish their management cre-dentials: a leader.

Elite M.B.A. programs atNorthwestern University, YaleUniversity and the Universityof California’s Berkeley andLos Angeles business schools,are all searching for newdeans, as longtime administra-tors return to teaching or takepositions outside academia.

Through the start of June,job listings for 28 business-school deans were adver-tised with the accreditingbody Association to AdvanceCollegiate Schools of Busi-ness in 2018, up nearly 50%from this time last year.

Business-school leaderstypically serve four- or five-year terms, which many willcomplete this summer. Ahandful of early exits thisyear and prolonged searchesfor a replacement dean areexacerbating the industryshortage. The stakes arehigher than ever for top ad-ministrators, who are nowunder pressure to overhauldegree programs and createnew revenue streams becauseof waning student interest inthe traditional M.B.A.

Last month, Dean RogerHuang announced his returnto the finance faculty at NotreDame’s Mendoza College ofBusiness, whose alumni sit oncorporate boards includingMarathon Petroleum Corp.and General Mills Inc.

Rich Lyons also has com-mitted to another year ofteaching at Berkeley’s HaasSchool of Business, wherehis term as dean ends thismonth. He called the posi-tion “the most fulfilling jobI’ve ever had in my life,” buthe is eager to write a bookand delve more deeply intotwo hobbies he has ne-

BY KELSEY GEE

would operate independentlyand be free from profit-mak-ing incentives and constraints.Together, Amazon, Berkshireand JPMorgan have more thanone million employees, thoughnot all of them are in the U.S.

The three partners in thejoint venture had an in-depthprocess to select the new CEO.Todd Combs, an investment of-ficer at Berkshire and a JPMor-gan board member, did initialinterviews with CEO candidatesby phone in February, accordingto people familiar with the dis-cussions. Candidates later wereasked to deliver a white paperon how they would create amodel for the way employersbuy health benefits, what teamthe CEO would need to executethat strategy and how the newenterprise would use data ana-lytics, the people said.

The new model should lowercosts and serve as a templatefor other employers, but inter-viewers set few other criteriafor the enterprise, the peoplesaid. However, CEO candidateinterviews did focus on the useof data analytics, the cost ofprescription drugs and chronic

care management, they said.Executives from the three

companies were interested inDr. Gawande based on his expe-rience at Ariadne Labs, as wellas his role as a surgeon wit-nessing the successes and fail-ures of the medical system, aperson familiar with the mattersaid. Ariadne Labs has about100 employees and about $20million revenue projected forfiscal 2018, according to thenonprofit. Dr. Gawande is alsochairman of Lifebox, anothernonprofit he founded, whichfocuses on making surgerysafer globally, particularly inlow-income countries.

The son of physicians, Dr.Gawande grew up in Athens,Ohio. Much of his prominencestems from his New Yorker ar-ticles and books, which havefocused on a range of topicsincluding care for those withvery serious illnesses, thecomplexity of the health-caresystem and practical efforts toimprove treatment, such aschecklists for physicians.

—Emily Glazerand Melanie Evans


HealthVentureGets CEO

MANAGEMENT

NY

B10 | Thursday, June 21, 2018 THEWALL STREET JOURNAL.

MONEY & INVESTING

dardize the policy, said EmyDonavan, the global head forcyber, media and tech profes-sional indemnity at AllianzGlobal Corporate & Specialtyin San Francisco.

“It varies from company tocompany, because there is noreliable actuarial info to helpus set prices,” Ms. Donavan

MSCI Inc. returned Argen-tina to emerging-market sta-tus for the first time in nearlya decade, a move that is ex-pected to provide a much-needed boost to the belea-guered country as it strugglesto maintain credibility with in-vestors after a widespreadselloff in its currency.

Inclusion in the emerging-markets index is expected todraw billions of dollars in pas-sive investment into Argen-tina’s stock market at a timeof vulnerability. The MSCI Ar-gentina index is down 37% thisyear, the peso has fallen 33%against the dollar and Argen-tine bonds have dropped 14%.

Separately, MSCI said itwould add Saudi Arabia to theemerging-markets index, amove that could attract tensof billions of dollars in foreigninvestment to the stock mar-ket. It also provides a vote ofconfidence for the Saudi stockmarket as the governmentconsiders taking public the gi-ant state-owned oil companyknown as Aramco.

Both countries will officiallyjoin the emerging-marketsgauge in May 2019, MSCI saidWednesday. Only foreign list-ings of Argentine companieswill be included initially. Ar-gentina had been classified asa frontier index and Saudi Ara-bia was a stand-alone index.

Morgan Stanley estimatesthe MSCI move could boost Ar-gentine share prices by 20%over the next four months,based on $4 billion in fresh in-flows. If MSCI had excludedthe country from its emerging-markets index, that would havetriggered another 6% declinein the market, the bank said.

Ehsan Khoman, head of re-search for the Middle East atBank of Tokyo-Mitsubishi, esti-mates that up to $40 billion offresh foreign inflows would bechanneled into Saudi Arabia’sstock market in the next year.

Argentina still faces an up-hill battle as it contends withhigher interest rates in theU.S., a rising dollar and othermarket dynamics that couldturn investors away from risk-ier assets. Some analysts sayrunaway inflation and high lo-cal interest rates could leadthe country into a recession.

MSCI said investors’ confi-dence in Argentina’s ability tomaintain accessibility to thecountry’s stock market was akey factor in the decision.MSCI warned that it would re-view the reclassification wereArgentine authorities to intro-duce market-accessibility re-strictions, such as capital orforeign-exchange controls.

In 2017, MSCI delayed theupgrade based on investors’concerns that recently imple-mented market-accessibilityimprovements needed to re-main in place for a longer timeto be deemed irreversible.

BY JULIE WERNAUAND NICOLAS PARASIE

ArgentinaTo RejoinMSCIIndex

dustry, but it has become keyto unlocking resources trappedin tight rocks, like Khazzan.Gas production from such “un-conventional” resources—so-called because they requirespecial techniques to pro-duce—has more than doubledover the past eight years out-side of North America, reach-ing 6.6 billion cubic feet a dayin 2018, according to Norway-based energy consultancy Rys-tad Energy.

In Argentina, oil giants in-cluding Exxon Mobil Corp.,Chevron Corp., Royal DutchShell PLC and BP have movedto frack the country’s massiveshale reserves, though highcosts have slowed progress.According to the InternationalEnergy Agency, oil productionfrom fracking in the countrywill more than triple over thenext five years to 110,000 bar-

rels a day.In Russia, PAO Gazprom

Neft is now leading experi-ments with fracking the Ba-zhenov shale formation, thelargest in the world. Energyconsultancy Wood Mackenzieforecasts production of shalegas in China will almost doubleby 2020, driven by invest-ments from the country’sstate-backed oil companies.Even Saudi Arabia has begunefforts to tap its most-diffi-cult-to-pump natural gas byfracking.

These projects are “uncon-ventional today but won’t beunconventional in time,” saidThierry Bros, senior researchfellow at the Oxford Institutefor Energy Studies.

Until recently, oil companieshad made slow, costly progressin applying fracking to uncon-ventional resources beyond

North America. Regulatoryhurdles and environmentalconcerns upended efforts inEurope. Huge gas deposits inChina have proved difficult totap. International productionremains a fraction of output inthe U.S.

Even in the U.S., it took BPand other big oil companiesyears to get to grips withfracking.

The shale revolution wasinitially dominated by smaller,more nimble players.

Now, Khazzan countsamong BP’s most valuable as-sets, according to Wood Mack-enzie, and it stands out as animportant milestone in BP’s ef-forts to rebuild production af-ter years of retrenchment fol-lowing its Gulf of Mexicodisaster in 2010.

Oman is an unlikely place tolead the race to globalize

fracking. The Middle Eastcountry’s unconventional re-serves are dwarfed by thosefound in China and Argentina,which have so far driven pro-duction growth outside NorthAmerica.

Khazzan’s geology isn’t easyto drill, and Oman initiallylacked infrastructure, exper-tise and drilling data.

“Khazzan was quite a bigrisk,” said Liam Yates, a re-search analyst at Wood Mack-enzie.

Now, the project is pumping1 billion cubic feet of gas aday—more than enough tomeet the average daily demandof Connecticut. An additional500 million cubic feet a daywill come online in the nextphase of the project. In an in-dustry renowned for cost over-runs, it came in $4 billion un-der budget.

A BP PLC project deep inOman’s desert shows how bigoil companies are taking hy-draulic-fracturing techniquesperfected in Texas to theglobal stage, where they hadlong struggled.

BP’s $12 billion Khazzanproject launched last year on acomplex roughly the size ofLondon, surrounded by sanddunes and little else. One ofthe biggest fracking projectsever completed outside theU.S., Khazzan produces naturalgas from rock so dense anddeep beneath the desert that itwas long thought too difficultand expensive to exploit.

It is a breakthrough for atechnology that revolutionizedthe oil-and-gas industry in theU.S. but failed to gain groundelsewhere with early setbacksin China, Europe and Russia.Now, big oil companies aredrawing on expertise gainedfrom their U.S. operations andmaking investments aroundthe world again.

Such efforts will depend inpart on the Organization of thePetroleum Exporting Countriesand its allies such as Russia,whose meeting this week inVienna could have implicationsfor crude prices.

In general, big oil compa-nies are pushing ahead with“short-cycle” projects, such asthose involving fracking—where production can beturned on and off dependingon the oil price. Traditionalprojects have long life cyclesand produce no matter howlow prices go.

Rising oil prices—whichbreached $80 a barrel thisyear—have bolstered frackingprojects, though executives saygovernment policy and techno-logical advances can also helpmake projects work at lowerprices.

“It’s going to happen inother places,” BP Deputy ChiefExecutive Lamar McKay said inan interview earlier this year.

Fracking isn’t new to the in-

BY SARAH KENT

Industry Aims to Spread Fracking Boom

with new rules. Ransomwareis a type of software designedto block or limit access to acomputer system until moneyis paid.

The cost of the policies var-ies widely, depending on theneeds of a company and theindustry it is in. Aon PLC, abig brokerage firm, handlespolicies as small as $650 in to-tal premium to upward of over$9 million for stand-alone cy-ber programs.

But while the regulationshave led to more companiesexamining cyber insur-ance, there hasn’t been a sig-nificant uptick in sales.

“We’re optimistic that we’llsee more,” said Paul Bantick,cyber-focus group leader atLloyd’s Beazley Insurance Co.in London. “But in the future,it’s not going to be necessarilya huge boom…it would proba-bly be more gradual.”

The expectations forgrowth largely were driven byan examination of sales in theU.S. during the past year.Amid large-scale databreaches and cyberattacks, cy-ber insurance has become oneof the fastest-expanding mar-kets in the U.S., where 48

states require companies tonotify individuals if their datais compromised.

In 2017, cyber premiums inthe U.S. climbed 54% to $2.1billion, according to a reportfrom Fitch Ratings last month.The U.S. market represents90% of global premiums in cy-ber insurance.

In comparison, Aon says itscybersales in Europe rose 25%in 2017, attributed mostly toan increase in new clients. Thecompany says it hasn’t seen arise in sales in response to theGDPR, and the U.S. market stillrepresents 65% of its sales,said Shannan Fort, who leadsAon’s cyber-product develop-ment in London.

One reason sales haven'ttaken off is one detail of theGDPR. As part of the regula-tion, companies face the riskof hefty fines of up to €20 mil-lion ($23.2 million) or 4% ofglobal revenue. But whetherthe fines are insurable in eachcountry is unclear, a decisionthat is up to regulators in eachnation.

This lack of clarity in whatis insurable and the level ofenforcement in each countryhas made it difficult to stan-

said. “The market is pretty allover the map and [varies]from country to country.”

Compared with the regula-tions in the U.S., which camein relatively quickly, the enact-ment of GDPR spanned eightyears. The long runway seemsto have given companies moretime to enroll in cyber insur-

ance and spread out the in-crease in demands, Mr.Bantick said.

For many companies, GDPRraises awareness but doesn’tchange the fact that manyhave been looking for moreprotection from insurance foryears, said James Auden, a cy-ber analyst at Fitch Ratings.

One of the biggest data-pri-vacy laws in history was sup-posed to kick off a new era ofsurging demand for cyber in-surance in Europe. So far, ithasn’t.

Late last month, the Gen-eral Data Policy Regulation, orGDPR, went into full effect inEurope. The law constitutedthe largest change to the data-protection regulations in theEuropean Union during thepast two decades and one ofthe largest ever globally. Itmandated that all companies,including those that aren’tbased in the EU but have Eu-ropean customers, get clients’consent before collecting andprocessing their personal data.

The move had many insur-ance executives and analystsforecasting a sales spike forcyber insurance. Cyberpoliciesvary in their coverage but of-ten provide compensation forrepair of a network, recoveryof lost data, lost revenue, anddamaged reputation caused bydata breaches and ransom-ware. These products also canhelp companies manage theirrisks as they work to comply

BY MENGQI SUN

Europe’s Privacy Law Fails to Stoke Demand for Cyber InsuranceHeld HostageTop categories of cyber incidentsreported to AIG Europe in 2017

Source: AIG


Ransomware

Data breach by hackers

Other security failure/unauthorized access

Impersonation fraud

Other virus/malware infections

26%

12

11

9

8

BP’s $12 billion Khazzan project in Oman represents a breakthrough, as it relies on rock once considered too dense and deep to frack.

BP

A lack of clarity on what is insurable varies among countries.

AKOSSTILLER/B

LOOMBERGNEWS

pected supply outages ismaking the calculations overhow much OPEC should boostoutput particularly tricky.

Iran poses a further risk toan accord after it staked outits opposition this week to anyincrease. U.S. sanctions againstIran are expected to makemany of its barrels unsalable.

All that could test the abil-ity of Saudi Arabia, fellowmembers of the Organizationof the Petroleum ExportingCountries, Russia and a hand-ful of non-OPEC countries toagree on a number—and thenramp up and sustain thathigher output.

Russian Oil Minister Alexan-der Novak recently put for-ward a proposal for the groupto raise production by as muchas 1.5 million barrels a day.Russian oil companies havebeen lobbying hard to open thetaps, eager to sell more crude.Saudi officials, meanwhile,spent Wednesday trying to sell

to fellow OPEC members amore modest deal to raise out-put by 500,000 barrels a day,according to people familiarwith the matter.

Late Wednesday, Brent, theglobal benchmark, settled 0.5%lower at $74.74 a barrel.

A crucial consideration is“spare” capacity—essentiallyidled fields that can quickly beturned on to produce crude. Atthe end of May, OPEC had about3.42 million barrels a day of it,or roughly 3.5% of global dailydemand. That represents thebulk of the world’s total sparecapacity, and much of that—

more than two million barrels aday—is in Saudi Arabia.

That is a formidable arsenalin the very short term. Furtherout—toward the end of thisyear and into next—it mightnot look as robust. Last week,the International EnergyAgency, a watchdog of big oil-consuming countries, forecastglobal demand will grow by 1.4million barrels a day this yearand next, even considering thepossibility of a trade war. Thelevel of stored oil in developedcountries, meanwhile, is nowbelow average—the first timein years inventories have beenso low.

On the supply side, by theend of next year, the IEA fore-casts the loss of about 1.5 mil-lion barrels of production inVenezuela—where an eco-nomic crisis is curbing out-put—and sanctions-hit Iran.

If OPEC starts to eat into itscushion of spare capacity now,it doesn’t leave much wiggle

room in case of unexpectedoutput outages somewhereelse. Libyan officials, for in-stance, are dealing with rebelattacks on port facilities, whichthey say have reduced by halfthe country’s typical output ofabout one million barrels a day.

“The reduction in spare ca-pacity will trigger more vola-tility in oil prices,” said An-toine Rostand, president ofParis-based oil-data companyKayrros. “Any disruptions suchas Libya will push up spotprices immediately.”

Russia, despite its aggres-sive stance on raising output,could probably boost outputonly by about 155,000 barrels aday by the end of the year, ac-cording to the IEA.

U.S. shale-oil production hasbecome a challenge to OPEC’sinfluence. But recent bottle-necks in big producing regionshave stymied growth somewhat,limiting America’s ability to helpcool prices this time around.

VIENNA—Saudi Arabia andRussia have promised they willlead OPEC and other big oilproducers in a deal this week toboost output and lower prices.

What if it isn’t enough?International oil prices have

eased off 3½-year highs in re-cent weeks, as Riyadh andMoscow publicly trade viewsabout how to loosen up a two-year pact they struck to throt-tle back production. Worriesthat trade tensions could sapeconomic growth—and oil de-mand—have also cooled prices.

Those fears aside, oil de-mand has actually been grow-ing, and a series of big, unex-

BY BENOIT FAUCONAND SUMMER SAID

Getting Oil-Output Pact Is TrickyUncertainty on suppliesfrom Iran, Venezuelacomplicates potentialplan to raise production

1.5MIncrease in barrels a day of oilproduction proposed by Russia

THEWALL STREET JOURNAL. * * * * Thursday, June 21, 2018 | B11

MARKETS

U.S. stocks stabilized a dayafter trade tensions rattledmarkets around the world.

The S&P 500 ended a three-session streak of declines onWednesday, buoyed by gains in

shares ofreal-estatefirms, andthe tech-o r i e n t e d

Nasdaq Composite closed at arecord.

Concerns have intensifiedthis week that the world’s twolargest economies could em-bark on a growth-hinderingtrade war, but many investorsstill expect the two countriesto ultimately dial down theirplans and reach a compromise.Some investors have been en-couraged that large companiescontinue to oppose protection-ist trade policies that couldhurt their global businesses.

“Our base case is this getswalked back…but it’s gettingmore serious now,” said TimCourtney, chief investment of-ficer at Exencial Wealth Advi-sors. “The longer it goes onand the further we go downthis path, the greater thechances are that this could ac-tually stick.”

The S&P 500 added 4.73points, or 0.2%, to 2767.32. TheNasdaq rose 55.93 points, or0.7%, to 7781.51. The DowJones Industrial Averageclosed down 42.41 points, or0.2%, at 24657.80, in a seventhstraight session of losses, itslongest such streak sinceMarch 2017.

Wednesday’s moves cameas analysts weighed news thatGermany’s leading auto mak-ers have thrown their supportbehind the abolition of all im-port tariffs for cars betweenthe European Union and theU.S. The move comes afterPresident Donald Trump lateMonday called for his adminis-

WEDNESDAY’SMARKETS

Leading the Way21st Century Fox, Walgreens Boots Alliance and PayPalwere among the S&P 500’s best performers Wednesday.

Source: SIX THEWALL STREET JOURNAL.

PayPal

WalgreensBootsAlliance

21stCenturyFox

9

0

1

2

3

4

5

6

7

8

%

9:30 10 11 Noon 1 2 3 4

sive approach should lead to asmaller difference betweentwo- and 10-year Treasuryyields, a phenomenon knownas a flatter yield curve, saidThomas di Galoma, managingdirector and head of Treasurytrading at Seaport Global Hold-ings. The yield curve Tuesdayreached its flattest levels sinceAugust 2007.

“If anything, multiple rateincreases will produce a flatteryield curve,” Mr. di Galomasaid.

Investors and economistssee the measure as a guide tothe economy’s direction, withsteeper yield curves signalingstronger growth. Two-yearyields have risen above 10-yearyields in each U.S. recessionsince at least 1975, a phenome-non called an inverted yieldcurve. The yield curve steep-ened modestly Wednesday assome investors sold longer-term U.S. government bonds tomake room for a wave of cor-porate-bond sales this week,said Mr. di Galoma.

Fed-funds futures earlyWednesday indicated that thechances the Fed will raise in-terest rates four or more timesthis year were at 51%, downfrom 55% Monday, according todata from CME Group.

U.S. government-bondprices declined Wednesday af-ter Federal Reserve ChairmanJerome Powell said falling un-employment and faster infla-tion support additional inter-est-rate increases.

The yield onthe benchmark10-year Treasurynote rose to2.928% from

2.893% on Tuesday, posting itsbiggest one-day climb in twoweeks. The yield on the two-year Treasury note rose to2.562% from 2.545%. Yieldsrise as prices fall.

Yields rose after Mr. Powell,speaking Wednesday at a con-ference of global central-bankofficials in Portugal, said ro-bust U.S. economic growth, lowunemployment and inflationnear the Fed’s target make astrong case for continued in-terest-rate increases.

The Fed raised rates inMarch and June, and at itsmeeting last week, officialspenciled in two more increasesfor the rest of 2018, or a totalfour for the year. Their fore-casts at the December andMarch meetings were for three.

Over time, the Fed’s aggres-

BY DANIEL KRUGER

Powell’s Rate RemarksDepress Bond Prices

CREDITMARKETS

announcement of U.S. steeland aluminum tariffs in March.

The yuan is stronger thisyear against the euro, yen,British pound, Australian dol-lar and Korean won. Thoughthe dollar exchange rate ismost commonly referenced,those currencies make uparound 46% of the basket usedto calculate the index, versusthe greenback’s 22% weight-ing.

The CFETS index hit a two-

year high in May and was afraction below that level onJune 15, the latest weekly fixfor the trade-weighted mea-sure.

The lack of any broad de-preciation in the yuan suggeststhat China isn’t attempting togain an unfair advantage overits trading partners in the for-eign-exchange market.

Recall what happened thelast time China cut the yuan’svalue: A rapid weakening in

2015 sparked capital outflowsas investors attempted to re-move money from the countryand avoid further depreciation.The government responded bycrimping the ability to movemoney out of China.

Devaluing again could dam-age Beijing’s long-term goal toopen its financial markets andpromote the yuan as an inter-national currency, according toBilal Hafeez, a strategist at No-mura.

The prospect that Chinawould use currency devalua-tion to retaliate against anyescalations of U.S. tariffsloomed in the aftermath of asharp drop in the country’sstock markets.

But one gauge of the Chi-nese currency’s strength indi-cates no efforts to devalue theyuan this year.

On Wednesday, the centralbank set its reference rate forthe yuan at 6.4586 to the dol-lar, 0.5% weaker than Tues-day’s rate and the lowest sinceJanuary.

“One would imagine thatChina will be thinking aboutcurrency devaluation again,”said Rabobank senior Asia-Pa-cific strategist Michael Everyin a research note. Devaluationis one of Beijing’s most power-ful economic tools.

China imports far less fromthe U.S. than it exports to itand could use depreciation asan alternative way to retaliateagainst U.S. tariff increases.

Though the U.S. dollar hasrisen 2% against the yuan thisyear, the trade-weighted mea-sure of the yuan published bythe People’s Bank of China, theCFETS index, has risen sincetrade tremors began with the

BY MIKE BIRD

Yuan Signals No Devaluation by Beijing

in the West, and Chinese com-panies have the ability to col-lect far more information onmarriage, contact book details,and even whether customerscharge their phones. This givesChinese companies access to an

developers, such as push notifi-cations, text message identityverification and user analytics.

Jiguang amasses datathrough app developers, whichhave to install software allow-ing the firm to collect userprofiles and user habits to re-ceive software services. Thecompany can then mine thecollected data to help app de-velopers and other firms con-duct user analytics, targetmarketing and provide tailoredindustry insights.

The company’s investors in-clude IDG Capital Partnersand a unit of Fidelity Invest-ments, the latter of whichowned shares valued at about£20.5 million ($27 million) asof March 31, according to itsannual report. One of its maincompetitors is TalkingData, acompany backed by social-me-dia giant Tencent Holdings Ltd.

Jiguang declined to com-ment on its business model orany listing plans.

Consumers in China havefewer privacy protections than

unprecedented amount of data.Some 98% of China’s 772 mil-lion internet users use smart-phones to do everything fromshop online to watch movies.

Founded in 2011, Jiguangcurrently works with 300,000app developers and helps ser-vice 700,000 apps, according tothe firm’s website. Its custom-ers include Tencent’s popularmobile game “Honor of Kings,”Chinese internet unicorn BeijingBytedance Technology Co.’snews aggregation app JinriToutiao and other apps run bylarge Chinese companies, thewebsite showed.

Jiguang’s plans to come tomarket follow months of pub-lic debate in the U.S. about pri-vacy and the proper use ofcustomer data. Tech giantssuch as Facebook.com Inc. andwireless carriers including Ve-rizon Communications havecome under fire this year fornot adequately protecting theprivacy of user data.

—Chunying Zhangcontributed to this article.

Americans are becoming in-creasingly suspicious of com-panies that collect data on in-dividuals and sell it to thirdparties. They could soon havethe opportunity to invest in aChinese big-data company thatdoes the same.

Shenzhen-based data-aggre-gation company Jiguang isplanning an initial public offer-ing in New York in the secondhalf of this year, according topeople familiar with the mat-ter. The company wants toraise $300 million, whichcould value it at between $1.5billion and $2 billion, the peo-ple said. Global investmentbanks have been appointed tolead the IPO, they added.

Jiguang, whose name trans-lates to “aurora,” is legallyknown as Shenzhen HexunHuagu IT Co. and domiciled inthe Cayman Islands. The com-pany’s business lines includeproviding services to mobile app

BY LIZA LINAND JULIE STEINBERG

Chinese Big-Data Firm Plans U.S. IPOSmartphone RelianceMost Chinese internet users surfvia smartphone.


Source: China Internet Network InformationCenter

800

0

200

400

600

million

2013 ’14 ’15 ’16 ’17

Total internetusers in China

Use phonesto go online

Chinese smartphone makerXiaomi Corp. is planning toraise up to $6 billion in its ini-tial public offering next month,lowering its sights dramati-cally after plans for a dual of-

fering on mainland China werescuttled, according to peoplefamiliar with the matter.

Xiaomi had initially plannedto raise $10 billion in its IPO,with half coming from a main-land listing and the other halffrom Hong Kong, The WallStreet Journal reported earlier.But the company this week saidit would postpone raisingmoney on the mainland because

of uncertainty about China’spending rules for foreign-domi-ciled companies to list.

The handset maker, which isincorporated in the Cayman Is-lands despite doing the bulk ofits business in China, plans togo forward with its Hong Konglisting, offering 2.18 billionshares to investors at a pricerange of HK$17 to HK$22apiece, the people said.

Xiaomi’s valuation has yetto be determined, people fa-miliar with the matter said,though recent estimates haveplaced it between $55 billionand $70 billion.

Xiaomi is likely to float a10% stake in the company, thepeople said, and has lined upsome cornerstone investors inthe IPO, including state-owned

telecommunications companyChina Mobile Ltd. and U.S. chipgiant Qualcomm Inc.

A representative for Xiaomididn’t return a request forcomment.

The cornerstone investorsare expected to account for12% to 13% of the deal, said aperson familiar with the offer-ing. Such investors agree notto sell their stock for sixmonths after the IPO and canserve to reassure other pro-spective investors.

Xiaomi is one of Qual-comm’s major customers inChina, and the U.S.company’sChinese venture-capital armowns a stake in Xiaomi. ChinaMobile, one of the nation’slargest carriers, has launchedseveral handsets with Xiaomi

domestically in the past. Bothcompanies are buying $100million worth of Xiaomishares, out of the more than$700 million being purchasedby cornerstone investors, ac-cording to a document re-viewed by the Journal.

The terms of the deal couldstill change, people familiarwith the matter cautioned. Xi-aomi’s IPO is seen as a bell-wether for other Chinese techcompanies looking to list, andcould shut down the marketfor such listings if it doesn’t gowell, market participants say.Plans are on track to speakwith institutional investorsThursday, the people said.

—Stella Yifan Xiein Hong Kong


China’s Xiaomi Reduces Goal for IPO

By Julie Steinbergin Hong Kong and

Liza Lin in Shanghai

The yuan has risen this year against the euro, yen, pound, Australian dollar and Korean won.

IMAGINECHINA/ASSOCIAT

EDPR

ESS

tration to identify $200 billionin Chinese goods for a freshround of tariffs.

Despite recent trade fearsand anxiety about higher inter-est rates, some investors thinksteady earnings growth willboost stocks.

“I’m not too worried,” saidChris Bertelsen, chief invest-ment officer of Aviance CapitalManagement. “If it turns outto be the great trade wars ofthe 1930s, I will be wrong, butthat’s a position we’re willingto take.”

The yield on the 10-yearTreasury note climbed to2.928% from 2.893%. Yieldsrise as prices fall. Federal Re-serve Chairman Jerome Powellsaid at the European CentralBank’s annual policy confer-ence Wednesday that sturdyU.S. economic growth has builta strong case for continuing togradually lift interest rates.

Walgreens Boots Alliancewas among the S&P 500’s bestperformers, adding $3.39, or5.2%, to $68, following newsthat it would be added to theDow Jones Industrial Average,replacing General Electric.

21st Century Fox rose 3.21,or 7.2%, to 47.50, after Fox andWalt Disney announced a newmerger agreement, increasingthe value of the deal and add-ing a cash component. Fox andWall Street Journal ownerNews Corp share commonownership.

PayPal Holdings alsoclimbed after the companyagreed to acquire financial-technology company Hyper-wallet Systems Inc. for about$400 million.

Elsewhere, the Stoxx Europe600 added 0.3% to snap athree-session losing streak,with bank shares among thebest performers.

Early Thursday, Japan’s Nik-kei was down 0.1%, HongKong’s Hang Seng Index wasup 0.2% and the ShanghaiComposite was down 0.2%.

BY RIVA GOLDAND AMRITH RAMKUMAR

S&P GainsAs NasdaqHits Record

A Huawei Technologies display for a handset and camera in Shenzhen. China provides less privacy protection than in the West.

GIULIAMARC

HI/BLOOMBE

RGNEW

S


2008 financial crisis, for ahealthier Goldman SachsGroup Inc., while Alcoa wasreplaced with then-athletic ap-parel powerhouse Nike Inc.

The addition of WalgreensBoots Alliance Inc., however,has puzzled some investors.The large retailer is part of

the consumer-staples sector ofthe stock market, which hasstruggled under the shadow ofAmazon.com Inc.’s e-com-merce prowess.

“When you think about thedirection the economy is goingin, and even the names thatdominate the market today,

you’re not looking at a drug-store retailer who very muchitself could come under threatfrom Amazon,” said MichaelO’Rourke, chief market strate-gist at JonesTrading. “If youwant to be representative ofthe economy and where theeconomy is going, you gotta

add them,” referring to Ama-zon. But its omission reflectsthe constraints of the Dow’smethodology.

Since the index’s creationby Charles Dow, founding edi-tor of the Journal, the averagehas been price weighted,meaning the bigger the stock

MARKETS

price, the larger the sway for aparticular component, andvice versa. So Boeing Co.,which is trading at $342.69 ashare, carries about 27 timesmore influence than GE at$12.88 a share. That is differ-ent from indexes such as theS&P 500, which are weightedby components’ market capi-talizations.

Amazon’s stock price, cur-rently about $1,750 a share,would cause large day-to-daymoves in the Dow. If the com-pany were in the Dow onWednesday, its less than 1%rise would have contributedroughly 105 points to the Dow,which fell 42 points during thesession.

With Walgreens, consumer-staples stocks will have fourrepresentatives in the Dow,the same number of con-sumer-discretionary stocks, fi-nancial firms, health-carecompanies and industrial com-panies once GE is removednext week, a more equal foot-ing across sector lines than inthe S&P 500, which gives itsheaviest weightings to indus-trial, tech and financial com-panies.

The removal of troubledbusinesses appears to havehelped keep the index movinghigher. The indexing commit-tee has made changes to theDow over eight separate yearssince 1998, and the indexended up posting positive re-turns in six of those years.

Going back to 1972, stocksthat have been removed fromthe Dow industrials havetended to outperform it overtime, with companies outpac-ing the blue-chip index by anaverage of 9.2% over the fol-lowing 12 months, accordingto an analysis by Ned DavisResearch.

To some investors and ana-lysts, the trend suggests thatthe index committee behindthe Dow industrials has oftenmistimed its decisions, remov-ing a company before it hasfully had a chance to make aturnaround.

The Dow Jones IndustrialAverage has ejected numerousblue-chip industrial companiesover the past decade, includ-ing miner Alcoa Inc., Westing-house Electric Corp. and thisweek General Electric Co., inan effort to adapt a 19th-cen-tury index to a 21st-centuryeconomy.

That path has become in-creasingly fraught, in part be-cause of the limitations of howthe index is constructed.

Critics also contend the in-dex’s selection committee hasbeen removing troubled com-panies to avoid underminingthe average’s long-term per-formance.

“Honestly, I didn’t like themove,” Robert Pavlik, seniorportfolio manager and chiefinvestment strategist at Slat-eStone Wealth, said of the de-cision to drop GE. “It’s sup-posed to be an industrialaverage that is reflective ofthe overall economy of theUnited States, and if that’s thecase, then why replace it witha Walgreens?”

Component stocks of theDow are selected by the indexcommittee, a group that in-cludes editors of The WallStreet Journal, which is pub-lished by Dow Jones & Co., apart of News Corp.

Previous component swapsin the index tended to high-light a particular companythat had disrupted entire in-dustries and reshaped con-sumer behavior, such asVisa Inc. and Microsoft Corp.,or sought to maintain a bal-ance with a like-for-like re-placement.

In 2015, AT&T Inc. was re-placed with Apple Inc., whichhad upended the technologyand communications indus-tries with its iPhone and othermobile devices. Two years be-fore that, the index committeeremoved Bank of AmericaCorp., which was still strug-gling under the weight of the

BY MICHAEL WURSTHORNAND AKANE OTANI

In GE Ouster, Dow’s Limits Stand Out

Source: FactSet THEWALL STREET JOURNAL.

Performance from removalin Dow to one year later

2017 2018

–50

–25

0

25%

Walgreens Boots Alliance

Dow components’ market value

WalgreensBoots Alliance

$67.4B

Johnson& Johnson$327.3B

Visa(Class A)$303.2B

Intel$249.2B

Walmart$246.7B

UnitedHealthGroup$242.9B

Chevron$239.4B

Home Depot$229.6B

Pfizer$213.3B

CiscoSystems$205.7B

Boeing$199.6B

VerizonCommun-ications$198.7B

Procter& Gamble$190.7B

Coca-Cola$184.1B

Merck$164.9B

WaltDisney$159.3B

IBM$130.9B

McDonald’s$127.6B

Nike(Class B)$120.4B

3M$117.6B

United Technologies $100.3B

Caterpillar$85.6B Travelers

$33.8B

Apple$916.7 billion

JPMorganChase$366.1B

ExxonMobil$340.6B

Microsoft$782.7B

GoldmanSachs$86.1B

AmericanExpress$83.0B

GeneralElectric

$111.9B

DowDuPont$152.9B

Alcoa

Hewlett-Packard

Eastman Kodak

Bank of America

Kraft Foods

AT&T

Sears Roebuck

Citigroup

AT&T Corp.

Chevron

International Paper

Union Carbide

Altria

AIG

General Motors

Honeywell Intl.

Goodyear Tire & Rubber

91.0%

71.9

27.6

17.9

16.9

14.8

5.5

5.2

–1.9

–10.1

–11.3

–29.5

–30.6

–37.1

–39.5

–46.0

–55.2

Dow IndustrialsShare and index performance

General Electric

Oracle NeedsTo Open UpAbout Cloud

The good news is that Or-acle’s cloud business contin-ues to grow. The bad news isthat investors will have totake the company’s word forit.

The software giant saidlate Tuesday that revenuefrom its cloud-services busi-nesses jumped 25% year overyear for its fiscal fourthquarter ended May 31, beat-ing the company’s guidance.Overall revenue for the quar-ter rose a much more mod-est 3.3%, though that markedOracle’s best annual growthrate in seven years.

The problem is that Ora-cle’s main growth engine willbecome harder to analyze.Oracle changed its reportingstructure so that resultsfrom the cloud segment arenow folded into the largerunit that includes software-license updates and supportfor Oracle’s legacy softwarebusiness. The company saysthe change is necessitated byits new practice of sellingsoftware licenses that coverboth traditional softwareand cloud offerings.

Licensing appeals to Ora-cle’s customers, but inves-tors might be less pleased bythe reclassification. Ama-zon.com and Microsoft havetaken to breaking out moredetails about their cloud ser-vices and have been richlyrewarded by investors for it.

Oracle, meanwhile, is nowthe worst-performing stockin the S&P 500’s Softwareand Services Group for theyear. That was exacerbatedby a 7.5% drop Wednesday inresponse to a disappointingoutlook. The retreat leavesOracle trading at just 13times forward earnings—adiscount to most softwarepeers. If the company wantsdue credit for its progress, itshould shine more light onits cloud. —Dan Gallagher

Fox and Wall Street Journalparent News Corp sharecommon ownership.

Disney believes it canboost the value of Fox’s as-sets. Particularly enticing toDisney are some long-lostMarvel properties. Back inthe 1990s when Marvel Com-

There are a lot of peoplewho would like to buy ahouse, and plenty of themcan afford to. Finding ahouse to buy? That is an-other issue.

Home sales have been lessthan brisk this year. OnWednesday, the National As-sociation of Realtors re-ported that 5.43 million ex-isting, or previously owned,homes were sold in May, at aseasonally adjusted, annualrate, compared with 5.6 mil-lion a year earlier. In 2018 todate, sales are 2% below lastyear’s pace. That is a some-what surprising developmentconsidering the strong jobsmarket that is driving uphousehold incomes.

There are a number offactors that might be weigh-ing against home sales. Oneis that borrowing costs arehigher. Another is that thetax plan’s capping of stateand local tax deductions andlimiting mortgage interestdeductions reduced the in-centives for buying a home.

ing starts last month—upfrom 1.12 million a year ear-lier and the most since July2007. But that was still be-low the levels that prevailedeven in the 1970s, when theU.S. population was muchlower. Bank of America Mer-rill Lynch economists notethat growth in U.S. housingstock has been persistentlybelow working-age popula-tion growth throughout theyears since the recession.

Moreover, big home build-ers don’t have much of anincentive to seriously stepup the pace of construction.They face less competitionthan they did in the past—many smaller operators werewiped out in the housingbust. And rising material andlabor costs are a further dis-incentive for boosting pro-duction.

That makes it unlikely thehousing supply problems aregoing to be solved soon, andthat housing prices will keepheading higher.

—Justin Lahart

But if demand were lower,housing prices would be fall-ing and inventory would berising. Neither is happening.The median sales price foran existing home in May was$264,800 versus $252,500 ayear earlier. At May’s less-than-stellar sales pace, theinventory of unsold singlefamily homes would be ex-hausted in 4.1 months. In the

1990s, a typical decade forthe housing market, therewas a 5.6-month supply ofunsold homes, on average.

A lot of the supply issuecomes down to how fewhomes are being built evennow, nine years after the re-cession ended. On Tuesday,the Commerce Departmentreported that there were anannualized 1.35 million hous-

Slow StarterNumber of new-home constructions begun,at a seasonally adjusted, annual rate

Source: Commerce Department THEWALL STREET JOURNAL.

2.5

0

0.5

1.0

1.5

2.0

million

1960 ’70 ’80 ’90 2000 ’10

Home Prices Have Room to RiseThis hedge fund can’t es-

cape the Dow’s doghouse.Word that General Elec-

tric will drop out of the ven-erable index adds insult to in-jury for its longest-tenuredconstituent. The shares aredown about 28% so far thisyear. That is worse than anyother company in the DowJones Industrial Average, andGE also had a nightmarish2017.

Activist hedge fund TrianFund Management, whichbought GE shares more thantwo years ago and has 9.2%of its portfolio in the stock,according to FactSet, can’t behappy.

Making it worse is thelikelihood that Trian will stillown the worst-performingDow stock even after GE ex-its.

Through Tuesday, the sec-ond-worst performer wasconsumer-products giantProcter & Gamble, whichmakes up an even heftier29% of Trian’s portfolio.

OVERHEARD

Walt Disney Has Good Reasons to Remain in Fox ChaseWalt Disney Co.’s block-

buster track record, alongwith some unique quirks ofcomic-book history, explainwhy it can top Comcast’s bidfor 21st Century Fox’s en-tertainment assets.

Disney has released thetop-grossing film world-widein six of the past sevenyears, according to Box Of-fice Mojo. This included twoStar Wars movies and threeMarvel movies, highlightingthe company’s ability to takeover iconic properties andjuice them up further.

This is the backdrop toDisney’s sweetened offer forthe Fox assets, including itsfilm and television studios.The two companies saidWednesday they agreed to anew deal worth more than$70 billion in cash and stock.

ics was in financial trouble,it sold the film rights tosome of its most popularcharacters. Sony snapped upthe rights to Spider-Man,and Fox nabbed the X-Men,including Deadpool, plus theFantastic Four.

There is little doubt thatthese heroes would be earn-ing more under Disney man-agement. Disney’s last fivefilms based on Marvel char-acters grossed $5.7 billionworld-wide, according to BoxOffice Mojo. Fox’s, in con-trast, came to $2.7 billion.This is despite the fact thatDisney has reached prettyfar down into Marvel’s li-brary, making smash hits outof previously obscure comic-book titles like “Guardians ofthe Galaxy.”

Perhaps the X-Men brand

is just getting tired. Therehave been no fewer than sixX-Men movies, plus severalspinoff films. But Disney hasshown it can revitalize seem-ingly exhausted comic-bookfranchises. In 2015 it strucka deal with Sony to take cre-ative control, though not fullownership, of Spider-Manmovies. Disney’s rebootedweb-slinger lifted the haulfor “Spider-Man: Homecom-ing” to $880 million lastyear, compared with $709million for Sony’s Spider-Man film three years earlier.

One risk is that comic-book movies will fall out offavor. But the Fox assets upfor sale include decades offilms and television shows—such as “Avatar,” “Titanic”and “The Simpsons”—thatDisney can mine for reboots,

theme-park rides and so on.Comcast’s main advantage

is its vertical distribution ca-pabilities. But the logic of ahorizontal Disney-Fox combi-nation may top this. Afterall, the more upstream con-tent that Disney controls, thebetter position it is in tolaunch its own direct-to-con-sumer streaming service.

Even if that fails, control-ling the most valuable enter-tainment franchises wouldput Disney in a better posi-tion to negotiate with down-stream distributors, whetherstreaming platforms or tra-ditional cable providers like,well, Comcast.

Investors and moviegoersshould be excited to seeMarvel’s heroes reunited inDisney’s Magic Kingdom.

—Aaron Back

Disney's AvengersGlobal box-office receipts forDisney's five latest Marvel films:

‘Avengers:Infinity War’

‘Black Panther’

‘Guardians of theGalaxy Vol. 2’

‘Thor: Ragnarok’

‘Doctor Strange’

$2 billion

1.35

0.86

0.85

0.68


Source: BoxOffice Mojo

HEARD ON THE STREETEmail: [email protected] FINANCIAL ANALYSIS & COMMENTARY WSJ.com/Heard

S4 | Thursday, June 21, 2018 THEWALL STREET JOURNAL.

required investment advisors to act as fidu-ciaries when dealing with retirement invest-ments. But a court ruling in March iced therule. Meanwhile, the Securities and ExchangeCommission is working on a similar proposal.

So where does that leave investors?You’re mostly on your own to discern the

great, the mediocre, and the ugly of theinvestment advisory world (though we offersome help through the Barron’s rankings offinancial advisors). “If regulators and Con-gress aren’t going to do anything, investorshave to take things into their own hands,”says Harold Evensky, president of Evensky& Katz in Coral Gables, Fla., and a profes-sor of finance at Texas Tech University.

The first step is to understand that thereis a divide in the investment-advisory in-dustry’s standard of service. Some advisorsadhere to a fiduciary standard, and others toa suitability standard.

The fiduciary standard requires an advi-sor to put clients’ interests first, generallymeaning to disclose and avoid any conflictsof interest. Under a suitability standard,advisors have to believe that an investmentis a perfectly fine choice for a client, but

don’t have to disclose conflicts or that thereare cheaper, more tax-efficient or otherwisemore competitive products available. Bro-kers and insurance agents are supposed toadhere to this standard.

For example, under the suitability stan-dard, an advisor with an in-house mutualfund can recommend it to a client on thebasis that it is a decent fund, regardless ofwhether there is a similar, less expensiveoption run by an outside manager. A fiducia-ry would be obliged to disclose the conflictof interest, and the cheaper alternative.

“With the fiduciary standard, you have toconsider the client’s bigger picture,” saysJamie Hopkins, retirement income programco-director at the American College of Fi-nancial Services. “With the suitability stan-dard, you can consider whether a product issuitable as a single transaction.”

While the fiduciary standard is the highestquality of service, its definition can varyamong investment professionals. Yet thetitles you see on websites and marketingmaterials tend to look very similar.

“There are so many people that callthemselves wealth advisors that I do think

it’s confusing for consumers,” says MartyBicknell, CEO of Mariner Wealth Advisors,in Leawood, Kan. So it’s important to under-stand the standards behind an advisor’s title.

The only advisors legally held to a fiducia-ry standard are registered investment advi-sors, or RIAs. Often referred to simply as“independent” advisors, these are practicesmade up of an individual or a group of advi-sors. Practices with more than $110 millionunder management must register with theSEC. Smaller practices must register withtheir state. Consequences for improprietycan range from a censure to crippling fines.

But the RIA fiduciary standard applies onlyto investment management, not to broaderfinancial planning. To compensate, some RIAfirms go to lengths to assure clients thatthey are broadly applying their fiduciaryobligations. For example, Evensky & Katzhas collaborated with about a dozen otherRIA firms to create a Fiduciary Oath, whichit signs for its clients, promising loyalty,good faith, prudence, and transparency. “Askyour advisor to sign one. If they don’t, it’s ahuge red flag,” Evensky says. The National

Association of Personal Financial Advisors,or Napfa, also requires members to take,and renew, a fiduciary oath.

Certified Financial Planners, or CFPs,are also under obligation to be fiduciaries—not by the SEC, but by the CFP Board ofStandards, which issues the CFP designa-tion to those who complete coursework, passan exam, and complete ongoing educationalrequirements.

The CFP’s fiduciary standard is broaderthan the RIA’s, applying to all aspects of finan-cial planning. Enforcement, however, doesn’thave the legal bite of the SEC’s. The CFPBoard can revoke the CFP designation—cer-tainly a major bruise for a career advisor, butnot as dire as paying reparations and fines.

Yet other financial advisors behave asfiduciaries because they feel ethically moti-vated to do so, or understand that it givesthem more credibility. Indeed, many firmsthat geared up to adhere to the now-voidnew rules are acting as fiduciaries simplybecause the industry is heading that way.

So why would any investor want to hire anonfiduciary advisor? First, there’s the issueof fees. Registered investment advisors andCFPs typically charge a percentage of as-sets, partly to remove the motivation to pushone product over another, and to encouragelong-term relationships with clients.

This arrangement can make sense for peo-ple with substantial investible assets, ratherthan those with smaller portfolios, Hopkinssays. Folks with more-modest portfoliosmight handle their own affairs, and simplyneed a commission-based professional tofacilitate transactions, he says.

Or, consider a family with $1 million in401(k) assets but fairly straightforwardfinancial needs. At the standard fee of 1%of assets, they could find themselves paying$10,000 a year for very little guidance aftertheir financial plan is in place. To accommo-date such situations, some advisors chargean hourly rate or a flat fee.

High-net-wealth clients can be attracted tothe big financial firms for many reasons, in-cluding access to more investment options andthe comfort of working with a huge institutionand the controls that come with it, such as avast compliance department. In the unlikelyevent that something goes wrong, a familywith a $50 million fortune might like to knowthere’s an institution with deep pockets to beheld responsible.

Which leads to the question of whomyou trust. At the root of an advisor-clientrelationship is a strong rapport. “There aregreat folks who work on the broker-dealerside who are terrific advisors,” says GrantRawdin, founder and CEO of Wescott Finan-cial Advisory Group, a Philadelphia-basedregistered investment advisory.

And it’s important to understand that anadvisor’s claim of adherence to a fiduciarystandard doesn’t amount to a guarantee. Nomatter what standard an advisor is workingunder, investors must be vigilant and askprobing questions.

“The best way investors can protect them-selves is to understand the advice they’regetting,” says Allan Roth, founder of WealthLogic, a registered investment advisory inColorado Springs, Colo. “Make sure it’s sim-ple, because in almost every case, a complexinvestment is a bad investment.”

BARRON’S • SPECIAL SUPPLEMENT

Marty Bicknell, CEOof Mariner WealthManagement, is a bigbeliever in the fiduciarystandard.

HOWTOREUSE THIS CONTENTTo repurpose this content digitally or in print,

please contact Dow Jones Reprintsand Licensing. Telephone:1-800-843-0008

E-mail: [email protected]

Jason Dailey

By Steve Garmhausen

Stocks are up modestly this year, but,compared with last year’s placidmarket, these have been hard-wongains. It’s during volatile markets,

when investors may be tempted to cut andrun, that financial advisors can really earntheir fees.

So what are they telling their clients now?We asked three Barron’s-ranked advisorsto each create a portfolio for one of threehypothetical investors: The first investor is40 years old and has half a million dollars toput to work; the second is 50 and has $3 mil-lion; and the third, age 60, has $10 million.

Each of the advisors expects the nine-yearbull market to continue, even if a correctionis sandwiched within the periods of growth.Thus, each recommends an equity exposureof at least 50%. Wealthier investors, withportfolios of at least $1 million, can accessprivate equity and other so-called alternativeinvestments.

Alternatives, a catch-all name that canapply to a broad range of investments, fromplain-vanilla real estate investment trusts toexotic hedge fund strategies, can reduce aportfolio’s volatility by adding diversification.Those that require long holding periods mayalso provide extra return in exchange forlocking up your money for months or years.

Client 1: Age 40, $500,000 to invest, and anaggressive posture to build wealth for acushy retirement, travel, and other goalsAdvisor: Jeffrey Camarda, Camarda WealthAdvisory Group, Jacksonville, Fla.

Younger investors can afford to beaggressive and patient: If they’re 20-plusyears from retirement, they can have time torecover from big, short-term losses.

Aggressive may be an understatement.Camarda has his youngish client puttingvirtually his entire retirement portfolio instocks—particularly value stocks, which tendto do better late in the market cycle. Andhe’s heavily weighted to foreign shares, with42% of his equity holdings in developed coun-

tries abroad, and 20% in emerging markets.“While the U.S. remains a critical compo-

nent for asset class selection, we believe muchbetter values can be found overseas,” he says.

Camarda is concerned about the effect thatrising interest rates will have on bond values:With a more conservative client, he mightuse inflation-protected bonds or floating-ratebank loan funds to manage that risk.

For his young, aggressive client, he’savoiding bonds altogether, though he’spositioned to reap dividend income from, forexample, his large-cap value holdings.

Camarda believes that actively pickingstocks—rather than investing in passiveindex funds—has the potential to driveconsiderable outperformance in the currentvolatile climate. The thinking is that as theperformance of different sectors and compa-nies starts to diverge, an adept stockpickercan choose the winners and avoid the losers.

Client 2: Age 50, $3 million to invest, amoderate risk appetite and goals such as acomfortable retirement and leaving a mean-ingful inheritanceAdvisor: Andrew Burish, UBS, Madison,Wis.

For comfortable but not especially richclients, advisors often try to strike a balancebetween risk and safety. That’s what Burishhas done for his 50-year-old, $3 million client.

On the stock side, he has a 45% allocationto U.S. companies. But he expects developedand emerging markets to do more of theheavy lifting in terms of growth: 55% of hisstockholdings are in those regions.

“The U.S. is the best market in the world,but not the only market in the world,”Burish says. He’s aiming for an 8% to 10%annual return from stocks over the next fewyears, with an assist from Europe and Asia.

Developed foreign regions could evendeliver double-digit returns, outperformingU.S. markets, as yawning budget deficitsweaken the greenback and inflation picksup, he says.

He points to the S&P 500’s sub-2% divi-dend yield, versus 4% in Europe. Europeanstocks trade at a cheap 12 to 13 times nextyear’s earnings, he says. U.S. stocks, by con-trast, are selling just a little under 17 timesearnings estimates.

The caveat: Stocks should be of the blue-chip, dividend-paying value variety. “That’show the client sleeps at night,” says Burish.

In the bond arena, he is big on govern-ment issues. Half of his bond portfolio is in

short-term U.S. Treasuries. “The two-yearTreasury bond gives you 2.5% and yourmoney back,” he explains. High-qualityforeign bonds help mitigate risk and aredelivering good yields, he adds.

Burish is also a fan of private equityright now, using it for the lion’s share of hisalternative-investments allocation. Some pri-vate-equity real estate trusts can potentiallydeliver 9% or 10% returns, and they’re anattractive hedge against inflation, he says.

Client 3: Age 60, $10 million to invest, amoderate risk appetite and a desire toleave multigenerational wealthAdvisor: Richard Szelc, Neuberger Berman,Dallas.

The very wealthy often have simplemarching orders for their advisors: I’malready rich, I don’t want to have to get richagain. With this year’s up-and-down market,Szelc’s portfolio aims for a 50/50 balance ofoffense and defense.

U.S. stocks and master limited partner-ships—high-yielding energy infrastructureplays—make up most of the offense. Small-caps are a smart play right now, Szelc be-lieves, because they tend to be domesticallyfocused, which makes them less vulnerableto tariffs and means they are benefitingdisproportionately from tax reform. MLPs,meanwhile, have generally underperformeddespite rising oil prices—the Alerian MLPIndex’s yield is up to nearly 8%.

Meanwhile, bonds make up 40% of theportfolio. Bonds are tricky now due to therising rate environment: A 1% increasein rates, for example, would knock a fullpercentage point off the value of a bond thatmatures a year from now. The further out thematurity, the more vulnerable the bond is.

“In the fixed-income world, you reallyhave to manage to credit quality and dura-tion,” Szelc says. He’s keeping duration asclose to three years as possible, and general-ly holds bonds to maturity so that his clientsrecoup their capital.

Szelc’s favored alternative investment is along-short strategy, which has the potentialto make money whether stocks rise or fall.A pinch of commodities helps to mitigateinflation risk.

In these uncertain times, he wants a gener-ic $10 million client to have 3% of the portfolioin money-market funds. “We’re not big fans ofholding cash,” Szelc says. “But it’s comfortingfor someone with $10 million to know theyhave $300,000 in cash.” Yes it is.

How to Invest as Volatility ReturnsHere’s where top advisors are putting their clients’ money now

AssetAllocationWe asked advisors how they would invest differentsums for clients at different life stages.

Andrew BurishUBSMadison, Wis.$3 million portfolio50-year-old client

Domestic

27%DevelopedForeign

24%

EmergingMarkets 9%

BONDS

20%ALTERNATIVES

20%

STOCKS60%

Jeffrey CamardaCamarda Wealth Advisory GroupJacksonville, Fla.$500,000 portfolio40-year-old client

StocksBondsAlternativesCash

CASH

3%

DevelopedForeign

42%

EmergingMarkets 20%

STOCKS97%

Domestic

35%

Richard SzelcNeuberger BermanDallas, Texas$10 million portfolio60-year-old client

STOCKS50%

Domestic

40%

DevelopedForeign 7%

BONDS

40%ALTER-

NATIVES

7%

CASH

3%

EmergingMarkets3%

THEWALL STREET JOURNAL. Thursday, June 21, 2018 | S5


Todd Spoth

By Carol J. Clouse

Private equity may never be the assetclass of the masses, but it no longerbelongs solely to the pension funds andwealthy individuals of the world, either.

With growing numbers of individual inves-tors enamored with the private market andPE firms looking to expand their fundingbase, a symbiotic demand has developed. Andfinancial-services firms—advisors included—are scrambling to play matchmaker by cre-ating online platforms, funding vehicles, andother strategies to make this pairing possible.

“We saw this democratization happeningfive or six years ago, and we believe it’s infull swing now,” says Lawrence Calcano, CEOof financial technology firm iCapital Network.

The New York–based company aims to openup the world of alternative investments byproviding high-net-worth investors and theiradvisors a platform to invest online with as lit-tle as $100,000. iCapital launched the platformfive years ago and now manages $5.3 billion inassets—$3.7 billion in private equity and $1.6in hedge funds—via 115 different vehicles.

High minimum investments—typically in themillions or tens of millions—and a lack of li-quidity have made private equity the territoryof institutional investors and ultrawealthy in-dividuals, keeping it out of reach for everyoneelse, including folks considered quite well offby any other measure.

The asset class’ appeal has always had alot to do with the returns, but in recent yearsdemand from high-net-worth investors hasshot up, in part because the U.S. public equitymarket has grown thinner in terms of thenumber of companies.

“The pool of stocks to invest in is shrink-ing,” says Frank Marzano, managing principal

at GM Advisory Group in Melville, N.Y. “Com-panies are getting taken out through mergers,or they go private. And for private companiesthat want to go public, there’s been a longergestation period. So investors aren’t seeing ahuge steady stream of new public companies.”

Indeed, the number of listed companiesin the U.S. market fell from 7,322 in 1996to 3,671 in 2016, according to research byCredit Suisse. As for initial public offerings,there were 706 in 1996 but only 105 in 2016,the lowest number in a decade, according toIPO research firm Renaissance Capital. Themarket has since showed signs of rebound-ing with 160 IPOs in 2017. However, despiteyearly fluctuations, the IPO market isn’t whatit used to be. From 1980 to 2000, an averageof 310 companies went public each year, com-pared with 111 annually from 2001 to 2015.

This makes it harder for investors to achievediversified equity exposure to the U.S. economywithout tapping the private market. Moreover,studies estimate that a traditional 60% stock/40%bond portfolio may not pull in even a 5%annualized real return over the next 10 years.Research Affiliates factored in a 14% increasein volatility and found that a 60/40 portfolio stillwon’t get there. So the need for some form ofalternative investment seems clear.

The private market appears to offer thediversity that investors need. At the start of2016, the number of U.S. private companieswith revenue from $25 million to $1 billionwas at 135,000, according to D&B Hoovers.(It should be noted, however, that the down-turn in activity in IPO hasn’t been a strictlypublic company phenomenon—there were only30 IPOs of private equity portfolio companiesin 2016, the “lowest level since 2009,” accord-ing to Credit Suisse.)

More than ever, private equity firms need

to grow and diversify their assets, which iswhy they’re looking to deepen their benchof potential investors. This urgent need forgrowth stems from the fact that some of thelargest private equity firms are now publiccompanies. Since 2007, eight large PE firmshave gone public, including Blackstone Group,KKR, Apollo Global Management, Ares Man-agement, and The Carlyle Group.

“When an asset manager goes public, itraises its profile, and it also needs to increaseits distribution and grow its assets and earn-ings,” says David Romhilt, founding partnerand chief investment officer at Summit TrailAdvisors in New York. So while access to abroader pool of capital helps all PE firms,it’s even more important for the public ones,because “shareholders are more concernedabout asset growth,” Romhilt says.

To meet demand from its high-net-worthclients, Summit Trail last year formed itsfirst private equity fund, which uses a fund-of-funds strategy and makes commitmentsacross a particular vintage year (2017-18).The firm, which does not charge an additionalfee for the vehicle, plans to launch additional

funds, Romhilt says, increasing exposure tothe asset class for clients where appropriate.Summit Trails views PE as part of the equityallocation, rather than an alternative invest-ment, and aims to make it 10% to 25% of theoverall equity portfolio.

Still, while private equity has a lot to offerpotential investors, and intermediaries arehappy to increase exposure for appropriateclients, advisors and their clients should pro-ceed with caution.

While the financial-services industry isfinding ways to work around steep minimuminvestments, private equity remains highlyilliquid—once money goes into a PE fundit’s locked up for 10 years or more. This cancause problems for high-net-worth investorswho allocate too aggressively, and furtherdemocratization of the market could spelltrouble for less wealthy investors.

This illiquidity, plus other variables, makecomparing public and private equity returnstricky. Cambridge Associates provides onemeasure by creating a hypothetical publicstock portfolio and comparing it to a givenvintage of PE using that vintage’s time frame.

For the period ending on Dec. 31, 2017, theCambridge U.S. Private Equity Index re-turned 9.8% annually over 10 years, comparedwith 8.5% for the S&P 500 public marketequivalent. Over 15 years, the Cambridgeindex returned 14%, while the S&P equivalentreturned 9.9%.

That said, investors have to feel comfort-able losing money before they make money.

“Every private equity firm has failures, andthey tend to happen quickly,” Marzano says.“The real returns on a private equity portfoliocome at the end. So advisors have to talk totheir clients about whether the timeline andthe risk tolerance are appropriate.”

By Carla Fried

Some people have no pressing needfor a financial advisor. If you’re 26and single, have no debt, earn morethan you spend, and are diligently

stashing money away in a tax-advantagedretirement plan while saving money on theside, congratulations.

But whether you’re starting a family orstarting retirement, there often comes atime when so many factors are in play—cur-rent spending needs, future savings andlegacy goals, upkeep on a vacation house—that paying a financial advisor to serve asyour expert juggler-in-chief will prove to bea far better investment than any hot stockcould ever be.

Granted, the price tag can be a bit off-put-ting. In a world where it’s now possible tobuild a portfolio of exchange-traded fundswith annual expenses below 0.10% and nocommission when you trade, the typicalannual advisor fee of 1% on a $1 millionportfolio (the fee often drifts lower as assetsgrow) seems pricey. Especially now, whenasset-return models are spitting out warn-ings that, over the next 10 years, the S&P500 and investment-grade U.S. bonds willhave returns below 1% after inflation.

And paying $10,000 a year to have some-one oversee your allocation strategy andperiodically hit the rebalance button on a$1 million portfolio can feel exorbitant whenrobo-advisors deliver the same basic serviceat a steep discount. Betterment, for example,charges 0.25% for its basic allocation service;Vanguard Personal Advisor Services, 0.30%;and the fast-growing Schwab IntelligentPortfolios doesn’t levy any management fees(instead, it mandates a minimum cash posi-tion and makes money on the spread).

“If the only service an advisor provides isinvestment management, then that 1% feeis probably too high,” says Ric Edelman,co-founder and executive chairman of Edel-man Financial Services, a network of inde-pendent financial advisors who manage morethan $21 billion for more than 36,000 families.

“You should be receiving much moreadvice,” says Edelman, who adds that in atypical one- or two-hour review meeting withclients, about 10 minutes is spent on invest-ment performance. All of the other movingpieces of a client’s financial life—includingtax planning, insurance needs, estate plan-ning, college savings, and the big kahuna ofretirement planning—are where Edelmanaims to deliver added value.

With so much at stake, even an inveteratedo-it-yourselfer could benefit from having aco-pilot check in from time to time to makesure you are, indeed, on course. An advisorwho charges an hourly or flat fee can pro-vide a periodic checkup. That could be oncea year, or when life milestones are approach-ing. The typical hourly fee ranges between$200 and $400.

Paying for professional advice can beespecially helpful as you begin to movedown the backstretch toward retirement.While you may have amassed an impressiveportfolio, you need an entirely different setof skills to strategically spend down thatnest egg so that it lasts at least as long asyou do. The healthier you are, the morethat should be a concern. According to theSociety of Actuaries, a 55-year-old coupletoday, if both are in excellent health, facesa 52% probability that at least one spouse

will still be alive at 95. While long life is of-ten, of course, a welcome thing, it also posesa financial challenge: You’ll need to create anincome stream to last many years.

For everyone who lacks the time, confi-dence, or inclination to be the de facto fam-ily financial advisor, hiring a pro to create

and maintain a comprehensive plan can be asolid investment.

How a Top Advisor Can Pay OffVanguard estimates that certain advisory

services, including portfolio rebalancing andtax-advantaged allocation and withdrawalstrategies, could add about three percentagepoints to a client’s annual returns. Granted,that presumes the advisor uses cheap ETFsand mutual funds and expertly executes. Butthose numbers factor in only the investmentaspect of advice. By whipping the rest ofyour financial plan into shape—insurance,will, trusts—a holistic advisor can furtherimprove your situation.

In the Vanguard study, helping clientsavoid buying high and selling low is oneof the important benefits that advisors canbring to the table. “A financial advisor keepsyou in your seat when you want to get upand run in a bad market, and keeps youfrom being too optimistic in a good market,”says Cheryl Holland, founder and presidentof Abacus Planning Group, based in Co-lumbia, S.C., which manages more than $1billion.

A similar study by Morningstar InvestmentManagement that focused on retirement-in-come strategies estimates that an advisor canadd an average 1.59% in annual return.

An advisor might also help you make morecleareyed decisions. A 2017 study sponsoredby Northwestern Mutual watched the brainpatterns of 45 people making financial de-cisions, both on their own and with guidedassistance. The neuroscience experimentfound that with assistance, participantswere less stressed and better able to absorbinformation.

Tapping the services of a top advisoris a good way to gain new perspective onyour finances. “There is nearly alwayssome motivating, triggering event thatgets a potential client through the door,”says Ron Sages, an advisor at Eagle RidgeInvestment Management in Stamford, Conn.,and assistant professor of financial planningat Kansas State University. “But then wefrequently find other needs that they haven’teven thought about—or they think they havesomething taken care of, but it turns out itcan be improved.” Not to mention the inves-

tor tendency to obsess on short-term resultsas markets zig and zag. “Having someonewho’s keeping them focused on the long-term goal is really important,” says JenniferMarcontell, a Barron’s top-ranked advisorbased outside of Houston. “I think there’s alot of value there that people don’t realize.”

Advisors are also adept at navigatingcomplexity. You may handle most financialchallenges with aplomb, such as negotiatingwith contractors or managing your 401(k).But are you really prepared to compare thesolvency of companies that offer long-termcare policies? Can you build a portfolio thatwill provide a lifetime of income? Can youanalyze annuities? Advisors have specializedtraining, knowledge, and resources to helpyou weigh all of your choices.

A professional advisor is often better ablethan the layperson to anticipate consequences.It’s the rare financial decision that exists inisolation. Make one move and, like Whac-A-Mole, it can set off a reaction elsewhere inyour financial life. An advisor should be ableto gauge the cascading effect of each decision.For instance, the arrival of a newborn childor grandchild may seem like the perfect timeto set aside money for their college education.A good advisor will weigh in on how thatdecision might impact your ability to fundyour retirement or other financial goals. Evenwhen there are sufficient funds, an advisorcan steer you toward the best ways to savefor college today and minimize the impact onfinancial-aid eligibility years from now.

Diligence is another key talent that advi-sors offer. You may be hypermotivated thisyear to tackle your financial life, but finan-cial planning is an ongoing grind. Just whenyou get the busiest—a new baby, new job,or new spouse—is when you’re most likelyto need a pro’s guidance. Plus, as laws andregulations change and the economy shifts,you’ll need to make adjustments. How muchstamina do you have for putting a plan intoaction, and fine-tuning it forever?

“You go to an advisor for execution,” saysHolland. “It’s like a business where youcan have a great strategy, but if you don’texecute—and keep executing—your strate-gy isn’t going to work for you. Same witha financial plan. It’s all about a lot of littleexecutions.”

In addition to helping you stick to yourinvestment plan, an advisor can help youfocus on the stuff you’d rather ignore. Thatcan vary based on individual tics, but estateplanning seems to be a common blind spot.Holland says some of her firm’s wealthiestclients walk in without any estate-planningdocuments in place.

The human element can be essential whenaddressing these and other emotionally ladentopics. No robo-advisor is going to be ableto facilitate a conversation with your siblingsabout moving Mom to an assisted-livingfacility or the financial implications of herongoing needs—or be able to help initiatethat same conversation with Mom herself.

A financial advisor can also be a backstopagainst cognitive decline as you age. Payingestimated taxes, keeping the insurance up-to-date, staying on top of required minimumdistributions for retirement accounts, andserving as a line of defense between you andscammers who prey on the elderly are justsome of the services an advisor can providewhen you’re well into retirement.

Edelman suggests that even if you’reconfident about managing your finances, youneed to address the question, “If somethinghappens to you, where does that leave yourspouse?” He says his firm’s shining momentis often when someone dies and the familyis relieved that there is a financial plan—andadvisor—in place to ease the transition.

Bringing Buyouts to the (Well-Heeled) MassesInvestor demand for private equity has shot up as the ranks of public companies have thinned

DoYouNeed anAdvisor?Agood pro can help you solve money challenges you didn’t even know you faced

Jennifer Marcontell ofEdward Jones keepsclients focused on thelong term.

Vanguard estimates

that a series of advisor

services, including portfolio

rebalancing and tax-smart

allocation and withdrawal

strategies could add about

three percentage points

to a client’s annual

returns.

High minimum

investments and a lack of

liquidity have traditionally

made private equity the

territory of institutional and

ultrawealthy investors

S6 | Thursday, June 21, 2018 THEWALL STREET JOURNAL.


Barron’s began ranking financial advi-sors in 2004 with the goal of shin-ing a spotlight on the best peoplein the business. Many stories had

appeared in the press over the years aboutbad financial advisors and the trouble theycaused investors. As important as it is forjournalists to act as watchdogs for investors,those stories left a void for our readers, whowanted to know: Who are the great finan-cial advisors and what are they telling theirclients? That’s the question we’ve tried toanswer with our advisor rankings.We have also just created a new, interac-

tive map populated with all of our rankedadvisors at barrons.com/directory. We hopeyou’ll give it a test drive and let us knowwhat you think.From the outset, the rankings have been a

remarkable success. Barron’s uses a deeplyresearched, quantitative approach to identifythe best in the business. It is now acceptedin the industry that the advisors rankedby Barron’s represent the top 1% of theirprofession. In fact, it has become a badgeof honor to be called a “Barron’s advisor,”a phrase that has cropped up informally todescribe the folks who make our lists. We

began in 2004 with our first ranking of thenation’s Top 100 Advisors, working with asmall firm called the Winner’s Circle, whichwe acquired in 2008. We published our firstlist of the Top 100 Women Advisors in 2006.A year after that, we published a list of theTop 100 Independent Advisors, meaningthe best advisors not affiliated with the bigfull-service firms such as Merrill Lynch,Morgan Stanley, Wells Fargo, and UBS.One problem with all of these lists: They

were dominated by advisors in New York,California, Florida, and a few other placeswhere America’s wealth is concentrated. Weknew that we were missing great advisors instates with smaller amounts of wealth.Our solution: the Top 1,000 state-by-state

ranking, which we first published in 2009and expanded in 2014 to 1,200 spots. Thislist grants each state a minimum of six spotsand allows proportionately more spots forstates with greater assets.All of our advisor rankings are based on

hard numbers: an advisor’s assets undermanagement and annual revenue generated,as well as length of time in the business,client retention, and philanthropic work.Critically important, we carefully check the

regulatory record of each advisor we rank.Every year, readers ask us how to get

in touch with advisors who are ranked inBarron’s. This special section, published fourtimes a year in Barron’s and also availableonline, is an effort to make that easier. Thissection allows Barron’s-ranked advisors—and

only Barron’s-ranked advisors—to publishtheir phone numbers, email addresses, andwebsite URLs. Advisors pay a fee to belisted in this section, but their participationhas no bearing on their place in our rank-ings, nor does it guarantee that they willbe ranked in future years. In our advisorrankings, as in all Barron’s journalism, thereaders’ interests come first.We want to thank all Barron’s-ranked ad-

visors and their firms for helping make ourrankings successful. We also want to thankthese advisors for setting the highest stan-dards for their profession and for sharingtheir investing insights on a regular basiswith Barron’s readers.

Jack Otter, Associate Publisher

Making It Easy to Find an AdvisorThis year’s directory features a new, interactive map

By Jill Schlesinger

In three decades working on or coveringWall Street, I have held different positionsin the hierarchy of hip. When I beganas an options trader on the floor of the

Commodities Exchange of New York in thelate 1980s, that was considered a pretty coolgig. Later, many friends left trading floorsand desks to become hedge fund managers,because that was the place to be. But whenI handed in my trading jacket to become afinancial planner and investment advisor, Iwas guilty of a decidedly uncool move.I quickly learned not to care, because the

impact that I could make on people’s livesas an advisor far outstripped anything mypals were doing running their funds. Sure,they could buy exotic financial instrumentswhile I was toiling away trying to convinceclients to squirrel away more for retirement.Sure, they were making way more money bycharging 2% of assets under management,plus 20% of any upside gains—the well-known “2 and 20”—versus the measly 1%that most advisors were charging. But werethey really helping their clients?Maybe early on, in the late 1980s and

early 1990s, hedge funds were deliveringon their promise to provide pension funds,endowments, foundations, and wealthy indi-vidual investors with a means to defray—orhedge—some of the risk they carried in theirportfolios. Many investors believed thesemanagers had “skin in the game” because ofthe 20% part of the equation, but as one for-mer hedge manager told me, “the dirty littlesecret of the hedge fund business is that it’sthe two, not the 20, that really matters.”In the early days, the funds employed

various techniques, like short selling, optionstrategies, and mathematical models, to mit-igate risk for their clients. But as the greattech rally of the 1990s took hold, managerswere no longer helping clients manage risk;they were gunning the accelerator, seekingto deliver outsize returns (or alpha) in anyasset class or market they could. As the bullmarket roared, managers found an easy wayto juice performance: They used borrowedmoney.With a market-friendly Federal Reserve

under Alan Greenspan, Ben Bernanke, andJanet Yellen, “hedge funds morphed. Theyhad nothing to do with style or risk man-agement,” says Bill Fleckenstein, presidentof money manager Fleckenstein Capital.“People believe there is something magicalabout them, but essentially a hedge fundhas become an investment manager plus thecarry trade.” A carry trade is a strategy inwhich an investor borrows money at a lowinterest rate to invest in an asset that shebelieves will deliver a higher return.Mark Spindel, the CEO and chief invest-

ment officer of advisor Potomac River Cap-ital, warns that over the long term, activemanagers of almost all stripes, whether it’shedge funds or mutual funds, “rarely out-perform consistently.” Yet investors continueto demand outperformance, so the minute ahedge fund falters, they run in search of thenext bright shiny object.Spindel says the vast majority of investors

would be wiser to prepare for an inevitabledownturn, or a surprising life event, with adiversified, balanced portfolio. “Sure, goodmanagers can help, but over the long haul,smart asset allocation should help most ofall, and that’s where you should spend yourtime,” he says.That’s why ditching your hedge fund and

hiring an advisor is a better way to buildwealth. A certified financial planner (or aCPA/PFS, a certified public accountant whois also a personal financial specialist), whosejob isn’t to herd you into risky assets, willhelp you achieve your long-term financialgoals.The uncool CFP will help you avoid

pitfalls and attend to the necessary butperhaps boring aspects of your financiallife, such as ensuring you have sufficient lifeinsurance or figuring out how to juggle theneeds of your aging parents and your youngchildren, all the while making sure you canretire at some point.

Let me use myself as an example. After acareer in trading and then advising clients,I became a financial journalist in 2009. Asfor my own investing, I had put some moneyin a couple of those high-sizzle hedge funds,and did a little trading on the side, butmostly I adhered to a plain-vanilla passiveindex strategy, which was just fine.Although I was completely capable of man-

aging my financial life, nearly six years agoI found myself out of the time, energy, anddiscipline to implement and track the prog-ress of my own comprehensive financial plan.I turned to my friend Michael Goodman, thefounder and president of Wealthstream Advi-sors in New York, who forced me to do whatI knew I needed to do: relinquish control andgo all-in on the planning process.Goodman concentrated on overall goals

and objectives, and he has made recommen-dations that have been far more beneficial tomy financial life than finding “the best” in-vestment manager. For example, a few yearsago, he suggested I establish a defined ben-efit plan, which allowed me to quadruple theamount of money I was contributing on a

pretax basis to fund retirement. He scouredmy partner’s corporate benefits to bettertake advantage of what was available.Meanwhile, money continues to pour into

hedge funds, which now hold more than $3.2trillion, a record, according to Hedge FundResearch. And how did those funds perform?For calendar year 2017, they gained just8.5% on average (though some did far bet-ter) and their managers pocketed billions in

fees. The unmanaged S&P 500, by contrast,returned a total of 21.8%.Charles Brighton, a Barron’s top-ranked

advisor in Washington State, used to usehedge funds for diversification, but hasmoved away from them because of their costand long lockup periods. He argues that hehasn’t sacrificed diversification, only savedclients a ton of fees. “There are so manyETFs where you can replicate a lot of therisk/reward scenarios we used to get fromhedge funds,” he says.You don’t have to chase performance

or market-beating investment managers.Instead, hire a comprehensive financialadvisor who will put your best interest firstby adhering to a fiduciary standard and willcaution patience and prudence. Now thatwould be delivering real alpha.

Jill Schlesinger, CFP, is the Business Analyst forCBS News and award-winning host of the “Jill onMoney” radio show and the “Better Off” podcast.Her first book, Thirteen Dumb Things SmartPeople Do with Their Money, will be published inFebruary 2019 by Ballantine Books.

Fire Your Hedge Fund, Hire anAdvisorYou’ll sacrifice cocktail-party clout, but you’ll do far more to improve your financial security.

“There are so

many ETFs where you can

replicate a lot of the risk /

reward scenarios we used

to get from hedge funds.”

– Charles Brighton

Charles Brighton hasmoved away from hedgefunds because of theirhigh costs and longlockup periods.

Chona Kasinger

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