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April 21 April 27, 2014 | businessweek.


A new fertility procedure gives women
more choices in the quest to have it all

Brigitte Adams, 39, marketing executive



In an eye-opening new report, the Atlantic Council and Zurich Insurance Group
reveal the same failure of imagination that preceded the 2008 nancial crisis

A global case of myopia and a willingness to turn a blind eye

the pop-pop-pop of real estate bubbles around the world. Those
Zurich Insurance Group discovered during the year-long joint
ranging. Financial leverage has mirror images in technology leverage

failure has far-reaching destructive potential.
on a company level. A collaborative effort is needed similar to what
Internet service providers) employ ideas
strengthening Internet governance with a
The interconnected and amplifying nature of the global nancial crisis
bears a striking resemblance to what could happen in an Internet crisis.
companies or government agencies.
Problems in mortgage market
Major cloud provider fails
management ideas such as cyber insurance.
Lehman bankruptcy, difculties
Companies depending on cloud provider
spread to wider circle of banks and
fail, including logistics companies and
nancial service providers
those supplying critical infrastructure
Problems affect other companies,
Companies depending on just-in-time
even those that avoided risky
products lack supplies, affecting
companies that depend on them
Sovereign debt markets hit as governLarge sections of economy suffer,
knock-on effects in other countries
Major economies face recession, govWidespread loss of trust in Internet,
erning parties lose support, euro crisis
seen as unsuitable for business
Next crisis?
Next crisis?

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I did sleep on the oor

of my office sometimes.
I didnt brush my teeth
as often as I should have.
I think my personal hygiene
has improved quite a bit


The tax cuts dont

pay for themselves.
That just is not

If youre going to give your

daughter a college graduation
gift, what would you rather
give hera Honda or the chance
to make a decision about when
shes ready to have a baby?

I wanted it
to be theatrical.
A sushi bar without
what fun is that?




April 21 April 27, 2014

How the cover gets made

So blue or green?

Opening Remarks Why do young voters lean left? Its in the genes
Bloomberg View A pragmatic approachto greenhouse gas Cracking down on Medicare costs


Global Economics
Angela Merkel wants to put some sock into sanctions against Putin


The real housewives of Japan are trading currencies on margin


Foreign executives are trapped in Mongolia


France triggers an African monetary squabble


Correlations: Many high-paying occupations employ just a small percentage of workers


Blue. No, waitgreen.

Joke. Music. Ad. Joke. Music. Ad. The sound of mobile marketing in India


Fashion startups push eco-friendly, high-quality threads to the Whole Foods set


The generic drug whose price didnt hurtle to earth


Mommy, I want Elsas gown from Frozen, even if it does cost $1,600


Briefs: Alibaba is ying; Burberry looks sharp


How about pink?

Whats the matter with Kansas? Tax cuts


Congress wont dismantle offshore corporate tax shelters, so states take their shot


Delta battles the Bank of Boeing


In government cybersecurity, its so hard to get good help these days

I like pink better.

Phonemaker HTC turns to its co-founder for emergency rescue


The Supreme Courts denition of public performance will make or break Aereo


PicoBrews tabletop beermaker offers faster, easier home brew


3D printers at the office supply store


Innovation: Drink that bottle of water. Then eat it

Or yellow?


Its a ne season for shorting tech stockstoo bad almost everyone is long


So few bond fund managers control so many trillions


Golf courses dig themselves out of the rough


Tumbleweeds blow through Chinas over-the-counter markets


Interest rates rise, mortgage lending plummets, and more home buyers pay cash


Bid/Ask: Diageo chases drinkers in India; Motorola Solutions keeps shrinking

Is that just blue again?
Look, I have other things
to do, you know.

Later, Baby Egg freezing may revolutionize how career women plan their families


Patagonia to Patagonia Kris Tompkins ran the company; now she ghts to save the region


Boy Genius Martin Shkreli, biotech basher, bets long on his own biotech startup


How about bright red?

How a total novice wooed a Japanese chef to open Americas hottest sushi restaurant


Jewelry: Elegant, delicate rings for every nger and every budget


Advertising: At the Tongal awards show, admakers nd a side entrance to Mad Ave.


Grooming: New toothbrushes do tricks that previous generations of bristles never dreamed of


The Critic: Putting Fargo through the wood chipper and onto TV


What I Wear to Work: She paints in sweats, but for openings, Elisabeth Condon gets bright and splashy


How Did I Get Here: Tommy Hilger, from pumping gas for $1.25 an hour to a $3 billion deal


Red is ne. Keep it red. Dont change it

again. Were doing it in red.

Dell recommends Windows.

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Abe, Shinzo
13, 23
Aidem Ventures
Air Distribution Technologies
Airbus Group(AIR:GR)
Alfa Romeo(F:IM)
23, 41
Aluminum Corp. of China
Anadarko Petroleum(APC) 23
Apax Partners
20, 27, 31, 32
Aspen Insurance
Pharmaceuticals(AVNR) 58


Babbitt, Bruce
Barnhart, Phil
Barra, Mary
Bartasi, Gina
Bharara, Preet
Black Diamond
Blanton, Darren
BlueCrest Capital
25, 28
Borgognone, Alessandro 64
Box Office Mojo
Bridgewater Associates 38
Brokaw, Tom
Brownback, Sam
Brozak, Stephen

The best sushi

in the U.S.

Butler, George
Bdat, Maxine

20, 23

Intrepid Capital
Jakks Pacic(JAKK)
Johnson Controls(JCI)
Jones, Christy
Kanojia, Chet
Kardashian, Kim
Kase Capital Management
Kenny, Ben
Kuroda, Haruhiko

Cameron, David
Canada Pension Plan
Investment Board
Chang, Chia-Lin
ChinaScope Financial
Chou, Peter
Chouinard, Yvon
Citic Group
Citic Pacic(267:HK)
ClariVest Asset
Coen, Ethan
Coen, Joel
Cohen, Steven
Condon, Elisabeth
Couche, Guillaume
Cramer, Berkowitz & Co. 58
Cramer, Jim
Credit Suisse Group(CS) 23
Cytori Therapeutics(CYTX)

Daiichi Sankyo
Darabi, Soraya
De Julio, James
Dell, Michael
Delta Air Lines(DAL)
Deutsche Post(DPW:GR)
Diller, Barry
Duane Reade(WAG)



Endurance Specialty
Erickson, Ron
Este Lauder
Extend Fertility


Lakhani, Karim
Landesman, Uri
Le Bernardin
Le Cirque
Le Page, Paul
Lee, Mike


Fabius, Laurent
8, 37
Fertility Authority
Fiat Chrysler(F:IM)
Fidelity Investments
Fink, Larry
First International Computer
Fore Golf Partners
Freeman, Martin
Fremont Brewing

Gabriel, Sigmar
Gaitame Online
Gallardo, Karla
Garca, Rodrigo
Geiger, Avi
General Electric(GE)
General Motors(GM)
Gilgen, Charles
Gloria Vanderbilt
Goldman Sachs(GS)
20, 52
Goode, Adam
Greenwich Associates
Gross, Bill



Maccioni, Sirio
Madison Dearborn Partners
Mann, Alfred
Merkel, Angela
Meyer, Danny
27, 33
Mitchell, Bill
Mitchell, Jim
Moak, Lee
Mongolia Asset Management
Motorola Solutions(MSI) 41
Muilenburg, Dennis
Murjani, Mohan

Nair, Girish
Nakazawa, Daisuke
National Golf & Resort
Properties Group(MMI)
Biopharmaceuticals(NAVB) 58
North Face(VFC)
21, 58
Nuveen Investments


Park Place Equity
Paslier, Pierre
Paulson, Henry
Pavan, David
Perimeter Oil
Piliero, Chris Marrs
Piotrowski, Victor
Pitt, Brad
Piera, Sebastin
Platinum Partners
Preysman, Michael
Procter & Gamble(PG)
Puck, Wolfgang
Putin, Vladimir


Pharmaceuticals(REGN) 58
Rio Tinto(RIO)
Roche Holding(ROG:VX) 21

Hagel, Chuck
Hainer, Herbert
Hassan, Fred
Hawley, Noah
Hayick, Susan
HDFC Securities
Hennes & Mauritz(HMB:SS)
Hilger, Tommy
Himsel, Deborrah
Hollande, Franois

Imperial Capital
IMS Health
Insight Venture Partners



Oldman, Gary
One97 Communications
Ono, Jiro

Obama, Barack
Odenkirk, Bob

10, 28

Saad, Mark
SAC Capital Advisors
Sage Advisory Services
Sawhney, Arun
Shkreli, Martin
Simmons, Gene
SinoPac Financial
Skipping Rocks Lab
SNL Kagan
Snoop Dogg
Spitzer, Eliot
Sportswear Holdings
Standard Bank (SBK:SJ)

Star Plus
Sun Pharmaceutical
Surowiecki, James
Sushi Nakazawa


Teneo Intelligence
Thompson, John
Thornton, Billy Bob
3D Systems(DDD)
ThyssenKrupp(TKA:GR) 13
Tilson, Whitney
Tokyo Financial Exchange
Tolman, Allison
Tommy Hilger(PVH)
Tompkins, Kristine
58, 67
Ulloa, Patricio
United Parcel Service(UPS)
United Spirits(UNSP:IN)
Vanguard Group
Vergara, Soa
Vilas Capital Management 37


Wal-Mart Stores(WMT)
Walsh, Jim
Walt Disney(DIS)
Wang, Cher
WBB Securities
Wells Fargo(WFC)
Whole Foods(WFM)
Yue Yuen Industrial
Zebra Technologies(ZBRA)
Zero2IPO Group

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By Avi Tuschman

Whether youre liberal or

conservative may have
more to do with brain
development than wealth
or candidates

If youre not a liberal when youre 20,

you have no heart. If youre not a conservative by the time youre 30, you have no
brain. Variations of this saying have been
attributed to Benjamin Disraeli, Otto
von Bismarck, George Bernard Shaw,
Woodrow Wilson, Theodore Roosevelt,
Aristide Briand, and Winston Churchill.
The thought first came, in fact, from
a French statesman, Franois Guizot
(17871874). Regardless of its origin, the
adage raises a fascinating question: Do
the young really lean left because of passions and idealism? And as people age,
do they incline toward the right because
they become more realistic or cynical?
For the past 10 years, Ive studied
political divisions through the lenses
of evolutionary anthropology, genetics, and neuroscience. Research reveals
that during their 20s people around the
world experience significant shifts in
the traits biologists use to describe the
human personality. Specifically, openness declines and conscientiousness
increases. Higher openness is associated
with intellectual curiosity, a preference
for variety, and voting for the left; higher
conscientiousness, characterized by
self-discipline and dutifulness, predicts
support for more conservative politics.
This rightward shift in political personality is fairly universal, and so is
the timing. A 2004 study by psychologists Robert McCrae and Jri Allik in the
Journal of Cross Cultural Psychology of 36
cultures across Africa, Europe, and Asia
discovered that openness and conscientiousness differ between 18- to 22-yearolds and older adults. If an individuals
political personality hasnt changed
by the time of his or her 30th birthday, however, its not likely to differ all
that much at 40, 50, or 60. This isnt to
say that all teenagers are liberal and all
older people are conservative. In any age
group, people are distributed along the
left-right spectrum on a bell curve. The
entire curve, however, moves somewhat
to the right during the mid-20s.
A common explanation for this personality change in young adulthood was
voiced during the politically turbulent
1960s in the U.S. At the time, the young
leftist counterculture claimed that its
ideological enemies could be found on
the far side of Guizots magic number, 30.
This belief implied that people older than
that became more conservative because
they were more likely to own a house,
to earn a higher salary, and to have too
much at stake to back a revolutionary call
to destroy the existing order.
Contrary to popular belief, paying
taxes, accumulating wealth, and being
in the 1 percent or the 99 percent are

extremely poor predictors of left-right

political orientation. According to
American National Election Studies, an
academically run survey project, the
correlation between family income and
party identification for U.S. voters in the
2012 presidential election was a mere
0.13. This weak statistical relationship is
typical of past elections.
There is one life event, though, that
greatly accelerates a persons shift to the
right, and it often occurs in the 30s: parenthood. Its political impact is easy to
see among a cohort of Canadian college
students studied by psychologist Robert
Altemeyer. Their scores on an ideology
test at age 22 grew more conservative by
an average of 5.4 percent when they were
retested at 30. But among those 30-yearolds whod had children, conservatism
increased by 9.4 percent.
Why did having kids push people to
the right? Parents stay on the lookout for
possible sources of danger that nonparents can ignore. This shift in perception
is so strong it creates an illusory sense
of risk; new parents tend to believe that
crime rates have increased since they
had children even when actual crime has
dropped dramatically. Because dangerous world thinking is associated with
political conservatism, parenthood
pushes people to the right, and more so
when they have daughters.

You used to
be so much more

Experts on personality, such as McCrae,

a psychologist at the National Institute of
Aging, say peoples personalities may also
be hard-wired to shift over time. As we age,
changes in gene expression may subtly
alter openness, conscientiousness, and
other traits. These traits and the personality shifts that unfold between late adolescence and early adulthood are moderately
heritable between generations.
To understand why both nature and
the environment tug at our personalities at certain times, we must trace these
subtle changes in our personality to activity in the brain. Neuroscientists once
assumed that the brain, along with the
rest of the body, finishes dramatic development after puberty. But we now know
that it doesnt reach full maturity until
at least age 25. Consider the prefrontal
cortex, which lies directly behind the
forehead. Its responsible for regulating emotions, controlling impulses, and
making complex cost-benefit judgments
that weigh immediate incentives against
future consequences. Unlike most regions
of the brain, the prefrontal cortex continues to grow, and its cautionary functions
go on developing well into the mid-20s.
Much earlier, in adolescence, a part of
the brain called the limbic system, which
plays a central role in sexual arousal and
pleasure, kicks into action, stimulating
thrill-seeking and risk-taking. Actuaries

who work for car insurance companies

have long deemed people younger than
25 risky. Why would nature permit this
tempestuous gap between the flaring
up of teenage passions and the onset of
mental maturity 10 years later? These
personality changes are probably evolutionary adaptations to different phases
of the life cycle. High levels of openness
encourage the young to wander the world
and find a mate. Conscientiousness is
crucial when raising a family.
Political pollsters are well aware of
these life cycle personality changes,
which is why they pay so much attention
to age. When youth turn out to vote in
higher numbers, as they do in presidential elections, analysts can stratify their
samples to look for trends by age brackets that correspond roughly to before and
after the brain developments that happen
in the mid-20s: That is, they analyze the
18- to 24-year-old group separately from
the 25- to 29-year-old group. In midterm
elections, when the youth vote is underrepresented, pollsters often lump them
all into one demographic group, 18 to 29.
In this era of big data, political pros
of course have other tools at their disposal that make analysis of these large
groups less relevant. As Chief Executive
Officer Jim Walsh of the political ad
network DSPolitical points out, its now
easy to microtarget individuals of any

age and according to dozens of other

demographic and consumer categories.
Nevertheless, public opinion experts
still keep tabs on age groups to study
their impressionability to the changing
flow of history, culture, and economic
cycles. In some cases, current events
trump life cycle stages, altering the collective attitudes of a cohort in surprising
ways. In 1984, 18- to 24-year-olds voted
for Ronald Reagan over Walter Mondale
by a 22- percentage-point marginthe
same margin as 50- to 64-year-olds. This
youth vote may have been anomalously
conservative, because Reagan had presided over a strong recovery from recession and Mondale was perceived to be a
weak candidate. Young Republican voters
in 1984 may also have been expressing
their feeling of disconnect with the liberal
social movements of the 1960s and 1970s.
Todays young voter adheres more
closely to the personality pattern shaped
by evolution, though environmental variables such as the social media revolution
have left a mark as well. As expected,
millennials lean substantially to the left
on most social issues, but slightly less
so on economic issues. These digital
natives, who grew up steeped in social
media, have also been dubbed the Selfie
Generation. And Selfie may be a more apt
description: The age group is characterized by individualism across the board.
According to the Pew Research Center,
millennials are far less affiliated with traditional political, religious, and cultural
institutions and less likely to be married
than previous generations were. Some
commentators have accused the Selfie
Generation of having a sense of entitlement, interpreting their individualism as
a kind of Facebook-induced narcissism.
Other observers have argued that millennials measure higher in cynicism and
singlenessand more often live with their
parentsbecause they face worse economic prospects than did the previous
two generations.
Whichever perspective one takes, our
changing economic and technological environments have surely left an impression
on millennials and molded their political
behavior in various unforeseen ways. Still,
like most 18- to 29-year-old cohorts, their
vote is markedly more liberal than average.
Despite generational idiosyncrasies, the
universal stages of life do influence our
political orientations, true to Guizots
words. And like many other facets of our
political nature, these life cycle shifts have
deep evolutionary roots. 
Avi Tuschman is the author of Our Political
Nature: The Evolutionary Origins of What
Divides Us.


To read Mohamed ElErian on investing and

Albert R. Hunt on good
news and bad news for
Democrats, go to

Rethinking the Climate

Change Debate
Time for a pragmatic approach to
the greenhouse gas challenge

reducing emissions. Some are too expensive to make sense

(retrofitting old machines and buildings, for instance, can cost
much more than making new ones energy-efficient), and theres
no shame in saying so. Other ideas are too promising to ignore
(nuclear power, carbon-capture technologies, geoengineering),
and theres no shame in saying that, either. Adapting to higher
temperatures, as well as trying to limit the increase, should
also be part of the discussionan idea that the IPCC is belatedly
coming around to.
In the U.S. and around the world, prominent politicians
should make clear that the debate over climate change need not
demand the unconditional surrender of competing worldviews.
Its simply a discussion about the steps necessary to manage risk.

How to Rein in Medicares

Runaway Costs


The worlds failure to take meaningful action on climate change

may one day be seen as the gravest mistake of our time. How to
account for this dereliction? Governments wont succeed in this
endeavor until they start risking political capital on the cause
and, equally important, rethinking their arguments. Climate
change is neither an inevitable cataclysm nor a scientific hoax.
It is a relatively straightforward but profound risk against which
the world must insure itself.
The Intergovernmental Panel on Climate Change has just
published the third of three working-group reports on where
the science of climate change stands, on the effects that the
world can expect if greenhouse gas emissions arent curbed,
and on the options for reducing those risks. Later this year it
will issue a grand Synthesis Report gathering all these pieces
together. These thousands of pages add to the tens of thousands
already published in previous IPCC exercises, and the message
is essentially the same: The world needs to act. Despite the
ambitions of the Kyoto Protocol adopted in 1997, global greenhouse gas emissions continue to grow.
This is in part because the worlds dependence on fossil fuels
isnt easy to dislodge. The economic burden of prompt mitigation happens here and now; the main economic benefits are
decades away (other benefits, such as cleaner air, will come
sooner). Thats a tough case to make in a democracy. Meanwhile, its clear that human behavior is changing the climate, but
just how quickly, and with what exact consequences, is harder
to say. The precise effects on weather, sea levels, incidence of
disease and drought, species diversity, ocean acidification, and
so forthnone of this is known with certainty.
Politicians the world over have largely ducked the responsibility, too often preferring grandiose speeches and hollow
international initiatives to cost-effective policies that stand a
chance of workingsuch as putting a tax on carbon. The advantage of a carbon tax is that it offers a market-based approach to
setting priorities. But the broader point is that taking climate
change seriously doesnt mandate any and every proposal for

Among the surprises nestled in the recent release of Medicare

payment data was this head-scratcher: Of the 50 physicians who
got the most Medicare money in 2012, almost half were ophthalmologists. Part of the reason for that may be questionable billings. But it also results from Medicare doctors perverse incentive to choose more expensive drugs than necessary.
Heres how the system works: When a doctor administers a
drug in his or her office, Medicare pays 106 percent of its average
selling price. The doctor keeps the extra as compensation for
administering the injection. What has this got to do with eye
doctors? The drug Lucentis, used to treat macular degeneration, cost Medicare almost $2,000 a shot in 2012. Another drug,
Avastin, which works just as well, costs about $50. If you were
the doctor, faced with a system that pays you 6 percent of the
drugs cost, which would you choose? That Medicare spent a total
of about $1 billion on Lucentis in 2012 suggests most ophthalmologists went with the more expensive one.
This problem goes beyond a single drug. Of the $20 billion
Medicare spent on drugs administered by doctors in 2010,
85 percent went to the 55 most expensive ones. In what seems
unlikely to be a coincidence, 42 of those drugs also showed an
increase in use from 2008 to 2010. The Centers for Medicare
& Medicaid Services, the agency that runs Medicare, says its
required to pay for treatment that a doctor deems medically
necessary, and it lacks the authority to direct treatment based
on cost. All Medicare can do to control costs is tell doctors the
price of what theyre prescribing as well as the alternatives.
Which is to say, almost nothing.
President Obamas latest budget request proposed lowering
the administrative fee to 3 percent from 6 percent. This would
save Medicare an estimated $7 billion over 10 years. Another
approach would be to impose a dollar cap on doctors administrative feesor, alternatively, give them a larger one if they choose
less expensive generic drugs. Beneficiaries could be charged lower
co-payments when they use generics. Sensible options all. 


Give doctors and patients nancial

incentives to use cheaper drugs

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All rights reserved. S124066US.0414

Weak yen? Try your

hand at currency
trading 14

The $20 billion

shadow France casts
over Africa 16

Foreign execs endure

exile in Mongolia 15

Correlations: The more

jobs, the less pay 17

April 21 April 27, 2014


Merkel Gets
Tough on Russia


is exploring the possibility of harsh sanctions. Will Europe follow?

you have more sanctions, it makes it much harder to conduct a diplomatic process
Angela Merkel wasnt in a hurry to inflict
economic pain on Moscow. Cautious,
pragmatic, and mindful of her countrys business ties to Russia, the German
chancellor doggedly tried to defuse the
Ukraine crisis through back-channel
diplomacy and frequent phone calls with
Russian President Vladimir Putin.
Those efforts failedand now Merkel
looks ready to embrace the hit-emwhere-it-hurts sanctions that some U.S.
politicians have been pushing for. In

mid-April, Germany stopped granting

licenses for arms exports to Russia and
put on hold a plan for Airbus Group to
sell $973 million worth of satellite technology to Moscow. Europe shouldnt
be filled with fear that sanctions could
provoke retaliation, Merkel said in
Berlin on April 5.
Behind the scenes, Berlin is making
plans for the next phase of sanctions,
says a high-ranking German official who
declined to be identified in keeping

with government policy. The measures

under consideration would be widerranging and more harmful to Russian
business than the limited asset freezes
and visa bans already in place, this
official says. A possible next step: targeted measures such as curbs on critical
high-technology and military exports
to Russia. In one of the most extreme
scenarios being discussed in Europe
and the U.S., Russia could be locked
out of Swift, the Belgium-based

Global Economics



Geneva fail to produce an agreement on lied to her during some conversations

Ukraine. But while Fabius said earlier
for example, by denying that Russian
that France could envisage blocking
soldiers had entered Crimea. Merkel
the Mistral sale as part of a sanctions
doesnt allow herself to be distracted
plan, he said France wouldnt make a
by personal emotions in such situdecision on that before October.
ations, Teneos Nickel says. But trust
Merkel could face a rebellion at
and reliability play a big role. It turns
home. Some 6,000 German cominto a question of credibility. Carol
panies do business in Russia, while
Matlack, Henry Meyer, Arne Delfs, and
the jobs of 350,000 German workers
Matthew Philips, with Rainer Buergin
depend on Russian trade, according to
The bottom line Although 6,000 German
the Committee on Eastern European
companies do business with Russia, Merkel is
Economic Relations, an organization
considering tougher sanctions.
representing Germanys main business
lobbies. Until now, Germany Inc. has
kept quiet. There was an unspoken
deal struck in which the business community grew silent in return for Merkel
agreeing to work very hard to prevent
economic sanctions, says Carsten
Nickel, senior vice president of Teneo
Intelligence in Berlin.
That agreement now seems to be
 Higher ination drives Japanese
unraveling. Joe Kaeser, Siemenss chief
to play the currency market
executive officer, traveled to Moscow
in March for a meeting with Putin that,
 Individuals cant afford to simply
he told Germanys ZDF television, was
leave their money in bank accounts
intended to show his company wont
be overly influenced by short-term turThe Bank of Japans success in stoking
bulences. The trip drew a rebuke
inflation is changing the way 63-yearfrom Vice Chancellor Sigmar Gabriel,
old Tokyo housewife Ritsuko Ueda
who said German companies should
manages her savings. Ueda is one of
show that Germany cant accept Putins
thousands of Japanese trying to protect
imperial policy.
the value of their capital by resortThe chief executives of steel giant
ing to currency margin trading, a highThyssenKrupp, Adidas, and Deutsche risk way of dealing in foreign exchange
that employs borrowed money to bet
Post questioned the need for sanctions
on currency shifts. Individual Japanese
in a roundtable discussion with the
investors held 767,902 accounts for
newspaper Die Welt in late March. Asked
speculating on currencies in February,
if Putin should be stopped, Adidas CEO
up from 595,698 a year earlier, accordHerbert Hainer said, Id turn the quesing to Tokyo Financial Exchange.
tion around. I wonder if one shouldnt
I have high hopes that [Bank of Japan
have included Putin in the process
Governor Haruhiko] Kurodas next meamuch earlier, rather than starting talks
sures will drive yen weakness and stock
when its too late. That echoes argugains, Ueda said in March at a trainments from Moscow. If you have more
ing seminar run by Gaitame Online,
sanctions, it makes it much harder to
a currency-trading company focused
conduct a diplomatic process, says
on individual investors. Ueda says her
Fyodor Lukyanov, chairman of the
trading profits reached 5 million yen
Council of Foreign and Defense Policy, a
leading Russian think tank thats close to ($49,000) last year. She predicts the yen
will slide to 120 to the dollar by yearend
the Kremlin.
from 102.3 today.
Since early March, Merkel and Putin
Kuroda was appointed in March
have averaged more than one phone
last year to carry out Prime Minister
call a week. Until recently, Merkel
Shinzo Abes policy of floodthought she had a basic underRising ination
ing the markets with cheap
standing of Putin, according to
means I have no
the high-ranking German offiother choice but to money and ending 15 years
invest if I want to
of deflation by driving down
cial, whos familiar with their
protect myself.
the value of the yen. Since
discussions. However, this offiMinako Sakurai
cial says Merkel was shocked
April 2013 it has weakened
by the move into Crimea and
9 percent, which is driving
by her discovery that Putin had
up the cost of imports. That

Mrs. Watanabe Is Betting

On a Weak Yen


international money-transfer system,

as happened to Iran in 2012. That would
cripple Russias banking system.
With Merkel on board, the odds that
the European Union will launch a tough
package of sanctions increase considerably. Europes most powerful politician, she has a record of getting balky
neighbors to follow
her lead. Germany,
as Russias biggest
European trading
partner, would bear
an outsize share of
the risk if Moscow
Amount Russian
companies raised
retaliated against
through London
European business
stock market
interests in Russia.
listings over the
The Europeans
past ve years
could tie the
Russian economy into knots very
quicklyand more effectively than
the U.S., whose trade with Russia is
only about one-tenth that of the EU.
Hammering out a sanctions package
will be tricky, though. The most
obvious risk is that Moscow could
curb the flow of Russian oil and gas,
which accounts for about one-third
of Europes supply. Germany is particularly vulnerable, because its gas
imports have risen since Merkel
ordered a shutdown of the countrys
nuclear plants. German industrial
giants such as chemical group BASF
also depend heavily on Russian fuel.
Other EU states have different vulnerabilities. Britain has become a
financial hub for Russian companies,
which raised about $8.2 billion through
London stock market listings over the
past five years. Prime Minister David
Cameron has joined Merkel in calling
for accelerated talks on sanctions and
could back them up by barring a couple
of big Russian banks from doing business in London, says John Herbst, a
former U.S. ambassador to Ukraine
who is now at the National Defense
University in Washington. A discrete sanction or two from the City or
London may be enough to keep Putin
from doing something really nasty in
Ukraine, he says. But Herbst says he
doubts Britain would take such action,
because its hooked on Russian money.
Likewise, France isnt eager to give
up deals such as a $1.7 billion contract to sell two Mistral helicopter carriers to Russias navy. Foreign Minister
Laurent Fabius said on April 15 that the
EU should impose stiffer sanctions on
Russia if scheduled talks under way in

The outskirts of

is affecting consumer prices, which

increased 1.3 percent in February from
the previous year, more than halfway
to the Bank of Japans 2 percent target.
An increase in the nations sales tax
this month has also pushed up living
costs. On top of inflation, the sales
tax increase is a double whammy, and
individuals cant afford to simply leave
their money in bank accounts, says
Masakazu Sato, a foreign exchange
adviser at Gaitame. Were seeing the
number of applications for our seminars increase as these Mrs. Watanabes
seek to protect their livelihoods.
The colloquial term Mrs. Watanabe
describes the individual Japanese investor, traditionally a housewife who runs
her familys finances.
The need to prevent inflation from
eroding the value of their money is
all the more acute for the Japanese
given their high savings levels. Japans
households had 1,645 trillion yen of
investments as of Dec. 31. A total of
874 trillion yen of these funds was
in cash or bank savings, which offer
minimal returns.
Minako Sakurai, 49, who lives in the
Kanagawa Prefecture, south of Tokyo,
says she needs her money to earn more.
She started margin trading nine months

ago after losing her call-center job and

was attracted partly because newcomers
can trade with borrowed funds. Says
Sakurai: Rising inflation means I have
no other choice but to invest if I want
to protect myself. Mariko Ishikawa,
Kazumi Miura, and Hiroko Komiya
The bottom line Almost 800,000 Japanese
have currency-trading accounts, a sign that
households are seeking higher returns.


Left to Languish
In Mongolia
 Some foreign executives are
banned from leaving the country
 Deep inside there is a struggle of
why, why, why?

Mongolia is known for its desert vastness

and its ample mineral wealth. But 50 or
so foreigners know Mongolia as something else: the worlds largest jail. In a
backlash against outside investors, the
country has clashed with at least three
multinationals. Police have questioned

Western and Chinese business executives and banned them from leaving until
the complaints against their employers
are resolved. Although the employees
have not been formally charged with a
crime or imprisoned, at least three have
been stranded for almost two years.
Mongolia was the worlds fastestgrowing economy in 2011, expanding 17.5 percent as its coal, copper, and
gold fueled Chinas boom. Foreign
mining companies and their employees
flocked to Ulaanbaatar, the capital, to
make money and experience an exotic
culture. Then Chinas growth slowed,
commodity prices fell, and the appeal of
Mongolia to foreign investors started to
fade. A serious rift developed between
the government and Mongolias biggest
investor, Australias Rio Tinto, over the
cost of developing the giant Oyu Tolgoi
mine. South Africas Standard Bank
got enmeshed in drawn-out negotiations with the government. (The bank
is seeking $130 million from the government for what it says were mishandled
debt repayments by state-controlled and
private companies.)
The Mongolian government came up
with a novel way to settle differences
with foreign companies in its favor. The
travel bans add to the uncertainty

Global Economics


Im in limbo, my
career has been
destroyed, and I
dont know when
I will be able to

and the already negative mood,

says Michael Preiss, co-founder
of Mongolia Asset Management
in Ulaanbaatar. For some its the
nail in the coffin that this place is
just not worth it. (Preiss hasnt
been barred from travel.) The bans have
affected New Zealanders, Australians,
Filipinos, Americans, Chinese, and
South Africans. The authorities have
imposed bans on mining executives,
bankers, and even an orphanage worker.
One company whose employees
have suffered especially is SouthGobi
Resources, a mining venture that operates largely in Mongolia and is controlled by Rio Tinto. The Canadian
miner attracted Mongolian scrutiny
in 2012 over a planned share sale that
would have given control of SouthGobi
to Chinas Aluminum Corp. of China.
After it found out about the planned
offering, the government passed a law
banning such sales to state-owned enterprises such as Chinalco. Then Mongolian
authorities started to probe SouthGobis
books. The Independent Authority
Against Corruption found what it said
was proof that SouthGobi committed tax
fraud valued at $4 billion, an allegation
the miner disputes.
SouthGobis operations were crippled by the investigation, and many
employees were idled. At least four were
barred from leaving, though they were
not accused of any wrongdoing. Im in
limbo, my career has been destroyed,
and I dont know when I will be able to
leave, says Filipino Hilarion Cajucom,
who was an accountant at SouthGobi
until he was laid off. SouthGobi still pays
for his apartment as well as a stipend. He
can only watch family life back home via
Skype. Deep inside there is a struggle of
why, why, why? he says.
Minnesota native Justin Kapla has
lived under a travel ban for the last two
years. He was president of the Mongolian
division of SouthGobi for six months
of the four-year period that Mongolian
police are investigating. Kapla has been
in Mongolia for 11 years, is married to a
Mongolian, and has two children. He has
enlisted the help of U.S. congressmen
and the U.S. Embassy.
Australian Sarah Armstrong, a
lawyer for SouthGobi, was waiting at
the airport for a flight to Hong Kong
in October 2012 when a familiar face
emerged from the crowd. A plain-clothes
police officer who had questioned
employees in her companys offices
weeks earlier was heading for her. The

airline staff, not realizing he

was a policeman, tried to
stop him from entering the
area, but he pushed them
aside. Armstrong was taken
in a police car to headquarters, where she was named as a witness
in the SouthGobi probe. Although she
was then allowed to leave the station,
she was brought back for questioning
sometimes three times a week for ninehour stretches. She says she mostly
explained how a Western company
works. They didnt know what a board
of directors was, she says. After two
months, she got to leave.
Some people who still cannot exit the
country asked not to have their names
printed for fear of reprisals from the
authorities. They speak of anticorruption police picking them up at any time
and bringing them into brightly lit, windowless cells for day-long interrogations.
The anticorruption authority and district prosecutors declined to comment
about the travel bans and police investigations. The chief of staff of the presidents office, Tsagaan Puntsag, says, I
am not aware of this issue. If its a human
rights issue, there are institutions that
are in charge of this. The U.S. Embassy
knows about the detainees, says spokeswoman Allyson Algeo: We are concerned by reports that the Mongolian
exit visa system is being misused to pressure foreign investors to settle investment disputes. Such concerns could
have a chilling effect. Michael Kohn
and Yuriy Humber
The bottom line Since the mining boom stalled
two years ago, Mongolia has detained foreign
residents and probed their companies.


Why France Is Still

a Colonial Power
 Former French colonies use a franc
tied to the euro
 It keeps prices high. It does not
make sense in a globalized world

A hoard of cash sits in the Bank of

France: $20 billion in African money
held in trust by the French government
and earning just 0.75 percent interest.
Now economists and politicians from 14
Central and West African countries say

they want their funds returned and an

arrangement dating back to the days of
Frances colonial empire ended.
France holds the money to guarantee that the CFA franc, the currency
used in the 14 nations, stays convertible into euros at a fixed exchange rate
of 655.957. The compulsory deposits
started more than half a century ago,
when the then-colonies had to place all
their financial reserves in the French
Treasury. The deposit requirement has
dropped over the decades: Today the
African members entrust 50 percent of
their reserves to Paris.
Thats a lot of money. According to
the 2012 annual report of the Bank of
France, the amount
of African cash it
safeguards is larger
than the individb
ual gross domestic products of
all but two of the
nations in the CFA
Amount of African
region. CFA origreserves held by the
inally stood for
Bank of France
Colonies Francaises
dAfrique, and now
means either Coopration Finanire
en Afrique Centrale or Communaut
Finanire Africaine, depending on the
country. Member states in the monetary union include Chad, Senegal, Mali,
Cameroon, and Ivory Coast.
Mamadou Koulibaly, former finance
minister and speaker of the Parliament
of the Ivory Coast and now an economics professor and leader of an
opposition party, says the CFA francs
peg to the euro discourages companies from investing. The CFA franc
does not favor exports and trade, he
says. It does not favor industrialization. It keeps prices high. It does not
make sense in a globalized world. The
return on the $20 billion also angers
the ex-minister, who notes that the
money would yield more under professional management. And, he says,
the funds benefit France, which uses
them to reduce its borrowing. (France,
with a debt-to-GDP ratio exceeding
90 percent, has pledged to slash its
deficit and debt.)
The operating account was designed
and formulated primarily to serve the
interests of France. It is important for
France and unnecessary for African
countries, says Babissakana, chairman and CEO of Prescriptor, a consulting firm based in Cameroons capital
of Yaounde. (His single name means


Global Economics
something that cannot be locked in
Yambassa.) To Babissakana, the tiny
By Mark Glassman
interest rate paid out is a state financial
crime strictly contrary to the Universal
Declaration of Human Rights of the
United Nations.
The French Finance Ministry says
such criticisms are misplaced. The
unions members own these deposits.
A recent analysis by the Bureau of Labor Statistics shows that many of the
We only manage them, says a spokesman who asked to remain anonymous.
highest-paying occupations employ only a small share of the workforce.
The $20 billion is not a significant part
Although there are low-paying professions that make up a small percentof the total of Frances cash on hand
age of overall employment, the trendline reveals a slight negative correlaand wouldnt make a difference in its
tion: On average, the more jobs in an occupational group, the less they pay.
efforts to solve its fiscal problems. Its
not that France is necessarily wanting
these funds, adds Anne-Marie
Percent of total employment
Gulde, a deputy director of the Africa
Department at the International
Monetary Fund. Its a necessary Annual
evil for them, in order to backwage
stop the [fixed exchange rate] of
the CFA franc.
Koulibaly says the tie to the euro
makes goods 20 percent to 30 percent
The average manager makes more
more expensive in the CFA zone. This is
than the average member of any
a hardship for the 90 percent of people
other group
in the region who dont have bank
accounts and cannot easily convert
their cash to euros. He wants an indeArchitecture and engineering
pendent audit of the CFA franc and
Computer and mathematical
France to be investigated by the UNs
International Court of Justice. Gulde
5 Health-care practitioners and technical
says the peg might make some prices
higher but suggests that it also limits
Business and nancial operations
inflation: Everyone benefits from the
Life, physical, and social sciences
control of inflation, including and
especially the very poor.
A report presented to French
Arts, design, entertainment, sports, and media
President Franois Hollande
Education, training, and library
in December concluded that comCommunity and social service
pared with other countries, growth
Construction and extraction
Installation, maintenance, and repair
in the CFA zone has been lower in the
Protective service
past decade. Thats partly because
H Sales and related
of the high costs of doing business
q Transportation
in a currency tied to the euro and to
Health-care support
Office and
and material moving
tight credit policies in the CFA zone.
Building and grounds cleaning, and maintenance
Sanou Mbaye, a Senegalese economist and former official with the
Personal care and service
African Development Bank, says high
Food preparation and serving related
Farming, shing, and forestry
export prices and slow growth in the
Jobs such as clerks,
union have limited investments from
receptionists, and customerChina, which does twice as much busiservice representatives account
for the largest share of the
ness in Africa as any other country.
workforce but pay the least
Says Mbaye, Exports to China and
trade with China lag in the CFA zone.
Robert Neuwirth

Pay and Payrolls

The bottom line A nancial arrangement dating

from the French colonial era gives 14 African
nations currency stability at the cost of growth.

As a group, farmers, sherman,

and forest workers are an anomaly,
representing a small share of
the workforce but making just
$24,300 a year

Edited by Christopher Power


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Banking is more than numbers and passwords. Its about people. Using

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learn more at

Ethical fashion,
but hold the
granola 20

The Frozen dress

that has parents
sweating 22

windfall 21

Briefs: Alibabas prot

machine; another
Credit Suisse probe 23


April 21 April 27, 2014

India, large marketers try phone calls to reach rural consumers
perfect tool for a really big company with lots of brands

In many parts of the world, businesses

relentlessly market to customers via
their Web-connected smartphones,
slipping pitches into everything from
interactive games to graphics-laden
produc tivity apps. Not so in rural
India: To better reach the countrys
833 million villagers, Unilever is
delivering free Bollywood music
to their basic cell phones via
old-fashioned phone calls.
Between the popular tunes and
cheesy jokes presented during the
15-minute recorded programs served
up by Unilevers mobile phone music
service, users listen to four
product ads. Consumers
are biting: In March, at
least 2 million people subscribed to the free service
available in two states, says
Anaheeta Goenka, executive director of Lowe Lintas &
Partners, the agency handling
the campaign for the worlds
second-biggest consumer
company. The service
expanded to Uttar Pradesh,
Indias most populous
state, on March 31.
Companies from Unilever
to PepsiCo to Mondelz
International are turning
to mobile campaigns to win
over consumers who live in
locales where cable television
or even newspapers may have limited
reach. In a country where most people
dont live in big cities and 88 percent
of phones arent smart, the tuneful
approach makes sense because rural
spending growth now exceeds that
of Indias urban centers. And mobile
phone ads cost less and are more targeted than mass media campaigns on
the subcontinent.
Mobile advertising has the reach,
the power to measure, and the
power of constant engagement, says
Girish Nair, chief executive officer
of NetCore, the outfit that manages
Unilevers mobile service. You now
have the opportunity to get data on
each subscriber that can help optimize ad campaigns and improve distribution, he says.
There were 364 million rural mobile
phone users in India as of Jan. 31, and
the pace of additions in villages was


faster than in cities for the fourth
consecutive month, according to the
Telecom Regulatory Authority of India.
Many advertisers are starting to use
mobile as a way to reach areas with
poor infrastructure in a cost-effective
way, says Anand Thakur, national
sales head for Aidem Ventures,
which handles ad sales in India for
TV stations and
websites including and A
fleeting 10-second
spot during
the 6.3 million
Number of rural
mobile phone users
drama Mahabharat
in India
on Indias Star Plus
television network
costs about 250,000 rupees ($4,143).
For about the same amount, advertisers could reach at least 21,000 people
with a 10-minute phone call, according to calculations based on prevailing
mobile tariffs.
Indian companies spent
3 billion rupees ($49.9 million) on
mobile ads last year, and the market
is projected to expand 43 percent
this year, according to the Mobile
Marketing Association. The bulk of
this spending goes toward voice-based
services because most Indians carry
basic-feature phones.
Unilevers service is a far cry from
Spotifys popular music-streaming
service, where subscribers can listen
to personalized playlists. On Unilevers
offering, which the company says has
lured 8 million listeners since its start
last October, a user places a call to a
special number that disconnects after
two rings so that the consumer doesnt
have to pay for the call. The system then
calls back and plays a 15-minute prerecorded chunk of music interspersed
with ads for the companys soaps, skin
creams, shampoos, and detergents.
All users listen to the same recorded
segment, which changes weekly.
Several companies, including
Mondelzs Cadbury subsidiary, have
offered free mobile airtime credit to
customersan attractive come-on in
a country where 97 percent of mobile
subscribers use phones with prepaid
SIM cards. A code printed inside the
packaging of Cadburys 5-Star chocolate bar enables the customer to
redeem the points. Likewise, buyers
of PepsiCo beverages and snacks get



15 rupees in free airtime. And Marico,

Indias biggest seller of hair oil, in
September started a service where
consumers receive prerecorded calls
offering basic English lessons.
Unilevers mobile campaign for its Axe
deodorant takes a different approach.
Each Axe package has a code that buyers
can use to enter a drawing to win a ticket
to a party on a yacht. Once a user registers, a womans prerecorded voice calls
his phone regularly, urging him to buy
more Axe to increase the chances of
gaining entry to the party.
Some marketers say its difficult to
measure how well the music services
translate into product sales. In addition, costs for the companies can quickly
rise to unsustainable levels if millions of users flock to a free service, says
Milind Pathak, global head at One97
Communications, which owns Paytm,
a clearinghouse that offers loyalty points
and coupons for consumers who need
to buy airtime minutes for their phones.
(Intel is one of Paytms investors.) Its
impossible to sustain these kinds of costs
unless you are a really big company with
lots of brands, Pathak says.
There also are some concerns about
the longevity of the new call-back ad
campaigns. Its a new thing and might
be successful for the first three or four
months, says Harsh Mehta, a Mumbaibased analyst at HDFC Securities. The
customer would eventually get bored
with the same stuff. But for now, the
next call many rural Indians receive
may be an ad. Adi Narayan
The bottom line Mobile ad revenue in India hit
$49.9 million in 2013. Spots are mostly recorded
voices because of the dearth of smartphones.


Selling Ethical Fashion

To the Whole Foods Set
 Startup clothing retailers pitch
paying more and buying less
 If its not a beautiful product, no
ones going to buy it

When the founders of clothing retailer

Zady went to fashion trade shows
looking for suppliers, they asked
apparel line reps a simple question:
Where do your clothes come from?
Most of the answers were vague; one


company said the Orient. Only a

handful of small American factories
and boutique craftsmakers overseas
were eager to talk about their garments
origins. These were the kinds of manufacturers Zady co-founder Soraya
Darabi wanted to work with.
Zady is among a growing number
of online retailers that are betting on
a backlash against low-wage factories
churning out cheap clothes meant to
last only a season. The startups, including San Francisco-based Web stores
Cuyana and Everlane, are charting a
middle course between mass-market
retailers such as Hennes & Mauritz
and Zara and exclusive luxury brands
out of the reach of most shoppers. And
they believe customers will pay more for
classic, higher-quality apparel and accessories that are made more ethically than
mass-market, low-cost clothing.
The collapse of Rana Plaza, the
Bangladeshi factory where more than
1,100 workers died in April 2013, and
other manufacturing disasters have
prompted some consumers to think
more about where their clothes come
from. Retailers, under scrutiny after the
tragedy, have called for better audits of
factories in Bangladesh, but inspections
have lagged. Major brands are also marketing more sustainable practices: H&M promotes its
conscious collection made
of organic

Everlane caters
to the person
who shops at
Whole Foods
and listens to
NPR, says
founder Preysman,
who posts photos
of his suppliers
factories to
reassure shoppers



Number of garments produced daily

leather and silk. And Zara parent Inditex

was an early donor to a trust fund for
Rana Plaza victims and their families.
The startups are unlikely to take
much market share away from apparel
giants, but theyll increase pressure on
them to improve manufacturing practices, says Elizabeth Cline, author of
Overdressed: The Shockingly High Cost of
Cheap Fashion. She cites a recent fullpage ad Zady bought in the Wall Street
Journal that proclaimed, Fast fashion is
fast food. That absolutely changes the
way consumers think and changes their
expectations when they walk into a fastfashion chain, Cline says.
Michael Preysman, the 28-yearold founder of Everlane, describes
his target customer as the person
who shops at Whole Foods and listens
to NPR. Everlane advocates what
Preysman calls radical transparency.
The website prominently displays a
link to a page with detailed narratives
and photographs of its factories in
China, Europe, and the U.S. People
are yearning for information, and if
you tell it to them in the right way, it
can help grow the brand and the customer base, he says.
Everlane sold only T-shirts when it
opened in late 2011. It now sells other
clothing and accessoriesand about
30,000 T-shirts a month that retail for
$15 to $30 each, Preysman says. He says
he can keep prices low for premium
materials by selling directly to

consumers online rather than through

other retailers. The 40-employee
company, backed by $3 million in
venture capital, has had more than
120,000 customers to date, he says.
Beyond shedding light on their suppliers, the startups are trying to persuade
consumers to pay more for finely crafted
clothing. Cuyana, which opened in 2013,
urges shoppers to buy fewer, better
things. (DeBeers used the same tag line
to sell diamonds in the months after
the 2008 financial meltdown.) Cuyana
co-founder Karla Gallardo says the seed
for her two-year-old venture was planted
in 2001, the week she arrived in the U.S.
from her native Ecuador to attend Brown
University. Amazed by the choices available to U.S. teens, she went on a $1,000
shopping binge at a Providence mall. She
was embarrassed trying to explain the
charges when her father called the next
day. All the trendy things I bought kind
of got destroyed in the washer, or I didnt
wear them, she says.
After stints at Goldman Sachs,
Stanford Business School, and Apple,
Gallardo raised $1.7 million to start the
womens apparel company. Her pitch to
customers: timeless, classic pieces that
will make sturdy wardrobe staples. Our
whole idea is to work with suppliers that
have decades if not centuries of expertise with the materials we work on,
Gallardo says. She says her factories in
10 countriesfrom Peru to the U.K.also
supply luxury brands, but Cuyana can

offer more affordable prices because,

like Zady and Everlane, it sells directly
to consumers. A tote bag of Argentine
leather costs $150; a cashmere stole from
Scotland goes for $190. Burberrys cashmere scarves start at twice that.
While all three companies hype the
provenance of their goods, none expects
to make a sale simply by appealing to
buyers consciences. If its not a beautiful product, no ones going to buy it,
says Zady co-founder Maxine Bdat.
Although theyre targeting the Whole
Foods crowdZady hosted an April
panel on food and fashion at one of the
grocers New York storestheir design
and presentation are more Vogue than
Whole Earth Catalog. Theres nothing
granola about our site, Bdat says.
John Tozzi
The bottom line By selling direct, startup
online retailers can offer ethically made,
higher-quality products at affordable prices.


The Law of Gravity Isnt

Working for This Generic
 Delays for a generic rival to Diovan
yield $900 million in higher prices
 Novartis has been reaping this
massive benet

In the drug business, the arrival of

generic competition usually means
falling prices as rivals rush to win
market share for medicines whose
patents have expired. Then theres
Diovan from Novartis, a blockbuster
heart pill that lost patent protection in September 2012. In a process
specified by U.S. patent law, Indias
Ranbaxy Laboratories won the exclusive right to copy Diovan for the first
six months of the medicines generic
period. But U.S. regulators safety concerns over Ranbaxys factories in India
have kept the company from selling its
Diovan version. Since other drugmakers cant market their own generics
until Ranbaxys pill has been on sale for
180 days, Novartis continues to be the
only seller of the heart pill in the U.S.
at a price thats 37 percent higher than
what the company charged when the
medicine was under patent.
This patent-law quirk has expensive consequences for patients,


Diovans Price Goes Up and Up

Average prescription price,
excluding rebates

September 2012
Diovan patent


September 2013
FDA issues import
alert on the plant
Ranbaxy will use
to produce generic



insurers, and Medicare and Medicaid,

which together have paid as much as
$900 million more for Diovan than they
would have if a generic had come to
market in 2012. All this time, Novartis,
through no duplicitous intent, has been
reaping this massive benefit, says Jason
Rutt, head of patents at drug consultant Rouse in London. This is working
against consumers, as theyre paying an
exaggeratedly high price because there
is no generic.
The approval process for generic
drugs has two steps. While Ranbaxy
gained exclusive rights to sell the
Diovan copies for six months by being
first to apply, it failed to win clearance
from regulators reviewing the companys ability to safely and properly make
the drug. Thats the problem with the
law: It doesnt say what happens if no
final approval is given.
Unless the law is amended, generic
drugmakers agree to some arrangement, or there is a successful challenge, this situation may not be
resolved, says Kurt Karst, an attorney at Hyman, Phelps & McNamara in
Washington who advises drugmakers,
including some affected by Ranbaxys
delay. Congress isnt currently reviewing the law.
While unusual, this patent flap isnt
a one-off. AstraZenecas Nexium
acid-reflux pill and Roche Holdings
Valcyte antiviralboth of which
Ranbaxy has the rights to produce
generics forface the same situation
when patents on them expire later this
year. Critics say the situation undercuts the goal of the Hatch-Waxman Act,
passed in 1984, to get low-cost treatments to market as quickly as possible. Typically, a drugmaker that wins
approval to make a generic gets a sixmonth window of exclusivity, and the
launch of a single generic version of
a named drug leads to a price drop

Originally priced at
$150, now offered for up
to 10x more on Ebay

of 30 percent to 50 percent, according to consultant IMS Health. After

six months, as other drugmakers start
making their own copies, the price drops
by 60 percent to 90 percent, IMS says.
Using those percentages, a Bloomberg
calculation put the lost savings from the
Diovan delay at as much as $900 million.
Diovan was for several years the
best-selling product for Switzerlandbased Novartis, with global sales
peaking at $6.05 billion in 2010.
Ranbaxy first asked for permission to
copy the Novartis product in 2007. The
medicine is prescribed to lower blood
pressure by relaxing and widening the
blood vessels. A version of the therapy,
called Diovan HCT, pairs it with a
diuretic to help rid the body of salt
and water. While there are generic versions of the HCT form on the market,
Ranbaxy failed to win Food and Drug
Administration approval to sell the
generic of Diovan as a monotherapy.
Ranbaxy planned to manufacture
Diovan in its Mohali, Punjab, plant.
The FDA banned exports to the U.S.
from that plant in September 2013.
Three other Ranbaxy plants in India
are also banned from selling their
products in the U.S. All four facilities failed inspections by U.S. regulators. On April 7, Sun Pharmaceutical
Industries said it had agreed to
acquire Ranbaxy from Japans Daiichi
Sankyo for $3.2 billion. Sun Chief
Financial Officer Uday Baldota said
it can draw from its past experiences
resolving FDA issues.
Ranbaxy Chief Executive Officer
Arun Sawhney said on April 7 that the
company maintains exclusive rights
to produce Diovan, Nexium, and
Valcyte copies and that he wouldnt
speculate on when they would
reach the market. The drugmaker
has declined to say why its copy of
Diovan wasnt approved. Sandy
Walsh, an FDA spokeswoman, says
the agency cant comment on the
status of drug applications.
Novartis doesnt comment
on regulators or competitors,
says Dermot Doherty, a spokesman. We also have no insight
into the timing of the launch of a
generic Diovan monotherapy in the
U.S. beyond what the market has
already speculated on, he
wrote in an e-mail.
The Elsa
One thing is certain:
Ranbaxys delay is good for
Novartiss financial health.

The Swiss company twice raised its

sales estimates last year because of the
lack of competition and has said that
every month without a Diovan generic
leads to $100 million in sales. Thats
given it $1.8 billion in Diovan sales
since the patent expired.
Makiko Kitamura
The bottom line A prescription drugs price
typically falls by as much as 50 percent when
a generic version is rst introduced.


The Heated Frenzy

For a Frozen Gown
 The lms huge success has set off
a rush for the Elsa dress
 It happens once or twice in a
business career

Aaryn Costello is searching for the

perfect dress, a 30-inch-long light-blue
number with a sparkly bodice and a
detachable white cape. That would be
the Elsa dress from the Walt Disney hit
Frozen, the most sought-after fashion
item among the kindergarten set. Many
stores are sold out, and limited-edition
versions originally sold by Disney have
been offered for up to $1,600 on EBay.
Desperate parents are sewing their own
or shelling out up to $225 for replicas
on craft sites such as Every
mom in the world is dying for this dress,
says Costello, a Los Angeles marketing consultant with a Frozen-obsessed
Toys, dolls, and clothes have always
been a big part of strategy at Disney,
the worlds largest licensing company.
Even so, its hit an unexpected merchandise jackpot with Elsa, the Snow
Queen of Arendelle, and her
ice gown. It took everyone
by surprise worldwide,
says Stephen Berman, chief
executive officer at Jakks
Pacific, a manufacturer
that sells to chains such
as Wal-Mart Stores
and Target. This is
a new Disney princess franchise.
It happens
maybe once
or twice in a
business career.



In January, stores sold out of Jakkss
versionprice, $20and some retailers
are ponying up to airlift reinforcements
By Kyle Stock
from Chinese factories.
Buyers stocked only about as many
of the ice gowns as they did Rapunzel
outfits from Disneys 2010 Tangled.
But since its Nov. 22 opening, Frozen
has become the top-grossing animated
film of all time, with worldwide theater
g primed the market for its first
receipts of $1.1 billion, according to
stock offering with a bullish profit report. Yahoo!,
researcher Box Office Mojo. We are
thrilled that audiences formed instant
which owns about a quarter of the company, said
connections to the characters, and
revenue at the Chinese e-commerce giant surged
we are working hard to get additional
The number of identity
products into stores as soon as possitheft and refund fraud
ble, wrote Tasia Filippatos, a Disney
investigations the
spokeswoman, in an e-mail. When
while profit more than doubled, to $1.4 billion. Internal Revenue Service
was pursuing as of
shipments do come in, Disney stores
Analysts say those numbers could push Alibabas the April 15
limit customers to two dresses to curb
income tax deadline.
value to $15 billion if it moves forward with a U.S.
black market sales. Filippatos declined
to comment on the size of the Frozen
IPO this year. H Credit Suisse Group began
merchandise market.
gathering e-mails to comply with a new state investigation into
Early on, Elsa dress sales were slow,
and stores thought theyd over-ordered.
whether it helped some high-roller clients evade U.S. taxes. This
Then kids fell in love with the movie
latest inquiry came via a subpoena from New Yorks Department
princess. As sales climbed and orders
poured in after Christmas, Jakks
of Financial Services. The bank
Italys Alfa Romeo
had trouble restocking because
returned to the U.S.
already paid $196.5 million to
of the Chinese New Year, which
after two decades, as
Fiat Chrysler showed
shut down manufacturing for
off its new 4C model at
a month until mid-February. It
the New York
SEC. Meanwhile, Credit Suisse
takes two to three months for
International Auto
Show. The car will hit
retailers to receive new shipposted a 34 percent decline
American dealerships
ments from China, according to
this summer.
Jim Silver, editor of,
in quarterly profit as its investa toy industry website. Demand picked
ment banking business stumbled. Burberry continued
up again in March when Disney issued
the film on DVD. Berman says Jakks will
to look sharp as retail sales at constant exchange rates climbed
roll out new merchandise this year,
13 percent, to $1.6 billion, in the six months ended on March 31.
including Frozen-themed furniture and
snow-cone machines. He also expects
The British fashion house is making progress in new categories,
Elsa and Olaf, the snowman from the
including fragrances and mens accessories. Supplies
movie, to be top Halloween costumes.
of popular athletic shoes could get tighter soon. An estimated
Disney designers created fancier versions of the dress priced from $50 to
30,000 workers are striking at the huge Yue Yuen Industrial
$150 for sale at the companys stores and
parks. The sought-after limited edition,
Holdings factory in Dongguan, China, where Much of the
which has a white cape and a bejewwe
40,000 employees produce shoes for Nike, progress
have made in
eled cameo, is fetching top dollar online.
last two months
Costello, the L.A. mother searching for
Adidas, Puma, and Asics. Workers want a the
has been
the dress, says her daughter got an Elsa
30 percent pay increase and better benefits. overshadowed
by the intensity
nightgown for Christmas and wears it
the recall
every dayeven to the park. Costellos
r A debate over fracking is proving to of
coverage, but
holding out for the limited edition of the
be a gusher for Colorado newspapers and inhasfact
been a lot
ice gown. I, of course, she says, want
the real deal. Christopher Palmeri
TV stations. Ads from drilling outfits such as of good news.

Look Out, Bezos


The bottom line Disneys Frozen, which

has taken in $1.1 billion at the box office, has
caused a run on a dress featured in the lm.
Edited by James E. Ellis

Anadarko Petroleum and Noble are pouring in

as the energy industry lobbies against at least
10 measures to curb the practice in the state.

Mary Barra, CEO,

General Motors, on
GMs success in
raising prices, its U.S.
market share, and
China sales

States go after
offshore corporate
cash 27

Will the Bank of

Boeing stay aloft? 28

Uncle Sam wants you,

cyberwarrior 29
April 21 April 27, 2014

Kansas Tries to Shrink

Its Way to Prosperity

Sam Brownback turns his state into a budget-cutting, tax-slashing, Tea Party laboratory



tax cuts dont pay for themselves. That just is not happening
Sam Brownback has been a Tea Partier
since before the Tea Party was born.
When he became governor of Kansas
in 2011, he set about making the state
a testing ground for conservative
principles, including cutting funding for
some public education and the eventual
elimination of the states income tax.
Our new pro-growth tax policy will be
like a shot of adrenaline into the heart of
the Kansas economy, he wrote in a 2012
op-ed. He predicted cutting taxes would
pave the way to the creation of tens
of thousands of new jobs, bring tens of
thousands of people to Kansas, and help
make our state the best place in America
to start and grow a small business.
The Kansas experiment attracted the
attention of both conservatives and liberals around the country, who saw it as

an acid test for the Tea Party agenda.

Brownback, a former U.S. senator who
briefly ran for president in 2007, crept
up the long list of dark horse candidates
for the 2016 Republican nomination.
A little more than a year has passed
since the first phase of the Brownback
tax cuts went into effect on Jan. 1, 2013,
so its possible to make a preliminary
assessment of their effects. The early
verdict: not too good. The jury is still out
on whether lower taxes will stimulate
businesses to expand and hire over the
long term. But the immediate effect has
been to blow a hole in the states finances
without noticeable economic growth.
In Kansas, one of the nations reddest
states, the relevant political split isnt
between Republicans and Democrats
but between conservative Republicans

and somewhat more moderate ones.

National Journal recently ranked
Kansass four-member congressional
delegation the most right-leaning in the
country. That describes Brownback,
too. A convert to Catholicism from
evangelical Protestantism, he is as conservative socially as he is fiscally, opposing abortion and same-sex marriage.
His campaigns have long been supported by billionaires Charles and David
Koch, the conservative majority owners
of Koch Industries, based in Wichita.
The state income tax cut that
Brownback signed in 2012 was the
nations biggest, in percentage terms,
since the 1990s. That was a very different era, when states were able to
cut taxes steeply because boom times
had left their coffers overflowing.



Brownback made his cuts in the face

of economic weakness, not strength.
The first phase reduced the top rate
from 6.45 percent to 4.9 percent while
immediately eliminating income tax on
business profits from partnerships and
limited liability corporations that are
passed through to individuals. A 2013
measure put the income tax top rate on
track to decline to 3.9 percent by 2018.
The most authoritative study of the
effect of these measures is a January
report by the Kansas Legislative
Research Department, a nonpartisan
arm of the legislature. It found that
revenue isnt keeping up with expenses
even after cuts in spending on K-12
schools, colleges, libraries, local health
departments, courts, and welfare. If
nothing changed, the research departments numbers show, the states
general fund would have a shortfall of
about $900 million by fiscal year 2019,
or 14 percent of expenses that year.
The states constitution requires a balanced budget, so either taxes will have
to go back up or spending will have to
come down even more. The tax cuts
dont pay for themselves, says Duane
Goossen, who served as state budget
director under both Republican and
Democratic governors. That just is
not happening.
The budget picture has actually darkened since the release of the research
departments January report. In March,
the Kansas Supreme Court ruled that
cuts to aid programs that close the gap
between rich and poor students violated the state constitution. That wasnt
all Brownbacks fault: The cuts began
under his Democratic
predecessors, Kathleen
Sebelius and Mark

Tax Cuts Have a Price

Kansas general fund balance


The state will have
to raise taxes or cut
spending further to
keep this from falling
below zero


Parkinson, who were scrambling to

balance the state budget during and
immediately after the 2007-09 recession. But instead of reversing the cuts
as the economy healed, Brownback
deepened them. Per-pupil state aid
this school year is $3,838, down from
$4,400 in 2008-09. The high courts
decision came 60 years after another
landmark schools case involving
Kansas: Brown v. Board of Education,
in which the U.S. Supreme Court ruled
that separate educational facilities are
inherently unequal.
This month the state legislature added
almost $130 million a year in K-12 school
funding to address the state Supreme
Courts finding that students in poor districts were being cheated. The justices
also instructed the trial court to reconsider a different question raised in the
case: whether school funding overall
is simply too low. A ruling against the
state on that issue could force the legislature to approve hundreds of millions of dollars in additional education
spending, further ballooning the
states expensesand jeopardizing
Brownbacks tax-cutting legacy.

We want to personalize
this. This isnt just the
faceless masses.
Donny Williams, who teaches Keystone XL protesters to use civil disobedience
tactics, such as getting arrested, to pressure President Obama to kill the pipeline.

Republican governors looking to

Brownback for ideas to copy dont have
much to latch on to. Employment is
rising, but no faster than in neighboring states. Applebees International
moved its headquarters from Kansas to
Missouri shortly after Brownback took
office. In 2012, Boeing said it would
close its historic Wichita plant, costing
more than 2,000 jobs. In 2013, the first
year the cuts were in effect, pretax personal income growth in Kansas was
lower than in neighboring Oklahoma,
Colorado, Nebraska, and Iowa, and
about the same as in Missouri.
Brownback spokeswoman Sara
Belfry says, We have increased
funding to K-12 every year we have
been in office, and produces charts
showing steady increases in the
number of teachers. True on both
counts. The funding increase didnt
directly benefit students, however: It
was mostly due to catch-up contributions to the teachers pension fund and
required payments to school districts
issuing construction bonds. While the
number of teachers is slowly rising,
its still below where it was before
the recession, according to Kansas
Education Department data.
Voters arent impressed. Only a third
of Kansans approved of Brownbacks
job performance in a February poll
by Public Policy Polling. Running for
reelection this year, hes in a statistical dead heat with his main Democratic
challenger, House Minority Leader
Paul Davis. The governor is championing a red state model, and its truly not
working, Davis says.
Brownbacks supporters see bright
spots. Art Hall, executive director of the
Center for Applied Economics at the
University of Kansas School of Business,
notes a surge in business registrations
and says, It definitely looks like more
people are trying to get in the game.
On the other hand, he says theres anecdotal evidence that some people rushed
to set up businesses because they mistakenly thought they had to in order to
qualify for certain Brownback tax cuts.
Hall is a former Koch Industries economist who served as an unpaid efficiency
analyst for former Democratic Governor
Sebelius. He applauds Brownbacks
emphasis on spending cuts: You could
cut a lot of money out of the budget and
keep everything whole if you really put
your mind to it.
That kind of cutting isnt painless.
Rising Medicaid rolls, court-ordered



Companies Foreign Tax Havens Cost You Plenty
Microsoft, Pzer, and other businesses avoid U.S. taxes by keeping billions in prots overseas.
Heres what the revenue would add up to, per person, if states and the IRS could get it.
Lost tax

States that would gain

the most per capita
District of Columbia

Less than $750

$750 - $999
$1,000 - $1,249
$1,250 - $1,500
More than $1,500

North Dakota


New York



A 2013 state law

requires companies to
report and pay taxes
on prots stashed in
39 overseas havens

New Jersey



The rst to recover
overseas taxes with a
2003 law thats a model
for other states


school spending, and simple inflation will

tend to cause spending to rise, not fall, in
the years ahead. The question is whether
Brownback will still be in office to try to
keep that from happening. Peter Coy
The bottom line In Kansas, income growth is
lower than neighboring states despite
or because ofsteep tax and budget cuts.


States Target Corporate

Cash Stashed Overseas
 Laws require companies to pay
state taxes on sheltered prots
 Its not smart, and not fair to let
businesses hide money abroad

Members of Congress have complained

for years about U.S. corporations
that park profits overseas to avoid
paying federal taxes. Yet efforts to pass
corporate tax reform that includes
incentives and penalties to prod businesses into bringing that money home
have stalled in Washington. Tired
of waiting for a fix, several states
are going after state tax dollars that
disappear into offshore havens.
Oregon enacted a bill last June for the

2014 tax year identifying 39 countries

and territoriesincluding Barbados,
Liberia, and the U.S. Virgin Islands
as corporate shelters. The state counts
profits that corporations and their
subsidiaries stash in shelter countries
as taxable income, and companies that
do business in the state must report it
on their state tax returns and pay up.
On April 16 the Democrat-controlled
Maine legislature gave final approval
to similar legislation, over objections
from some Republicans that its antibusiness. Minnesota and Rhode Island
are studying whether to pursue bills of
their own. The issue at hand is one of
fairness, Maine Representative Adam
Goode, a Democrat from Bangor, said
during the debate on the bill he sponsored. It really just seemed not in
balance, not smart, and not fair that
we would allow multinational corporations to hide their corporate income
in a place like the Cayman Islands or
in Bermuda.
Offshore tax shelters cost the
federal government $30 billion to
$90 billion annually, according to a 2013
Congressional Research Service report.
The U.S. Public Interest Research
Group, which tracks corporate taxes,
puts the amount that states lose at
$20 billion a year. The largest U.S.based multinational companies have
accumulated $1.95 trillion in profits

outside the U.S. Thats up $206 billion,

or 11.8 percent, from a year earlier,
according to securities filings from
307 corporations.
Microsoft, Apple, and IBM
accounted for $37.5 billion, or
18.2 percent, of the total increase during
the past year. Caterpillar avoided
$2.4 billion in U.S. taxes over more than
a decade by shifting profits from a parts
business to a subsidiary in Switzerland,
according to a report issued on March 31
by a Senate committee. The company
says the move was legal and appropriate.
To the extent that they have figured
out ways to avoid paying their proper
share, then its our job to try to prevent
them, says Oregon State Representative
Phil Barnhart, a Democrat who sponsored tax-haven legislation there.
The model for the recent legislation
is Montana, which began taxing sheltered profits a decade ago, followed by
Alaska, West Virginia, and the District
of Columbia. Montana recouped
$7.1 million in taxes in 2010 from companies that held money in five top
havens, according to a 2012 state report.
Oregon estimates its new law will allow
it to bring in $18 million a year initially.
Maine projects $5 million in additional
yearly tax revenue if Governor Paul Le
Page, a Republican, signs the bill. (He
hasnt said whether he will.) Thats
not much by Washington standards,


but its a sizable windfall for smaller
states struggling to meet their budgets.
Few of the states that have passed or
are contemplating tax-haven legislation are home to a large multinational
such as Microsoft, which is based in
Washington, or Apple in California, IBM
in New York, or Caterpillar in Illinois.
Those states would stand to collect far
more from such measures. California
lost the most to offshore havens in 2011,
an estimated $3.3 billion, the Public
Interest Research Group reports. Ron
Erickson, a former lawmaker who sponsored Montanas bill in 2003, expects
more states to start demanding their
share. Im discouraged that its gone
this slowly, he says, but Im also
of the confident sort that thinks that
eventually fairness wins out.
Mark Niquette with Richard Rubin
The bottom line States want their share of
$20 billion in lost tax revenue from companies
that park prots in foreign tax havens.


Delta Attempts to Ground

The Bank of Boeing
 The airline demands an end to U.S.
loans to help foreign rivals buy jets
 The Export-Import bank is a
corporate-welfare slush fund

This year Congress will debate whether

to renew the charter of the ExportImport Bank, the 80-year-old federal
institution that helps U.S. companies sell products and services overseas by providing loan guarantees and

People on both

(Boeing disputes this figure.)

other sweeteners to foreign
sides of the
political spectrum
Conservative groups and their
buyers. And like the last time
allies in Congress have taken
the bank came up for renewal, see that
up the cause, saying the bank
in 2012, that debate will reigshould not be
isnt needed because foreign
nite a bitter, years-long feud
picking winners
companies can get financbetween two big American
and losers.
ing without the Ex-Im Banks
companies: Boeing, which
help. They also argue it benelobbies furiously to protect the Mike Lee
fits some U.S. companies over
bank, and Delta Air Lines,
others. People on both sides
which presses just as hard to
of the political spectrum see
eliminate the banks finanthat government should not be picking
cial aid for foreign buyers of Boeings
winners and losers in business, says
largest jetswho also happen to be
Republican Senator Mike Lee of Utah,
Delta rivals.
who wants to close the bank. The Club
The Ex-Im Bank put up $27.3 billion
for Growth calls the Ex-Im Bank a
in 2013 to help small and large U.S.
corporate-welfare slush fund.
companies close deals overseas. It
Those are the same words Barack
provided a South African company
Obama used to describe it when he
with $230 million in loan guarantees to buy 100 locomotives built
was running against government
by General Electric and gave a
breaks for big corporations as a presidential candidate in 2008. Hes since
$155 million direct loan to the Republic
changed his mind and joins most
of Ghana to finance a hospital expanDemocrats in backing the bank and
sion designed and built by Miamipraising the financial aid that makes
based Americaribe. Over the years,
Boeing and other U.S. companies
though, no U.S. company has benemore attractive to foreign customers.
fited more from the agencys largesse
Boeing President and Chief Operating
than Boeing. In 2013, the Ex-Im Bank
Officer Dennis Muilenburg told an
offered $7.9 billion in loan guarantees
April 3 meeting of the U.S. Chamber
to help the manufacturer sell 106 of
of Commercewhich supports the
its airplanes to foreign airlines in two
Ex-Im Bankthat its an important
dozen countries, reinforcing Ex-Ims
tool helping U.S. exporters to better
Washington nicknamethe Bank
compete around the world. The
of Boeing.
chamber and other backers point out
Delta, a major purchaser of Boeing
that Airbus receives generous export
jets, says the bank gives an unfair
boost to its overseas competitors. In an credit assistance from European governments. Ending the banks financApril 7 letter to the House Committee
ing for large aircraft exports would
on Financial Services, Lee Moak, a
amount to unilateral disarmaDelta captain whos president of the
ment, Muilenburg said.
Air Line Pilots Association, said the
Bank officials say
banks unnecessary financing of
their loans and guarwide-body aircraft gives foreign carantees clinch
riers an annual economic advandeals that
tage of $2 million per aircraft.

Jets vs. Jobs

In 2011 court documents, Delta
Air Lines blamed the Export-Import
Bank for a loss of as many as

In its 2013 annual report, the Ex-Im

Bank countered that its lending
helped companiesincluding
Boeingsell billions of dollars worth
of U.S.-made products overseas,
supporting more than

7,500 1.2m
U.S. airline jobs, saying foreign airlines
increased their passenger capacity
after buying Boeing jets using Ex-Im
Bank loan guarantees.

U.S. jobs.

otherwise wouldnt happen. Without
Ex-Im Banks backing in these competitive foreign sales, thousands of
U.S. jobs at Boeing and its suppliers
would be in serious jeopardy,
spokesman Daniel Reilly said in an
e-mail. The bank has another argument in its favor that assures Congress
will almost certainly vote to renew
its charter: Unlike other federal agencies that bleed tax dollars, the ExportImport Bankmakes money. Last
year, the interest and fees foreign
companies paid on the banks loans
generated more than $1 billion in
profit for U.S. taxpayers.
Justin Bachman
The bottom line In 2013, the U.S. ExportImport Bank allocated $7.9 billion to encourage
foreign companies to buy Boeing airplanes.


Wanted: A Few
Thousand Good Hackers

 The government is out to recruit

an army of cyberwarriors


 With such low pay, youd have

trouble attracting those guys

On March 28, Secretary of Defense

Chuck Hagel announced the
Pentagons plans to triple its cybersecurity staff by 2016. A few days later,
FBI Supervisory Special Agent Charles
Gilgen said at a conference on cybercrime that his agencys cyber division
is looking for 1,000 agents and 1,000
analysts in the next year. Add it up, and
the U.S. government is out to hire at
least 6,000 cyberwarriorsaka digital
spies, investigators, and hackers.
Thats not going to be easy. A look
at one way its tried to develop and
recruit talentby offering university
scholarshipsshows why.
The biggest such government
program, called CyberCorps:
Scholarship for Service, started in

2000. A partnership between the

National Science Foundation and the
Department of Homeland Security,
its a full ride scholarship for students pursuing degrees in math, engineering, the sciences, and computer
science who take additional classes
to learn cyber-skills such as defending against network attacks. The
courses, taught at dozens of participating schools, including Arizona
State, Johns Hopkins, Penn State, and
Syracuse, include a cash stipend of
$20,000 to $30,000 a year, depending on whether the student is pursuing a bachelors or advanced degree.
The University of Tulsa, which turns
out the most CyberCorps grads, trains
students to protect against attacks on
chemical plants, oil refineries, and
nuclear reactors. After they graduate,
recipients serve in the government
typically at the National Security
Agency or Central Intelligence
Agencyfor the same length of time as
they received funding, usually two to
three years.
While many government programs
are being cut, CyberCorps has seen its
budget triple to $45 million a year in
the past three fiscal years, says Victor
Piotrowski, lead program director for
CyberCorps at the National Science
Foundation. As of January, CyberCorps
had produced 1,554 graduates, with
463 more in school. You would think,
with all those benefits and a hot area,
cybersecurity, that people would just
be pouring into the program, says
Piotrowski. Instead, he says, we have
a very, very tiny pipeline.
One constraint is that participants must be U.S. citizens. Right off
the bat, that eliminates more than
70 percent of students seeking masters degrees in computer engineering at U.S. schools, he says. Another
big barrier: The government doesnt
pay as much as the private sector. An
online posting for a cyber-analyst job
at the Federal Bureau of Investigation
in 2013 (there arent any current listings on the federal governments job
site) advertised a salary of $33,979 to
$54,028. A U.S. Marine Corps listing
this month for an information security
specialist position in its cybersecurity
division gave a range of $89,924 to
$116,901 a year.
Thats not competitive, particularly for people with in-demand
technical skills in malicious software
analysis and reverse engineering,

according to Golden Richard, who

teaches cybersecurity courses at the
University of New Orleans. If you
couldnt break $100,000 as a starting salary, I think youd have trouble
attracting those guys, Richard says.
He recalls one of his students who got
a government scholarship to fund his
masters degree but was lured away by
a private company offering him about
$150,000 a year.
The competition is especially fierce
because there arent enough cybersecurity specialists to meet demand.
Almost 4 in 10 IT security positions
went unfilled in 2013, according to a
survey of more
than 500 organizations by the
Ponemon Institute,
which studies
informationsecurity policy. The
Number of students
figure was almost
who have graduated
6 in 10 for senior
from the U.S.
security jobs.
Even wouldCyberCorps program
be cyberworkers who want to serve their country
and not just sell their services to the
highest bidder can be put off by the
governments bureaucratic culture.
Hackers tend to want to work alone
and be independent and work on what
they want, says Richard. I dont see
those people being really happy locked
in a room unable to talk about what
theyre doing.
Finally, theres the Edward Snowden
problem. The NSA has been the programs biggest client, taking 142 of
its graduates from fiscal years 2007
through 2012. The former NSA contractors damaging leaks about the agencys clandestine operations could make
it a less desirable destination for top
talent, says Piotrowski of CyberCorps.
Its too early to tell whether this is
already happening, but Piotrowski says
hes heard of atleast one student who
dropped out of CyberCorps citing the
Snowden revelations as the reason.
Piotrowski worries that part of this
tiny community we created will turn
back, he says. Theyll say, I dont
want to spy on U.S. citizens.
Dune Lawrence


The bottom line Despite full scholarships

and plentiful jobs, the government has trouble
recruiting top cybersecurity talent.
Edited by Weston Kosova


Everything is helping kids get it.

When every fossil and lesson plan connects, education gets a lot brighter.
The Internet of Everything is changing everything. Is your network ready?

Two words may

mean life or death
for Aereo 32

Staples closes
stores but expands
into 3D printing 34

Crafting the perfect

home brew just got
easier 33

Innovation: A water
bottle thats good
enough to eat 35


April 21 April 27, 2014

Can HTCs Co-Founder

Come to the Rescue?

Wang steps in to manage the troubled phonemaker

will take more than quality products to save HTC

When HTC two years ago first tried

to attract attention to its new line
of smartphones, the One, it threw a
bunch of people out of a plane. The
Taiwanese company challenged a
photographer to make a commercial
while skydiving, and sent lighting and
makeup crews hurtling earthward
along with him and a model. The ad
looked cool but didnt stop consumers from turning their attention elsewheretoward Apple and Samsung.
Back when the skydiving stunt was
filmed, about 1 in 10 smartphones sold
globally came from HTC; now its about
1 in 45. Since the third quarter of 2011,
its Taiwan-listed shares have plunged
77 percent. After logging an operating
loss of $54 million for 2013, HTC on
April 7 reported a first-quarter loss
of NT$1.88 billion ($62 million), well
below average analyst estimates.
The task of stopping the free fall
will now fall to Cher Wang, HTCs
co-founder, chairman, and largest
shareholder. Her role at the company
has always been a little murky to outsiders, but now she has fully stepped
into day-to-day management, taking
control of marketing, operations, and
customer service from co-founder
Peter Chou, the president and chief
executive officer.
In an interview at the companys
headquarters on the outskirts of Taipei,
Wang says Chou isnt going anywhere.
Sitting between Chou and her assistant, whose laptop has a piece of paper
taped over its logo, Wang says she has
faith in the CEOs phone designs and
that he asked her for help selling them.
We just have to communicate well with
our customers, Wang says. I believe if
we can communicate better, we will do
better. Chou has fewer responsibilities,
but hes keeping his titles. I think we
are on the right track, he says. Now
Cher is 100 percent focused on marketing, customer service, so I dont have to
worry. I have a lot more time driving the
product, quality, supply.
With Apple and Samsung in control
of about half of the global smartphone
market, HTC is reversing course and
backing away from high-end hardware. The company, which had pared
down its One line from nine models
at various price points to a single flagship phone, is now developing new



The One Isnt No. 1


Samsung has emerged

as the dominant Android
smartphone maker

HTCs global shipments
have been sliding
since the end of 2011








people, she says.

Chief Financial
Officer Chia-Lin
$16b Chang isnt just
staying in place;
hes now heading
global sales. Once
you fix the product
portfolio issue,
you will be able to
FY2004 FY2013
realize your potential, Chang says.
Since Wang, 55, started becoming
more active at HTC last summer, the
stock has rebounded slightly, if inconsistently. The daughter of a petrochemical
billionaire, Wang was Taiwans richest
woman until HTCs stock tanked. She
owns more than a fifth of HTC, which
she helped create in 1997 after 15 years
with First International Computer, a
PC manufacturer co-founded by her
sister Charlene. She has dedicated
time to charity, establishing a Chinese
college free to students from lowincome families and handing out tablets
to high school kids in Taipei, and supported research into condensed-matter
physics. At HTC, Wangs experience,
resources, and networking in the U.S.
she has a masters degree in economics from the University of California at
Berkeleyhelped her recruit executives
able to shape the company into a smartphone pioneer. HTC had the first phone
running Android, and as recently as the
third quarter of 2011 was the top smartphone brand in the U.S.
Today, Samsung is the dominant
maker of Android phones and Apple
is the most valuable company in the
world. Of 31 analysts who cover HTC,
not one recommends buying its stock.
The companys first-quarter sales
decline of 23 percent from both the previous quarter and the same period a
year earlier reflects poor management
of production, says Calvin Huang, an
analyst with SinoPac Financial Holdings
in Taipei. It will take more than quality
products to save HTC.
Although its hard to see how HTC
has a chance against its giant rivals,
let alone a wave of low-cost upstarts
from mainland China, the company
has some options. It has a market valuation of about $4.4 billion, no debt,
and a decent amount of cash. Its new,
cheaper smartphone, the Desire 816,
has had a strong early run in China.
HTC could partner with a Chinese
company, or it could go private, as
Dell did after it went into a slump.
HTC Revenue in
Free Fall

Wang says she doesnt see the need

to consider such wrenching moves.
Chou dismisses Samsungs dominant
position among Android phones with
the argument that big names come
and go. The market can change,
he says. Once Nokia was like that.
Once Motorola was like that. Once
BlackBerry was like that. But he
could just as easily be talking about his
own company, which appears to be
skydiving and hoping its parachutes
may still yet open. Bruce Einhorn
and Tim Culpan
The bottom line HTCs chair and co-founder
has stepped in to revitalize the company but
isnt advocating for radical changes.

Streaming Video

Aereos Survival
Depends on Semantics
 The Supreme Court must parse the
meaning of public performance
 They have to explain how its
different fromcloud computing

Billions of dollars may be at stake in the

final round of the legal dispute between
broadcast networks and the online
streaming service Aereo, but the case
will come down to the interpretation of
two words: public performance.
Aereo, a two-year-old startup funded
by Barry Dillers IAC, charges viewers in
about a dozen U.S. markets $8 a month
to record or stream live broadcast TV
signals to their PCs, smartphones, and
tablets using dime-size antennas. On
April 22, the Supreme Court is slated to
hear arguments about whether Aereos
distribution of broadcasts infringes
copyright law, which says that the rights
holder controls the public performance
of artmusic, plays, TV shows, films.
Performances are considered public
if given before, or transmitted to, an
audience that extends beyond close
friends and relatives. As interpreted
under the 1976 Copyright Act, this gives
TV networks the right to charge cable

A dissenting judge called

Aereo a Rube Goldberg-like
contrivance designed to get
around the spirit of the law



low-end hardware. When last years

model of the One was released, it sold
about 5 million phones in its first two
months, compared with 20 million for
Samsungs Galaxy S4. (The iPhone 5
hit the 5 million mark in three days in
2012.) This years One, the M8, got rave
reviews for its sleek design and high
performance when it was released
in March, a few weeks ahead of the
Galaxy S5. HTC hasnt released early
sales figures.
Under Wang, HTC also is adding contractors to shore up its supply chain,
which snapped last year when its component makers ran out of some parts.
Before Wangs help with daily operations, Chou says, I was too busy to
keep an eye on such problems.
Wang is trying to return to a model
that includes less expensive phones,
but shes still trying to establish a highend image in the U.S. HTC is guaranteeing U.S. customers a free replacement
for any smartphone screen that cracks
within six months of purchase. To
promote the One M8, HTC hired actor
Gary Oldman for a talk-to-the-camera spot that suggests the phone is
the choice of the most discerning consumers. That message is at least more
targeted than the slogan used in the skydiving ad: Quietly brilliant.
Although boards at struggling
companies often demand full-scale
overhauls, Wang isnt planning big
personnel changes. We have great

Hopped Up
companies to retransmit their shows.
Broadcast TV retransmission fees totaled
about $3.3 billion last year, according to
research firm SNL Kagan, which expects
fees to reach $7.6 billion by 2019.
The networks argue that Aereos
antenna streaming is essentially stealing
their programming. Fox and CBS have
publicly threatened to shift to a cable
model to make sure they get paid,
though the service may also make it
easier for cable subscribers to cut the
cord. (Aereo has struck a deal to carry
one cable channel: Bloomberg TV,
which is owned by Bloomberg LP, the
parent of this magazine.)
Aereo contends that its retransmission isnt a public performance because
each viewers Aereo antenna can only
receive a particular signalmeaning
there are a thousand audiences of
one, rather than a public audience of
a thousandand because the viewers
choice of when to stream a broadcast or
play back a recorded program is similar
to the legal use of a DVR or VCR. The
companys argument relies largely on
a 2008 federal appellate court holding
that Cablevision didnt infringe network
copyrights by letting customers save
shows on its servers. Aereo argues that a
court decision against it would threaten
a broad range of cloud computing services, because depending on how broad
the decision is, it might restrict personal
storage of media that users stream themselves. Youd be asking the consumer to
restrict their conduct to the consumers
premises if any transmission becomes a
public performance, says Aereo Chief
Executive Officer Chet Kanojia.
The broadcasters first sued Aereo in
New York in March 2012, seeking a preliminary injunction; it was denied in
federal district court and on appeal. A
Massachusetts federal district court also
denied an injunction, but a Utah federal
district court granted one. FilmOn,
an Aereo rival that works in a similar
manner, lost cases in California and the
District of Columbia. Both Aereo and
the broadcasters asked the Supreme
Court to take the upcoming case.
In the federal appellate case, a dissenting judge called Aereo a Rube
Goldberg-like contrivance designed
to get around the spirit of the law.
Yet its hard to draw a clear technical
line between the technology used by
Aereo and that of Cablevisions DVR,
or between that of Aereo and Apples
iCloud. Apple lets consumers stream
music, TV, and movies theyve already

purchased, and Aereo argues that its

own service offers access to broadcast
programming that would be free
anyway. The problem the court faces
is that if they want to say that Aereo is
violating the law, they have to explain
how its different from Cablevision or,
more generally, cloud computing, says
Christopher Sprigman, a professor at
the New York University School of Law,
who isnt involved in the case.
The high courts decision, expected
by the end of June, will almost certainly have to draw the kinds of fine distinctions that show why copyright has
been called the metaphysics of the law.
( Justice Samuel Alito recused himself for
undisclosed reasons, creating the possibility of a tie, in which case the earlier
win for Aereo would be affirmed.) I
tend to think this is a simple and narrow
question, says Neal Katyal, a former
acting U.S. solicitor general advising the
networks in the case. He points out that
the U.S. Department of Justice submitted
an amicus brief urging a narrow decision
in favor of the broadcasters. Aereo has
tried to make this about the future of the
Internet, Katyal says, but this is a court
thats really reluctant to make big pronouncements in the realm of technology
and the law. Robert Levine

test batch

Cost with


The PicoBrew
Zymatic has
compartments for
hops that add
avor and aroma


The bottom line At stake in a Supreme Court

case is Aereos streaming model and networks
retransmission rights, worth billions.


A Home-Brew Machine
For Every Counter
 Microsoft alumni form PicoBrew to
automate personal beermaking
 They do things this way because
theyve always been done this way

Four years ago, Bill Mitchell spent his

days helping run Microsofts Windows
division and his nights struggling to
craft the perfect home brew. After
putting his kids to bed, the Microsoft
vice president would stay up cleaning
heavy pots and fermenting beer. No two
attempts ever worked out the same,
and he eventually called his brother
Jim, a food scientist, to talk about a way
to simplify the process using technology. The result, the Mitchells say, is the
first fully automatic, all-grain tabletop

About 1.2 million

people in the U.S.
make their own
beer, according
to the American

created Tang
and Pop Rocks,
are targeting the
1.2 million people
the American
Price of
Association estiPicoBrews
mates are making
Zymatic tabletop
beer at home.
brewing machine
Some professional
brewers have
also expressed interest in using the
machine to refine their formulas. Matt
Lincecum, the owner of Fremont
Brewing in Seattle, says the test
batches he makes in standard microbrewery tanks cost him $1,500 to
$2,000 each; with the PicoBrew hardware, its about $3. Lincecum can set
the Zymatic and more or less leave it
be. With most home-brew equipment,
you have to sit there and baby-sit the
thing for eight hours, he says.
The software lets brewers add
ingredients such as elderflower and
bitter orange peel and predicts a given
recipes alcohol content and bitterness based on hundreds of test batches.
Some of the preset recipes come from
PicoBrews brewmaster, Annie Johnson,
who says she was skeptical of the technology until she tried it.
Bill Mitchell says he funded the
company with $170,000 in cash and
loans and began to expand in 2012,
when the three co-founders hired
their first employee, his collegeage daughter. PicoBrew completed
a $400,000 angel seed round last
May and took in more than $660,000
from its November Kickstarter campaign, exceeding its goal in a day. He
says hes raising an additional small
funding round from seed investors but
wouldnt disclose the target.



The estimated share of the 781 million games registered to players

on Steam, the online gaming network, that have never been played,
according to an April 15 report from Ars Technica

Steam has more than

75 million players

The report estimates

players have spent a
combined 3.8 billion hours
on ghting game Dota 2

Theres at least one other company

building a high-tech automated beermaker: Belfast-based Cargo, which
will begin shipping its Brewbot in
May, according to the projects principal developer, Jonny Campbell. The
Brewbot stands almost 4 feet tall,
much bigger than the Zymatic, and
costs 1,700 (about $2,855).
Bill Mitchell says hes working to
lower the price of the Zymatic, which
he hopes can become as common
as a home espresso maker or bread
machine. Reactions so far have kept him
optimistic: When managing Windows,
he says, you didnt get a lot of people
saying, Thats awesome. You get that
with this machine. Dina Bass
The bottom line PicoBrew is starting to ship
its $1,700 home-brewer to its Kickstarter
backers, who pledged more than $660,000.


Staples Could Use

A 3D Hit
 The stores success with copy
services enters a new dimension
 The way we envision this working
is from soup to nuts

Times are tough at Staples, which

announced last month that it plans to
shutter as many as 225 of its roughly
1,850 North American stores within
two years. The office supplies retailer
also said its abandoning low-selling
product lines, although it hasnt named
any yet. As it recruits executives to
strengthen its e-commerce division,
however, Staples is expanding one
brick-and-mortar business thats doing
well: its copy shop. The company has
increased revenue from copy and print
services over the past two years,
partly offsetting revenue declines
from sales of printers and other hardware. Now its trying to do the same
with 3D printers.
Buying a 3D printer from Staples
runs customers about $1,500, and few
can use one often enough to justify
the investment. Since April 10, the
company has been offering 3D printing services at two test stores in New
York and Los Angeles. The idea is to
appeal to small business owners
including engineers, jewelry makers,




brewing machineone that can make

beer to specifications, relatively quickly
and with minimal effort.
In 2010, Bill Mitchell quit his day job
to develop the company, PicoBrew;
co-founder Avi Geiger, another
Microsoft veteran, did the same the
following year. Jim Mitchell, who scaled
back his consulting work to make
PicoBrew his full-time gig in 2013, says
his goal was to figure out how to bring
home beer brewers into this century.
They do things this way because
theyve always been done this way, he
says. Now the first models of the $1,700
PicoBrew Zymatic are being shipped to
the companys Kickstarter backers,
Bill Mitchell says. At least 25 of the hundreds of Zymatics ordered so far will
be hand-built by some of PicoBrews
6 employees and 14 interns in their
office on a residential street in Seattle.
The Zymatic is a stainless steel
box about the size of a large microwave. It has a plastic drawer divided
into five chambers, one for malted
barley and other grains, four for hops.
Attached is a five-gallon Cornelius
keg, a home-brewing standard that
holds water and, later, the beer while
it ferments. After the beer lover programs in a recipe from a PC or mobile
device using PicoBrews cloud software, water cycles from the keg to the
grain chamber, and then passes through
the hops chambers to add bitterness,
flavor, and aroma. The mixture filters
back into the keg, where the user adds
yeast before detaching and storing the
keg to ferment for about a week. The
machines software is designed to maintain a steady water level and precise
temperature, the trickiest elements for
brewers to control.
The Mitchells,
food scientist

and architectstrying to develop
prototypes or turn out product runs.
The machines can also quickly create
business tchotchkes such as custom
pens and fridge magnets. Depending on
the materials required, Staples says it
could charge as little as a few dollars or,
in the case of a functioning 3D-printed
guitar, as much as a few thousand.
Staples has already been experimenting with 3D printing services in Europe.
In the U.S., United Parcel Service
began a similar program aimed at small
business last year. New York-based
startup Shapeways takes design orders
online, produces them at a central printing facility, and ships them to customers.
Usually, 3D operations require people
to come in with a completed design
file ready for printing. Damien Leigh,
Staples senior vice president for business services, says his company is trying
to stand out by training in-store graphic
design consultants to guide first-time 3D
printing customers through the process.
The way we envision this working is
from soup to nuts, Leigh says.
Although most of its printing will
be done in-store, Leigh says, Staples
will outsource large-scale jobs to the
facilities of 3D Systems, which is
running the New York and L.A. trials
and has been selling 3D printing services since 2010.
If its U.S. test pays off, Staples says
it will consider placing 3D printers in
other stores and offering similar services online. Leigh says he wants to
showcase 3D printing for casually
interested customers, letting them play
with the machines and use an in-store
photo booth to print their faces on customized action figures. The challenge
is that most consumers dont yet have
a realistic understanding of what 3D
printers can do, says Pete Basiliere, an
analyst at researcher Gartner. In the
broader market, its still on the peak
of inflated expectations, he says. The
consumers are being misled almost to
the idea of I can buy a 3D printer, and
make a chess set in the morning, and
print out some pasta in the evening.
Once reality sets in, Staples may not be
able to count on 3D printing services
to keep it from closing more stores.
Joshua Brustein
The bottom line Staples is testing 3D printing
services in an effort to bolster agging sales at
brick-and-mortar stores.
Edited by Jeff Muskus

Edible Water Bottle
Form and function
Ooho is a green, homemade alternative to the
tens of billions of disposable water bottles
produced annually. The flexible, watertight
container has the texture of a gel and, although
tasteless, is easy to bite into.

Innovators Rodrigo Garca, 29; Pierre Paslier,

27; and Guillaume Couche, 30
Founders of Skipping Rocks Lab and graduate
students in the Innovation Design Engineering
program, managed jointly by the Royal College
of Art and Imperial College London

Origin Garca began

work on the concept
last summer, shortly
before meeting
former LOral
packaging engineers
Paslier and Couche.


Open source
Skipping Rocks Lab
says it will publish
the Ooho recipe on
its website.

Shape and freeze Water is

frozen into a ball, and then
dipped into a calcium chloride
solution. (The salt acts as a
rming agent in many foods.)


Recognition Ooho
won the Lexus
Design Award this
year, and the team
was invited to show
it off at Milan Design
Week, April 8-13.
Competitors Lab
WikiFoods makes
edible packaging
for products such
as frozen yogurt


Reinforcement The ice ball is

placed in a solution of brown
algae extract to create a
squishy membrane around
the water. The longer the ball
soaks, the thicker and more
durable the resulting vessel.

Next Steps
To improve hygiene, the Skipping Rocks team is developing a version of Ooho
with a two-layer membrane. Garca says he and his team are also working on
an industrial-strength version they could license to beverage companies. Joe
Pawlak, a senior vice president at market researcher Technomic, says that with
the U.S. market for disposable food packaging at about $20 billion, if its priced
competitively, theres denitely an opportunity. Nick Leiber

Too many bonds in too

few hands 38

Lots of listings, but

not many investors, on
Chinas exchanges 40

Golf courses are out

of the rough 39

Mortgage lending hits

a 17-year low 40

Bid/Ask: Diageo goes

after Indias whiskey
lovers 41

April 21 April 27, 2014

Caught With Their

Shorts Down

speculators proted from the spring slump in tech stocks



acting on fear instead of logic

Early Aprils sharp swoon in technology
stocks should have been good news for
short sellers, who borrow shares and
sell them, hoping to buy them back at a
lower price. It wasnt. The Nasdaq 100stock index, dominated by computer
and Internet companies, fell 3.1 percent
on April 10, its worst one-day drop
since November 2011, and declined
7.5 percent from March 4 through
April 11. The tumble came as short interest, the percentage of a companys
shares that investors have borrowed
and sold, was close to zero at many of
the biggest names in the index.
Burned by rising stock prices,
bearish investors have cut their wagers
against computer and software makers
by more than half in the past five years.
Short interest on technology companies in the Standard & Poors 500stock index is averaging 2.4 percent,
near the lowest level since at least
2006, according to data compiled by
Bloomberg and Markit, a Londonbased provider of financial data. Thats
down from 5.6 percent at the stock
markets low point in March 2009.
Most people told me theyre scared to
death to short, says John Thompson,
chief investment officer at hedge fund
Vilas Capital Management, which is
betting on declines in Facebook and
Netflixs stocks. Theyre acting on
fear instead of logic.

Bears may have been discouraged

by the markets quick recoveries from
recent dips. The Nasdaq 100 declined
5.2 percent from Jan. 22 to Feb. 3, and
last year slipped 3.4 percent from Oct. 2
to Oct. 9 and 6 percent from May 17
through June 24. Each time, the index
climbed above its previous high within
a month of reaching the low. You have
to defer to the strength thats pushing
the stocks higher, says David Pavan,
a portfolio manager at ClariVest Asset
Management. Short sellers just pulled
back, and there was no appetite to keep
stepping in front of it.
Facebook dropped as much as
21 percent during the March-April
selloff, but bets against it accounted for
less than 0.1 percent of the shares outstanding. Its short interest peaked at
15.2 percent in August 2012, just before
the stock began a 306 percent advance
over the next 18 months. Netflixs short
interest has fallen to 1 percent from
23 percent in November 2012. After
surging almost 300 percent in 2013,
shares of the online movie provider
have plunged 28 percent from a March
peak. Baidu, a Chinese Internet-search
company, slumped 22 percent during
the month through April 7, while short
interest has fallen to 0.1 percent from a
peak of 3.9 percent in July.
For Whitney Tilson, managing
partner of hedge fund Kase Capital

Management, the ups and downs of

Netflix have been an education. Tilson
says he started shorting the stock in
2010, in the expectation that its streaming service wouldnt succeed. As the
stock almost doubled against me, I
reevaluated the business and realized
that customers were much more satisfied with the service than I anticipated,
he says. He closed out his short bet and
felt very good about it when the stock
then soared to $300. Then I watched it
go to $53 and felt very foolish because
everything I predicted came true. By
that point, having developed an appreciation of how good their business was,
he says he began buying the stock, at
an average price of $58 a share. He still
holds Netflix shares, which closed at
$326 on April 15.
The lack of short sellers may make
it harder for stocks to rebound from
the latest setback, according to Rick
Bensignor, head of trading strategy
at Wells Fargo Securities. In the past
year, rallies have picked up speed as
bears decided to close out their bets
by buying back stock theyd borrowed
and sold, a process known as short
covering. The scarcity of short sellers
means there are fewer eager buyers
when stocks fall. You have a one-sided
market, Bensignor says. Its much
easier for the market to decline.
That would be fine with the


the Dip
Short interest ratio

Stock price










remaining short sellers. Tilson says his

firm is shorting 3D-printing companies
now. Thats a pretty good example
of foolish, speculative, overvalued,
momentum-driven stocks, he says. Uri
Landesman, president of Platinum
Partners, says, Im a huge bear on the
technology stocks and on the market. If
youve got patience and youve got the
pocket, shorting a whole basket of these
very-high-multiple stocks is a very smart
thing to do. Lu Wang
The bottom line Short sellers gave up on
stocks such as Facebook and Netix, missing
out on a 7.5 percent decline in the Nasdaq 100.




















Akamai Technologies









Micron Technology








 A handful of money managers

controls trillions of dollars
 When it comes to xed-income
management, there is an oligarchy



The Bond Market

Loses Its Balance


The bond market has become the

land of the giants. Bill Gross and Larry
Fink manage bond portfolios worth
$3 trillion combined. The companies
they run, Pimco and BlackRock,
doubled their holdings since 2008,
outpacing the markets growth of
50 percent. Pimco, Vanguard Group,
and Fidelity Investments manage
39 percent of all mutual fund-owned
taxable bonds, up from 18 percent in
1997, according to Morningstar data.
Hedge funds have also bulked up on
bonds. Bridgewater Associates All
Weather Strategy fund, which emphasizes debt-related investments, has quadrupled since the end of 2009, to about
$80 billion in assets, according to data
compiled by Bloomberg. BlueCrest
Capital Management, which focuses
on trading debt, has grown to about
$32 billion in assets since its 2000 inception. When it comes to fixed-income
management, there is an oligarchy, says
Robert Smith, chief investment officer
at money manager Sage Advisory
Services in Austin, Tex. That can be
good, and that can be bad. Its bad when
you have a market thats feeling like its
weak and not doing well and selling off.
Wall Street banks, facing rules that
put limits on borrowing and require
them to hold more cash, are shrinking

their stakes in bonds. As of March 2013,

21 banks that deal directly with the
Federal Reserve had slashed their holdings of corporate bonds to $56 billion,
from $235 billion in 2007, according to
New York Fed data. The reduced role
of Wall Street banks leaves the bond
market more vulnerable to ripple
effects from the actions of the behemoth managers.
The lopsided bond market has
caught the attention of regulators. The
Securities and Exchange Commission is
concerned about what will happen when
the Fed begins raising short-term rates
and investors seek to sell their bonds.
(Bond prices fall when interest rates
rise.) The Financial Industry Regulatory
Authority is examining whether Wall
Street firms overcharge investors and
unfairly allocate new corporate debt
issues to reward certain clients, according to Nancy Condon, a spokeswoman.
In this two-tiered market, brokers
choose which rivals and clients may see
their bond prices on electronic trading
systems by turning quotes on and off.
The SEC is trying to gauge the extent
to which smaller buyers are disadvantaged and whether the behavior constitutes market manipulation, according
to two people with direct knowledge of
the matter who asked not to be identified because the probe hasnt been made
public. For the do-it-yourselfer, the disadvantages are growing by leaps and
bounds, says Marilyn Cohen, founder of
Envision Capital Management, which
manages $315 million of corporate and
municipal bonds. Theres a smaller and
smaller market for money managers that
arent the size of BlackRock and Pimco.
With the bond market, you want to
be big, says Michael Rawson, an analyst
at Morningstar in Chicago. If youre too
small, its hard to get a decent allocation
and good pricing. Companies that hold
more assets can cut expenses by having
many funds rely on the same people
to trade, analyze, and process bonds.
Thats the reason the big managers are
getting biggerthey
can basically do
the same thing for
a lower cost, says
Andrew McCollum,
a managing director at Greenwich
Amount of bonds
held by large
BlackRock overdealers in 2013,
sees $1.2 trillion of
down from
debt, compared
$235 billion in 2007
with $483.2 billion





Rise in prices for U.S.

golf courses in 2013

Net course closings

last year


Average price of a
U.S. golf course


The peak average was $7.33 million in 2006

in December 2008, according to the

companys financial filings. Pimco
manages $1.9 trillion in assets, with more
than 90 percent in bond-related funds,
vs. $960 billion in assets five years ago.
Just because an investment firm is big
doesnt mean it poses more risk, according to BlackRock. In an April 4 letter to
the Financial Stability Board, an international body set up after the credit crisis,
BlackRock said that rather than focusing on size when assessing threats to the
financial system, regulators should look
at how much borrowed money a fund
uses. BlackRock said it uses very little
leverage in its funds. The fact that some
firms have gotten larger and some firms
have gotten smaller, Im not sure thats
relevant to how the market functions,
says Richard Prager, head of trading
and liquidity strategies at BlackRock.
Representatives of Pimco, Bridgewater,
and BlueCrest declined to comment.
Size comes at a costthe bigger funds
are not always nimble in a crisis. Over
the past year, Pimcos $232 billion Total
Return Fund had the second-worst
return among 16 U.S. intermediate-term
funds with at least $5 billion in assets,
according to Bloomberg data. Investors
pulled a net $8.3 billion from the fund
in the first three months of 2014.
The concentration of so many bonds
in so few hands heightens the risk of
a stampede to the exits when interest rates start to rise. Analysts surveyed

by Bloomberg predict the yield on

the 10-year Treasury note will climb
to 3.33 percent at yearend and to
3.6 percent in the first half of 2015, from
2.62 percent on April 11. Its going to be
interesting to see wholl take the other
side of the trade if theres a meaningful selloff, says Arthur Tetyevsky, a
strategist at investment bank Imperial
Capital. Were much closer to the
end of the rally, thats for sure.
Lisa Abramowicz
The bottom line Pimco, Vanguard, and Fidelity
control 39 percent of all taxable bonds in
mutual funds, up from 18 percent in 1997.

Real Estate

Golf Courses See

Green Again
 Prices climb back from their
recession lows
 People think Im crazy.I view it as
a very solid investment

Ben Kenny has spent two and a half

years and more than $20 million
improving the golf course at his
Horseshoe Bend Country Club along
the banks of the Chattahoochee
River in Roswell, Ga. Hes confident

Closures should
remain over 100
courses per year
for the foreseeable
Steven Ekovich,
National Golf &
Resort Properties

the new lakes,

streams, putting
green, and driving
range will pay
dividends. People think Im crazy,
but Im not crazy, says Kenny, president of Atlanta-based petroleumstorage company Perimeter Oil, who
bought 40-year-old Horseshoe Bend
for $6.1 million in 2011. If you run the
revenue numbers, I view it as a very
solid investment.
Course owners and real estate investors are betting on a comeback following a downturn that was by far the
toughest ever in the industry, says
Charles Staples, co-founder of Fore
Golf Partners, which has 12 courses in
Florida, Virginia, and Maryland. Club
memberships and rounds played are
on the rise again. Prices for U.S. golf
courses climbed 57 percent in 2013,
according to Steven Ekovich, vice president for investments at Marcus &
Millichaps National Golf & Resort
Properties Group. Among operational, regulation-length golf courses
with at least 18 holes valued at $250,000
to $75 million, the average sale price
was $4.25 million last year. While
thats still below the 2006 average of
$7.33 million, its up from the market
low of $2.7 million reached in 2012.
During the housing boom, golf
course prices climbed as buyers bet on
surging property values rather than


a parking lot with about 2,000 trees
and other plants. The upgrades have
helped boost Horseshoe Bends dues
revenue 94 percent, to $3.49 million,
Kenny says. Membership has climbed
by 100, to 650, since he bought the
course, and he expects it to reach
1,000 following the renovations. Im
very happy with my investment, he
says. Its nice to look out the window
at a golf course. It beats looking at a
stock portfolio. Nadja Brandt and
Michael Buteau
The bottom line The average golf course
sales price has risen to $4.25 million from a
low of $2.7 million in 2012.


Sleepy Times for Chinas

Local Stock Markets
 Exchanges aimed at funding small
companies see little activity
 Theres always a huge gap
between bid and ask prices

On a weekday morning in early April,

Shanghais over-the-counter stock
market is almost deserted. Two cleaning ladies sweep the floor of a trading
hall devoid of brokers or computers,
while a woman at an information desk
eats breakfast and talks on her mobile
phone. The scene isnt much different at three other OTC exchanges in

Housing Feels Like 1997

Mortgage lending is at a 17-year low. It began
declining in mid-2013, when interest rates jumped
about a percentage point.

Shenzhen, Beijing,
and Shandong province visited over the
past five months.
Since 2012 at
least 18 regional
OTC stock
exchanges have
been launchedsome backed
by private investors, others by city
and provincial governmentsas part
of a push to help small businesses
raise capital. Without access to public
markets, small businesses often
borrow at high rates from unregulated
lenders in the countrys shadow
banking system. A regional equity
exchange was set up in Zhejiang province south of Shanghai in 2012, the year
scores of businessmen, unable to make
payments on underground loans, disappeared or committed suicide.
So far, the fledgling stock exchanges,
which have less stringent listing standards than national exchanges, havent
helped many companies. Fewer than
one-third of the 150 stocks listed on
two large screens at Shanghais OTC
market have ever traded, according
to ChinaScope Financial, a Shanghaibased data provider, and only
10 percent of stocks on the Zhejiang
exchange traded in 2013. From
Shanghai to Chongqing and Qilu to
Tianjin, there isnt much activity on
regional equity markets, says Lucas
Lu, a vice president at ChinaScope.
The biggest issue is how to make
them function like real markets, how
to make trading more active on these

40% 23%
Share of homes bought with cash
this year, mainly by investors

Rise in home prices

since March 2012


Loans for one- to four-family homes

Freddie Mac U.S. mortgage rate




1990 Q1

2002 Q1

2014 Q1



the fundamentals of the business,

according to Jeff Woolson, executive
vice president and managing director at real estate company CBREs
golf division. In 2005 and 2006, many
housing developers used loans to build
residential communities with courses.
But these developers didnt know
how to run a golf course, says Chris
Balestrino, principal at Park Place
Equity, which lends money to real
estate investors. So not just did they
struggle with a tapering demand for
houses, but they also had the burden
of running a business they knew
nothing about.
Lenders today are more conservative, focusing on fundamentals such
as membership numbers, operating costs, and revenue, rather than
potential property value increases.
We only finance golf course owners
and operators, not housing developers, Balestrino says. Even so, the
gross overbuilding of courses by
residential developers is still being
worked through, says National Golf s
Ekovich. In 2012, 141 more U.S. courses
closed than opened, down from 154
the previous year. There were about
144 net closings last year, he says,
and net closures should remain
over 100 courses per year for the
foreseeable future.
That doesnt damp Kennys faith
in the industry. Along with spending about $8 million to renovate his
links, he sunk about $11 million into a
new clubhouse, $8 million on a pool
and tennis center, and $2 million on

The biggest issue

is how to make
them function like
real markets
to get the funding
to the small
Lucas Lu,


markets, to get the funding to the
small businesses.
While attracting companies
hasnt been a problem for the local
exchanges, luring investors has. The
exchanges are hobbled by broad
restrictions the national government
imposed in 2011 in a crackdown on
unofficial private exchanges that were
trading everything from stamps and art
to garlic and fruit. The rules require an
investor to wait five days after buying
a stock to sell it. They also ban market
makers, institutions that stand ready
to take the other side of a trade when
someone wants to buy or sell. The
absence of those intermediaries makes
it harder for buyers and sellers to do
deals. Without securities companies
playing the role of market makers,
the exchanges dont provide efficient
pricing, as theres always a huge gap
between bid and ask prices, says
Zhang Qi, a Beijing-based analyst at
research firm Zero2IPO Group.
The local exchanges can boast of
some successes. Su Jianchang, a mushroom farmer in coastal Shandong
province, says he built plants and
boosted profits almost eightfold after
his produce company, Qihe Biotech,
listed on the Qilu exchange in 2011. He
employs 380 people, up from about
80 before Qihes trading debut. A year
earlier, Su sold his two homes in Zibo
and plowed almost all the profits into
new farming facilities as demand for
mushrooms from consumers in China,
Japan, and South Korea soared. When
he wanted to borrow money to fund an
expansion, rural credit cooperatives in
the village of Qihe wouldnt grant him
loans without three corporate guarantors. He ended up borrowing from
friends and relatives, paying annual
interest rates of 15 percent to 20 percent.
In 2011, Su spent about 1 million
yuan ($161,000) on listing and advisory fees. Within three months he
sold 40 percent of his company to
around 100 investors for 33 million
yuan through the exchange. Its very,
very difficult for grass-roots companies from rural areas to get financing,
Su says. We are from a remote area,
but we, too, have very good investment
projects. Bloomberg News
The bottom line Fewer than one-third of
the 150 stocks on Shanghais OTC exchange
have ever traded.
Edited by Eric Gelman


By Evan Applegate

Diageo moves to expand in thirsty India. For the second time in

two years, the maker of Johnnie Walker bid for a controlling stake in
Bangalore-based United Spirits. A bigger presence in India, home of
the worlds largest population of whiskey drinkers, could help offset
losses in China, where a crackdown on government spending has dried
up sales of imported liquor.


Citic Group moves assets into the Hong Kong market.

The state-owned Chinese conglomerate will transfer
companies to a Hong Kong-listed subsidiary, Citic Pacic.
TIAA-CREF acquires Nuveen Investments. The
manager of teachers retirement accounts bought the
company from Madison Dearborn Partners.
China Minmetals purchases a Peruvian copper mine.
Glencore Xstrata sold Las Bambas, which will start
production in 2015, to the state-owned metals trader.
Motorola Solutions shrinks again. Bar code maker
Zebra Technologies bought its mobile business division,
leaving Motorola with only a government-services unit.
Endurance Specialty Holdings makes a hostile bid.
The insurer appealed directly to shareholders after the
board of Aspen Insurance Holdings rejected its offer.
Johnson Controls buys Air Distribution Technologies.
The Canada Pension Plan Investment Board sold the
company two years after purchasing it from Tomkins.
Alibaba acquires the rest of AutoNavi. The e-commerce
giant will control Chinas most popular mobile mapping
company, which covers 2.2 million miles of roads.



When Risk
Comes Knocking
Security entrance manufacturer Boon Edam offers
high-tech solutions to security challenges

n March, a 16-year-old boy from New Jersey gained unauthorized entry to One World Trade Center, in New York, and roamed
the premises for two hours before being caught. The building
has a security system estimated to cost $20 million when it
was installed in 2008, and seemed to offer soup to nuts protection.
But none of it mattered when the security guard on duty fell asleep.
That very easily could have been someone other than a teenager
looking for a thrill, says Mark Borto, President and CEO of Boon
Edam, the leading manufacturer of security entrance solutions in
North America. It easily could have been a very dangerous situation.
Building owners and senior business executives often dont even
realize they have security problemsand that there are solutions.
One of the most common methods of gaining unauthorized
entrance to a building is known as piggybacking or tailgating.
If youve ever used your access card to get into a building, and
then held the door open for someone who looks like they also work
there, youve participated in this potential security breachand
put yourself, your colleagues, the business and its future at risk.
Were trying to educate businesses that may not know they have
a risk, but its there, says Borto. The best access control systems
in the world can be defeated by exploiting the fact that people are
nice and will often allow others to follow them through a door after
its unlocked. Boon Edams range of security entry products enables
companies to reduce risk and allows security staff to be reallocated,
creating a ROI just by upgrading entrance systems.
Our products allow existing access control systems to work
better by minimizing, or in some cases completely stopping,
piggybacking and tailgating, says Borto.

The best access control systems in the

world can be defeated by exploiting
the fact that people are nice and will allow
others to follow them through doors.

Boon Edam is a family-owned company headquartered in the

Netherlands, where it has been creating sophisticated entry solution
products for more than 140 years. Today, government agencies and
ceutical) have higher protection requirements and are stepping up
their security with high-tech doors and access control systems.
The companys Tourlock revolving door is its best-selling antipiggybacking entrance. Often used at employee-only entrances, it
has a sophisticated sensor system that matches each person with an
access control system and only allows authorized personnel to enter.
Customers can also add StereoVision, a detection system that makes
it impossible for more than one person to enter at once.
Biometric detection systems, like iris scanning, facial recognition
with Boon Edams products quite easily, says Kurt Measom, Vice
President of Technical Support. While these biometric systems are
Were taking that security up a few notches.
While Boon Edams innovative products and technology set
them apart from the competition, Borto says its the attention given
by everyone involved in selling, installing, servicing and owning
its products that keeps its customers coming back. No one else
in our industry goes to the lengths that we do to ensure long-term
customer satisfaction, says Borto.
ing of its turnstiles and doors that works with any customers access
control system. In the coming year, Boon Edam will roll out technologies that offer increased detection accuracy for highly sensitive
areas such as data centers or corporate locations. Our customers
want to know about unauthorized entry attempts or errant behavior
in real time from anywhere, and were actively exploring the next
generation of detection systems that can be deployed into security
entrances to further reduce risk and staff supervision, which is the

Securing your entry

to safeguard
business continuity

With work environments becoming increasingly global and dynamic, the safety and
security of employees and assets is paramount. The demand for ensuring only authorized people can enter secure areas continues to grow. As your entry experts, we
provide a full range of security entrance products that ensure a single user entry
per valid card authorization. We control the gateway to your business continuity.

Egg fre
technolo ezing
women k y is helping
iss the m
track go

m m
E blu
B sen


I didnt intentionally
delay having children
nor plan to get a
divorce. My life and
my fertility veered
off course. Freezing
my eggs bought
me time and the
possibility to have a
child in the future.
Its not a sure thing,
but a gamble I am
willing to take.
Brigitte Adams, 39,
marketing executive


deliver the bad news. According

to a 2008 analysis of data from
the National Survey of Family
Growth, among women 40 to
44, there are equal numbers
of those who are childless by
choice and those who would
like to have children but cant
Not since the birth control
pill has a medical technology
had such potential to change
family and career planning. The
average age of women who freeze their eggs is about 37, down
from 39 only two years ago. (Desperation level, as Brigitte
Adams, a marketing director at a Los Angeles software company
who froze her eggs at 39, puts it.) And fertility doctors report
that more women in their early 30s are coming in for the procedure. Not only do younger women have healthier eggs, they
also have more time before they have to use them.
Imagine a world in which life isnt dictated by a biological clock. If a 25-year-old banks her eggs and, at 35, is up for a
huge promotion, she can go for it wholeheartedly without worrying about missing out on having a baby. She can also hold
out for the man or woman of her dreams. Doctors hope that
within the next 30 years the procedure will become a routine
part of womens health, and generous would-be grandparents
will cover it as they would a first-mortgage down payment.
If youre going to give your daughter a college graduation
gift, what would you rather give hera Honda or the chance
to make a decision about when shes ready to have a baby?
asks Dr. Geoffrey Sher, the medical director of the Sher Fertility Clinics, which has eight locations around the country and
the Web address And because its done before
fertility issues arise, the potential market for egg freezing is
exponentially larger than that of in vitro fertilization, he says.

Percentage of children in the

U.S. born to women 35 or older

Emily loves to talk about her Ivy League business school

eggs. The 35-year-old, who works in investor relations at a Wall
Street reinsurance firm, is referring to her own baby insurance
policy, the 19 oocytes (the medical term for egg cells) floating in liquid nitrogen at Reproductive Medicine Associates
(RMA) in Midtown Manhattan. Last summer, and then again in
October, Emily spent more than a car but less than a house
to freeze her eggs, a procedure prompted by a recent breakup
and an unforgiving work schedule. I do want to have children
eventually, she says, but Im traveling all the time, and dating
in New York is hard. I dont want to marry someone just so I
can get pregnant. Shed heard about egg freezing from a friend
whod done it, and after consulting with a doctor at RMA, she
went through two retrieval cycles. She didnt tell anyone at
her office why she had to miss a few days of meetings: I work
with all men. Im not going to say, Heeey, I need time off for
fertility preservation. Awesome, K?
Like many others whove frozen their eggs, Emily uses the
word empowered to describe the experience. She thinks
it will allow her to date without radiating the desperation of
someone who has to have a baby right this very second. And
now she doesnt feel as guilty about dedicating most of her time
to work. Its like, thank God, I dont have to focus on having
kids quite yet. Im not in a real panic anymore, she says. Her
mother, however, would still like her to get on with it. She
said to me, only half-jokingly, Im glad you went to business
school and work 100 hours a weekand dont have time to meet
anyoneso you can afford to freeze your eggs. Thanks, Mom.
Since the 1970s the number of women having babies between


here comes a point in every childless womans life,

usually around 35, when the larger world becomes
very interested in her womb. Friends and family
inquire about its health, asking why its not being
utilized, when it will be, and then: Will it even
work? For those who do want children, the pressure can be crushing and counterproductive. I
found myself going on dates thinking, is this marriage material? Is this? Is he? It was exhausting,
says Dr. Suzanne LaJoie, an ob-gyn in Manhattan.
When I was in med school and residency, all my
friends were having babies. She went through a
breakup in her mid-30s and started to worry she
wouldnt be able to have a child of her own. So in 2007, at age
37, she paid $10,000 for a round of oocyte cryopreservation,
more commonly known as egg freezing. I just wanted to take
the pressure off, LaJoie says. Men dont have a biological
clock, and I felt like it leveled the playing field a bit.
LaJoie fits the typical profile of an egg freezer: Theyre great
at their jobs, they make a ton of money, and theyve followed all
of Sheryl Sandbergs advice. But the husband and baby havent
materialized, and they can recite the stats about their rapidly
decreasing fertility as a depressing party trick. For LaJoie, now
45, it was demoralizing to see friend after friend get married
and have kids, while she was stuck at the hospital without
romantic prospects.
You feel bad about yourself, like youre the odd man out,
and somehow youve messed up on your path, says Sarah
Elizabeth Richards, who spent $50,000 freezing several rounds
of eggs in 2006 to 2008 and wrote a book about the experience,
Motherhood, Rescheduled: The New Frontier of Egg Freezing and
the Women Who Tried It. By freezing, youve done something
about it. Youre walking taller; your head is held higher. And
that can pay off in both your work and romantic lives. Richards,
now 43, is dating someone promising and says shed like to
thaw her eggs in the next year or so. Shes also at work on a
new book and plans on finishing it before she tries to get pregnant. Egg freezing gives you the gift of time to start a family,
but its also, like, heres how many years I actually have left for
my other goalswhat can I do with them?
LaJoie got married soon after she froze (she told her husband
about it on their very first date: I was upfront and said, This is
my plan. He was, like, OK!) and had her first baby naturally
at 39. A few years later, after briefly trying fertility drugs, she
thawed her eggs. The implantation worked, and her second son
is 2 years old. If Id had kids when I was a resident, I wouldnt
have been able to spend any time with themI was working a
gazillion hours a week, she says. Now I can bring my 5-year-old
to kindergarten every day. In a 2013 New York University study
of 183 women whod frozen their eggs, 19 percent said they might
have had a child earlier if their workplace had been more flexible.
The egg freezing generation, those latchkey kids of glassceiling breakers, were taught that you create your career, and
then everything else falls into place, says Lauren, a 34-year-old
lawyer in Los Angeles who
froze her eggs in January Reasons egg freezing
patients gave for not pursuing
and, like many of the women childbearing earlier
interviewed for this article,
Lack of partner 88%
declined to reveal her full
name in a national magaProfessional 24%
zine for fear of staying single
forever. But now I know its
Financial 15%
not as easy as that. Work
Too large a commitment 15%
hard, put off kids, and you
might find yourself at 40
Other 8%
hearing a fertility doctor

I was worried that

by the time I met
the right person,
Id be in my early to
mid-40s, and thats
when the eggs
would come in handy.
By freezingyoure
walking taller;
your head is held
higher. And that
can pay off in both
your work and
romantic lives.



Sarah Elizabeth
Richards, 43, writer

the ages of 35 and 39 has increased 150 percent, according to

the Centers for Disease Control and Preventions National Vital
Statistics Report. (In 2010 alone, the first-birth rate for women
from age 40 to 44 jumped 5 percent.) What hasnt changed is
biology, says Dr. Jamie Grifo, the program director of the New
York University Fertility Center, who notes that many of these
older mothers had to go to great and costly lengths. A study in
February from the Society for Assisted Reproductive Technology found that 2 out of every 100 babies born in the U.S. are
now conceived with advanced fertility help.
Egg freezing, which is similar to in vitro fertilization (IVF),
has been around for 30 years, but we were lousy at it until
very recently, Grifo says. The process was originally developed
as a way to preserve the fertility of cancer patients undergoing
possibly sterilizing chemotherapy, and its relatively simple.
First, a womans ovaries are stimulated with fertility drugs
(generally a nine-day course of shots administered at home)

to produce as many eggs as possible. Then doctors do whats

called a transvaginal retrieval: They insert a needle through a
womans vaginal wall and into her ovary and gently suck out
the eggs. Thats the easy part. Unlike in vitro embryos, which
have been fertilized by sperm, eggs are just one large cell consisting mostly of water.
The hard part is freezing them without the formation of damaging ice crystals. In the past three years fertility clinics have
moved from a slow freeze method, in which eggs are gradually
drained of water, to a more efficient process called vitrification
that uses flash freezing. Its 20,000 times faster than slow freezingthat way you dont get any ice. Its really changed the game
in terms of our success rates, Sher says. Once retrieved and
frozen, eggs are stored in specialized tanks of liquid nitrogen;
most clinics have their own storage sites, both for convenience
and as an additional way to make money. When a
woman decides shed like to use her frozen eggs, theyre

Suzanne LaJoie,
45, ob-gyn
thawed, fertilized with sperm, and transferred into her womb.
Grifo says that, like Emily, most women who come in
to discuss egg freezing have heard about it from friends,
particularly ones who have struggled with age-related infertility. Other parties get involved, too. I had one patient recently
whod received egg freezing as a holiday present from her
mom, says Dr. Alan Copperman, medical director of RMA.
I guess the mom had some self-interestshe was preserving
the possibility for grandchildrenbut I like to think of it as an
altruistic gesture.
A round of egg freezing costs anywhere from $7,000 to
$12,000, not including drugs and storage fees, which run
about $3,000 and $1,000 a year, respec tively. (The average
price of sperm banking is $1,500.) Its all out of pocketno
major insurance company covers the procedure, although
some generous benefits packages will subsidize one course
of fertility drugs. Depending on her age and health, a woman

will get from 6 to 25 eggs per freezing cycle. The more she
gets, the greater the chance that some will be chromosomally
viable and that some of those will survive freezing, thawing,
and implanting; statistically, a woman needs 8 to 12 frozen
eggs per successful pregnancy. So far there are only 2,000 documented live births from the procedure, but the data is old.
Doctors estimate the true number is closer to 5,000. Grifo says
NYUs clinic performs 5 to 10 egg freezing retrievals a week.
Five years ago, only 5 percent of our procedures were egg
freezing, and that was mostly for cancer patients. In 2013 egg
freezing accounted for a third of our business, and the vast
majority were elective, he says.
This spike has to do with the improved technology of vitrificationnot many women were willing to pay for an invasive procedure with unfavorable odds of successtogether
with increased media attention and an unlikely celebrity
spokeswoman. In a 2012 episode of Keeping up With the



I found myself
going on dates
thinking, is this
marriage material?
Is this? Is he? It
was exhausting....
I just wanted to take
the pressure off.
Men dont have a
biological clock.


Kardashians, Kim, post- divorce, consulted with a fertility

doctor about freezing her eggs. Later in the episode, the
then-31-year-old was shown grimacing through a fertility drug
shot administered by her mother, Kris Jenner. (Kardashian now
has a child, North, with her new partner, Kanye West. She hasnt
said whether she used a frozen egg.) Last April, actress Sofia
Vergara confirmed shed frozen her eggs in hopes of having a
child with her fianc. Im 40 years old. Nothing happens that
naturally anymore, she said on Good Morning America.
In 2012 the American Society for Reproductive Medicine
removed the experimental label from the procedure, citing
studies about improved success rates and data that showed no
increase in birth defects in babies born from thawed eggs. Yet
ASRM also warned against misleading women about the odds
of eventually getting pregnant: Marketing this technology for
the purpose of deferring childbearing may give women false
hope and encourage women to delay childbearing. Patients
who wish to pursue this technology should be carefully counseled, its report read. The final, slightly paternalistic recommendation: Its best to conceive through natural intercourse
at an appropriate age.
If eggs are successfully frozen and thawed, that gives a woman
about a 1-in-5 chance of a live birth, depending on her age when
she froze and other factors. Its about the same odds as a regular
IVF cycle. Many doctors will refuse to freeze the eggs of a woman
past her early 40s (by the time a woman is 40, only 1 out of every
8 eggs is viable; at 45, its 1 out of 20), or anyone whose hormonal
levels suggest her fertility is on the wane. Youd basically be
freezing her infertility, says Grifo, who explains to every wouldbe egg freezer the probabilities of failure yet acknowledges that
denial is a force, and patients sometimes hear what they want
to. But the emotional benefits of freezing, the empowerment
that Emily and her peers feel, is real. I had a patient who at 39
froze three cycles of eggs, and at 42 she shows up with the guy.
We thawed her eggs, did testing, and she didnt have one normal
embryo. I called her up six months later to check in, and she
says, Yes, Im sad, and Im eventually going
to try to use a donor egg. But Im glad I froze Egg freezing
my eggs. At 39 I did something for myself, patients who
and it was worth it.
In the waiting room at the NYU Fertility
Center, the theme song from St. Elmos Fire
plays over the speakers, and women, a few
visibly pregnant, idly flip through pamphlets
featuring angelic sleeping infants. Theres a
poster for a Mind/Body Stress Reduction Workshop with the tag line The stress of infertility
can be relieved! Grifo is in his office in the
back, a 58-year-old man surrounded by pictures of babies. Im mostly a therapist, he
says of his work with the women who come
in for egg freezing. He breaks them into two
groups: The relationship grieversthey got
divorced or dropped the guy, and they come
in to focus on the future. And then there are
the women who are career-oriented. Theyre
high-powered. They probably spend the $10K
it costs to freeze eggs on hair and nails a year.
The NYU operating room and lab are connected and are a short walk from Grifos office.
Inside the lab, a technician is working on an
IVF: She sits in front of a computer screen that
shows an enhanced version of whats going on
under her microscope. A long needle is slowly
inserted into the egg, which has just been

age 35 or
younger at the
time of the


in a relationship


told they had

impaired fertility


retrieved and resembles a harmless late summer jellyfish. A tiny

cloud of black is releasedThe
sperm, Grifo whispers excitedly.
The team will know tomorrow if
the fertilization took. The frozen
and anxiety
eggs are stored in large metal vats
in the back of the lab. There
are eggs in here dating back to
2004, says Grifo, who tells the
frightening story of when Hurricane Sandy knocked out the
buildings power, and the storage
vats had to be quickly moved
Purely anxiety
into the one room powered by
a small generator.
Fertility is a $4 billion industry in the U.S., but egg freezing
makes up only a tiny percentage of it. Of the $10,000 it costs
a woman to freeze her eggs, most of that goes to labor and
laboratory costs. We barely break even on it, says Grifo, who
adds that, unlike IVF, the volume isnt yet enough to make any
real money. And because its cost-prohibitive, younger women
arent lining up. Two companies, Extend Fertility and Fertility
Authority, are working to bring down the price of the procedure to attract a less well-off segment of the population.
Gina Bartasi formed Fertility Authority in New York after
struggling with IVF. Theres very little health-care coverage for
fertility treatments, and I saw a hole in the market for a business to get in on that, she says. The company, which works
with fertility clinics on package rates, launched an egg freezing offshoot in February called Eggbanxx, which will negotiate discounts with doctors on patients behalf. It also offers
financing. For most 30-year-olds, $8,000 is a big nut, Bartasi
says. Women can pay Eggbanxx $1,500 down, and then roughly
$250 a month for the next 24 months, essentially putting their
eggs on layaway.
Extend Fertilitys website works more as a Good Housekeeping Seal of Approval for egg freezing, says founder and
Chief Executive Officer Christy Jones. Fertility clinics pay a
retainer, and women visit the companys website to learn more
about them. About seven years ago, Jones reached out to a few
large companies with progressive benefits packages about the
possibility of covering egg freezing. We got a lot of pushback
from them, saying, Well, we dont want to seem Machiavellian, that were paying to freeze a womans eggs so she just
keeps working harder, she says.
Are we headed toward a future of 50-year-olds who, having
reached the corner office, decide theyre finally ready to start a
family? Maybe not. Although Grifo has seen a spike in the grayhaired crowd at his practice, the majority of women whove
used their frozen eggs to get pregnant have done so before
the age of 44, and those freezing now have no plans to wait
until theyre arthritic.
The next frontier in egg freezing is genetic screening. The
process is called a polar body biopsy and involves testing each
eggs DNA, then keeping only those that are normal, which
would greatly increase the odds of a successful pregnancy.
Many women go through the process and end up with absolutely nothing, Sher says. With genetic testing, we can cut
down on that emotionally damaging false hope. Of
course, no good thing is free: The tests cost an additional $3,000 to $4,000. And nothing is ever
going to be 100 percent, Grifo says. Listen, he
adds, after learning that Im about to turn 33, you
shouldnt wait too long to get pregnant. Youre
never going to be totally ready. 

Patients who describe

egg freezing as...


Looking east across

Valle Chacabuco, Chile,
in 2012the site of a
former sheep ranch and
now Patagonia Park

Kris Tompkinss quest

to build the worlds best
new national park in the
uttermost part of the earth
By Brad Wieners

ristine McDivitt Tompkins then McDivitt, always

Later this year the two plan to open Patagonia Park in Chile,
Krishad not made many big life changes, so the crown jewel of their park-making efforts. The intention is to
maybe it was time. On the Sunday before Christ- invite the public with a grand opening in December and pursue
mas 21 years ago, she closed the door and turned formal national park status in the years ahead. And this one really
the lock on her beach house in Ventura, Calif., a is Kriss baby. In 2004 she used $1.7 million of her own equity
place right on the water where she and her sur- from Patagonia in the purchase of the Estancia Valle Chacabuco,
rogate family of work friends had hung out for a ranch of historical significance in the Aysn district. Combined
20 years. One gave her a lift to LAX, where she caught a flight to with adjacent parcels, it spans nearly 200,000 acres. Despite
Santiago, Chile. There she boarded a second, smaller jet bound the recession, she and Conservacion Patagonica, the nonprofit
for Puerto Montt. After a 26-hour trip she arrived at the farm- foundation that endows and manages the park, have raised and
house of her future husband, Douglas Tompkins. He lived off invested about $45.5 million in the parks infrastructure, softthe grid, without a phone, at the far end of the Reihue fjord, launching a well-appointed eco-lodge in 2011. On top of three new
surrounded by thousands of acres of temperate rain forest. The trails, the park-in-progress offers white-water rafting, fly fishing,
nearest supermarket was two hours away. Kris had with her two and a chance to closely observe pink flamingos and guanacos,
large duffel bags, spoke only gringo Espaol, and had a one- which look like llamas with camel necks and are innately comical.
line rsum, because, she adds with a quick laugh, Id only Several travel magazines have already gushed about it. Bruce
had one job my whole life.
Babbitt, the U.S. secretary of Interior under Bill Clinton, has
For 13 years shed been chief executive officer of Patagonia, given it the equivalent of a dust jacket rave, predicting that it
the California outdoor apparel company famous for its high-end will be the Yellowstone of South America.
parkas, eco-activism, and advertisements to shop less. Starting as
Patagonia Park has also become a lightning rod for local grievan assistant packer at 19 during a college summer, she had figured ances. In the transition from cattle and sheep to tourism, local
out whatever needed figuring out when founder and owner Yvon leaders say, the park has cost the region jobs, left rancher famiChouinards method for underwriting his hobbiesfly fishing, lies destitute, and driven up prices on livestock. Much as Amerimountaineering, surfingbecame a growing business in the early can ranchers fight the reintroduction of wolves in Wyoming, the
1970s. On her watch, the company more than quadrupled to Tompkinses critics also say that studying pumas, rather than
$120 million-plus in annual revenue. Still, she was restless. I killing them, has led to livestock losses on bordering properties.
looked around and I could see the rest of my life. There would Moreover, locals and even foreign academics lament that in their
always be interesting challenges, but Id be doing the same thing zeal to protect wildlife, the Tompkinses will drive the gauchos,
the cowboys of Patagonia, into cultural extinction.
in 10 years, at 50 and 60. So I took a giant leap of faith.
From 2005 onwards, there is no economic activity in Valle
Doug, the man she was off to see, had likewise dropped out
midcareer, having made a name for himself as the co-founder Chacabuco, says Patricio Ulloa, the mayor of Cochrane, the
of the North Face, and, two decades later, in the 1980s, a fortune nearest town of any size. Tompkins has built his park with
with Esprit, the womens wear brand he built with his first wife. pretty buildings but hasnt made a single contribution to the local
In 1991 he relocated to Chile to purchase the Reihue farm and economy. The Tompkinses, he says, are no good for the Aysn
756,000 more acres on the fjord to create his own nature reserve. region, where we need productive activity. Eighty percent of the
He called it Pumalin Park, after the puma, the regions most char- region is already parks and reserves. We dont need any more.
ismatic predator. It was there that Kris, then 43, came calling in
time for Christmas in December 1993.
Covering 386,000 square miles and shared by Chile and
She never left. McDivitt and Tompkins married in 1994, Argentina, Patagonia comprises a variety of landscapes, from
the second time for both, then embarked on one of the most Serengeti-like grass steppe and British Columbia-like rain forest
ambitious private conservation projects on the planet. Over the to volcanoes and bare granite peaks that cradle deep blue lakes
past two decades, the two American clothing executives have and tower over rivers that run an almost chem-lab turquoise.
accomplished more than many nations at establishing a network of The coasts are rugged, often sheer, and on the tail of the connew parks, expanding existing ones, and linking them into wildlife tinent, the southern Andes shoulder a massive ice field, the
corridorsa continuous habitat that reflects migratory patterns biggest glacial mass in the hemisphere outside Antarctica. If
and animals range rather than lines on a map. Theyve financed theres one thing all the terrain shares, its wind. Itll blow the
much of this with their own fortunes. In all, theyve conserved freckles right off your face, Kris says.
nearly 2.2 million acres across the Patagonia region and won
It can take five to nine hours to drive to Valle Chacabuco
national park status for three parks, in Argentina and Chile, that from the nearest airport. The pavement ends about 90 minutes
didnt exist before they got involved. Theyve spearheaded
in, and the condition of the road dictates
the reintroduction of endangered speciesgiant anteaters,
ones progress. Its a stunning drive, and
Pampas deerin programs watched by wildlife biologists Pumalin
the Tompkinses have published a glossy
around the world. Jaguars are next.
coffee table book about it, Carretera
What they have done, it is not at all easy to do, says
Austral, in the hope that it becomes, like
Californias Highway 1 (Big Sur) or Italys
M. Sanjayan, the former chief scientist at the Nature ConChile
Amalfi Coast Road, a tourist attraction in
servancy who now is at Conservation International. Some
will say oh, if you have the money, you just buy the property
its own right. Its ironic that two people
Valle Chacabuco
and put a fence around it. But you have to be politically
who fight tirelessly to prevent construcsavvy, legally savvy, and people-savvy to keep it saved.
tion of roads elsewhere advocate paving
They make an incredible team, says their friend Tom
this one, but theyve become accusBrokaw, the former NBC news anchor. With Dougsocial
tomed to compromises. Tourism is not
skills are not his strength. But among those I know, no one
wilderness a panacea, Kris allows, but it will be an
improvement on overgrazing.
is bolder at acting on his imagination. And Kris knows how
to communicate his vision. Theirs is not a case of the greatOn a sunny and, yes, windswept
morning in January, the couple sit in
woman-behind-the-great-man, Brokaw says: They are each
strong leaders, with different styles.
the front room of the Butler House, a



The Tompkinses
on the grounds of
the Butler House

residence five minutes up a gravel

road from the parks lodge and main
office. It was paid for by a donation
from George Butler, founder and president of the Butler Conservation Fund
in New York, and is intended for visiting dignitaries and big donors. Its
also where the Tompkinses stay when
theyre on site, about three months out of the year. (The other
nine they split among El Amarillo, Argentina; Campo Laguna
Blanca, their most ambitious land restoration project, also in
Argentina; and Reihue, Chile, which is home.) In the next
room, a man who looks to be in his 30s and is dressed neatly
in a red sweater and wool slacks waits to speak to Doug Tompkins about a business opportunity. Tompkins has long wished
he could have a hand in the ice cream business, and now, at
70, he has his chance helping a former Serbian investment
banker open a franchise of his Belgrade ice cream shop in
Santiago this November.
Inspired by rail stations from 19th century Great Britain, the
Butler Houses interior has exposed wood beams, large black-andwhite photographs of wildlife and mountain summits in wood
frames, and even bigger windows that flood the room with sunlight. Doug wears his uniform: collared button-down dress shirt,
wool fishermans sweater, jeans. He offers fresh cherries from a
cardboard box dropped at the front door.
Doug met his wife through Kriss former boss, Chouinard.
Tompkins and the Patagonia founder met in Yosemite in the early
1960s, when both were climbing Yosemite Valleys big granite
walls. Tompkins sold Chouinards climbing gear and harnesses
at the North Face in San Francisco. He left North Face in 1969
and, with Chouinard and some other friends, took off on the
road for six monthsfrom California all the way down to FitzRoy,
Patagonias signature mountain (the one on the corporate logo).
The plan was to make a first ascent of FitzRoy (they eventually
did) and shoot alpinisms equivalent of The Endless Summer with
a 16mm movie camera. Viewed now, Mountain of Storms, as their
documentary was called, is like watching the secret origin myth

of the $289 billion outdoor

retailing industry: a group
of friends risking everything and having the time of
their lives in exotic locales.
On that trip, Tompkins was
already planning his next
business venture with his
first wife, and together they built Esprit, which by the late 1980s
had made him a multimillionaire. His first marriage and Esprit
ended in divorce (the last of the company was sold in 1994), and
in 1991, as he detached from it, he looked for where he could have
the most impact as a conservationist. He considered Norway,
Southeast Asia, and Northern California. Then he returned to
Chile, where hed made all those formative trips as a younger
man, and the exchange rates made him a veritable Ted Turner.
Kris had met Doug in passing over the years but got better
acquainted in 1992 when she and several other trustees and executives from Patagonia held their first corporate retreat in its namesake place. Tompkins, an accomplished bush pilot, flew over for
a visit in his twin-propeller Super Cub. My wife, Malinda, and I,
we didnt think it would work out, says Chouinard of Kriss move
to Chile one year later. The thing about Doug is hes difficult.
He finds peoples weaknesses, and he attacks them.
In Kris, now 63, Tompkins finally met his match. Five feet two,
fit, and direct, shes warm but not touchy-feely. Her friends say
shes comforting in a crisis, but her impulse is more to fix whatevers wrong. The word most used to describe her by former
Patagonia associates is determined. Intense scores pretty
high, too. Shes a pistol.
Kris was 10 and living in Venezuela when her father, an oil
services engineer, died suddenly of a rare form of polio. Her
mother left her with friends to collect her brother and sister from
boarding schools in the Caribbean, then they all returned to their
familys ranch near Santa Barbara, Calif. She stayed there until
leaving for the College of Idaho, which she chose for its ski racing.
People hear about [Venezuela] and sort of assume thats
how I learned Spanish, but we didnt speak it there. We

I am dumbstruck, really, both

by what shes set out
to do and what shes done,
says Wendy Paulson


and countless things no one needs. Kris says shes gone from
trying to make the best clothing in the world to trying to make
the best, most high-quality protected areas in the world. In many
ways, she says, the values are the same. And the work ethic definitely is. I think Im working much harder now than when I
thought that there werent hours enough in a day at Patagonia,
she says. But its just different. We move around a lot more.
As wealthy outsiders, the Tompkinses made an easy political
target in the early years. Because Chile is a narrow north-south
country, Pumalin Parks east-west sprawl struck some rightwing Chilean pols as an attempt to divide the nation in two. In
the late 90s, Chiles president and prominent members of the
Catholic Church accused the couple of evicting tenant ranchers
and denying them work. From there the accusations got more
fanciful: They were stealth Zionists come to form a new state.
They were working with the CIA to undermine Chile and
empower Argentina. Their real plan was to bring back the
American buffalo, or ship Chiles water to Africa. Any of these
struck many Chileans as more probable than someone buying
up land to take it out of production, return it to a natural state,
and give it to the government for free.
To some extent, the Tompkinses have become more accepted,
in part because they did what they said they would do. Today,
Pumalin Park is well visited by the Chilean public, not just foreign
tourists and journalists curious about Doug and Kriss excellent
expat adventure. Official Chile has shown a willingness to work
with them, with the military contributing substantial tracts (and
even forfeiting its requested artillery range) to endow Corcovado
National Park, noted for its lakes and two volcanoes. This
January, new Chilean President Sebastin Piera designated
Yendegaia National Park, in Tierra del Fuego, a joint venture
among Chilean conservationists, the government, and a Tompkins foundation.
Theyve really changed peoples
perception of what you can do, says
Amanda Maxwell, the director for
Latin America projects at the Natural
Resources Defense Council (NRDC).
There hadnt been a tradition of
donating land or a culture of philanthropy in Chile and Argentina in
general. And wildlife conservation,

Eighty percent of
the region is already
parks and reserves.
We dont need
any more



were among other Americans, she says. She regrets not having
many memories of her father, but still has her mother, who is 95.
Chouinard, in his memoir of building Patagonia, Let My
People Go Surfing, jokes about his MBA theory of leadership
management by absence. When asked if she subscribes to this
school as well, Kris gasps. Are you kidding me? I was the one
who always stayed behind. In fact, it was really telling: One
night at a party, Yvon and I were standing around and someone
asked me if I was going to go on a particular trip. I think it was to
Nepal. And Yvon just turned to that person and said, Oh, dont
worry. She wont go. She wont leave work. And it was true.
In my view, Patagonia was co-founded by Yvon and Kris,
says Rick Ridgeway, who was there from the start and is now
vice president for environmental affairs. I dont think the
company would have ever become what it did without the
combination of their efforts.
In the early days, it was really two businesses: one forging and
selling hardware for rock climbers, such as pitons and carabiners,
and a second that started out selling canvas shorts and pile
sweaters sewn from toilet seat cover fabric, the proto-fleece. Kris
took on the role of CEO in 1979 and, having limited experience
with financial matters, she says, Id call up bank presidents and
just tell them, I have no idea what Im doingcan you help?And
they did. People love to help. In the 80s the company introduced several fabrics, including Synchilla and Capilene, that led
to dramatic sales growth.
In 1989, Chouinard Equipment, the original hard goods
company, filed for bankruptcy amid liability lawsuits its insurers
refused to fight. A flash of exasperation still passes over Kriss face
when this comes up; the claims against Chouinard Equipment
were not because of flaws in the gear but because it had not sufficiently warned people against unintended uses for them. (Several
former employees, led by Peter Metcalf, bought the remaining
assets of Chouinard Equipment out of bankruptcy
to form Black Diamond Equipment, a Utah-based
outdoor sports and lifestyle company that went
public through a reverse merger and forecasts
$235 million in 2014 sales.) In 1990, she recruited
a new CEO and focused on brand management.
That didnt last: As the country entered a recession, Patagonia produced way more than it could
sell, and the CEO hired to replace her departed.
Kris stepped back into her old role in an effort to
right the ship. A year later, she fell in love.
Guanacos after
As a fellow conservationist, I am the wildres in
dumbstruck, really, both by what shes Valle Chacabuco
set out to do and what shes done, says
Wendy Paulson, who became friends with
the Tompkinses after her husband, former
Treasury Secretary Henry Paulson, then
the CEO of Goldman Sachs, arranged for
his firm to donate property it owned in
Patagonia in 1999. Paulson says Kriss
single-minded focus makes her effective, but that shes able to step back, too,
and gain some perspective. I think that
Hank is intense and Doug is even more
so. Kris and I have a lot of laughs about
our husbands. I think thats one of the
things thats made us such good friends.
We both chuckle about the same things.
One quick way to draw the contrast in
style between her and Doug is how they
talk about their lives before Chile and the
decision to pack up and leave. He all but
sneers that he was done making clothes

like many things, is trial and error, and

theyve had some success.
Tompkins says that they focused on
areas where the flora and fauna are mostly
intact. In this way they can protect not only
individual species but also an entire ecosystem. Just as often, though, its serendipity
finding out a beautiful property was up for
sale and making a bid. Much of what weve
done has been following our nose, he says.
But we do have missions and goals. Theyre Kris at Chouinard
Equipment in 1973
very specifically to make national parks.
From a pure conservation perspective, thats the gold standard.
With Patagonia Park, they are trying to take all theyve
learned, and the goodwill theyve amassed, and get even
more ambitious with the parks infrastructure to create a
world-class, bucket-list destination. To do so, though, the
Tompkinses sold off the Estancias 25,000 sheep and 3,000
cattle, leaving 1,000 ovines and 100 bovines for park workers
to eatand disrupting all the various jobs from veterinarians
to shearers that the ranch supported.
Many in the region say they are not opposed to the park
in principle so much as eager to see a direct benefit from it,
and some worry its too high-end for people who live there to
enjoy. I think the idea of a park is great, but the cost for this
infrastructure makes me believe they built something that it is
unthinkable for the government to handle, says Rodrigo Rivera,
a Cochrane city council member. Conservation can be done
without having such infrastructure. Rivera also raises the complaint that protected pumas living in the park have caused many
livestock deaths as its hunt field has expanded.
Cristian Saucedo, wildlife manager for Patagonia Park, says
the number of kills is exaggerated. A veterinarian who previously worked with the Chilean forest service, he has completed
a four-year study of pumas in the park. We found that pumas
were feeding on guanaco [and] very low numbers of sheep,
only a tiny fraction. There is not much objective data that
shows pumas are increasing or predating more than before,
he says. Saucedo appreciates the skepticism over the park but
believes that people throughout the region will be won over.
For me, its like the new generation will appreciate this, he
says. For older people who are very close to their traditions
and the local culture, its not easy for them to see this grass
and understand why theres no cows or sheep eating
this grass. It doesnt fit in their mind.
What theyve built there is quite beautiful, says
Carlota McAllister, and their long-term vision great,
but they could have been more sensitive to the cultural
traditions. Theyve been so clumsy with community
relations, theyve hurt their own cause. McAllister, an
anthropologist and director of the Centre for Research
on Latin America and the Caribbean at Torontos York
University, has been conducting extensive fieldwork
in the region for more than a decade. And shes been
active in an eight-year battle to block several proposed
megadams on Patagonian rivers, including the Baker
River, which forms part of the parks western boundary.
Proposed by HidroAysn, a subsidiary of Colbn,
Chiles second-largest energy producer, the dams
would be hydroelectric and eventually send power
thousands of miles north to Santiago. The company
declined to comment for this article.
The Tompkinses have donated to several local
protest groups opposed to the dams and paid for an
extensive media campaign, Patagonia Sin Respresas
(Patagonia Without Dams). Theyve been effective,

no question, says McAllister, but

she adds that their hostility to the
gauchos has helped competing interests, such as HidroAysn, win
over locals. One even led a Patagonia Sin Tompkins demonstration
at the park entrance. While Conservacion Patagonica has fixed up a
cemetery near the new lodge, McAllister asks, Why have they committed to making a museum about their
ecological beliefs and not including
more about the historical heritage? The Tompkinses may not
be colonial in a traditional sense, taking resources from the area
and sending these riches back to the center of the empire, but
their insistence on doing things their way, she says, can come
across as colonial in its imposition.
On March 26, a re broke out near the junction of the Carretera
Austral and the road that leads into the Tompkinses Patagonia
Park. Most likely caused by an animataa candle in a roadside
shrineit raced across the parched meadows (March is the start
of autumn) and climbed into the forest. Everyone on the project
mobilized to fight it. For more than a week it appeared the blaze
might engulf the headquarters.
I worked the radio for four days straight, Kris says via Skype.
We basically didnt sleep for three days. The wildfire came to
within a mile of the lodge before rain suppressed it. Three weeks
later, after the Chilean forest service and Army had joined the
fight, the fire finally came under control. It charred 4,942 acres.
(On Saturday, April 12, a second unrelated fire destroyed a dormitory for 25 workers. None were hurt.)
The fires provided a frightening reminder of how precarious things are in such a remote region, and gave conspiracists
fresh fuel as well. What caused it is still not clear, says Ulloa,
Cochranes mayor. We will investigate why Douglas Tompkins
didnt let the firefighters and authorities in charge onto his land.
The second day of the fire he forbade entrance of machineries
to stop the fire, and that is why it expanded. (The Tompkinses
counter that all they did was wait for a more experienced fire
marshal to begin digging firebreak trenches.)
Kris acknowledges theres room for improvement with the
local communities. Of course, we want to and can further
our relationship with Cochrane, she wrote in an e-mail. We
believe that the park will be a central force in creating economic
opportunities that will only grow in the future. The couple have
limited the number of guest accommodations at the park deliberately so tourists will support the regional economy at nearby
resorts, motels, and towns. She says they just need to give it time.
You cant get everybody to agree on anything, anywhere,
Doug says. But what you do find out is that with a national
park most everybody agrees after the fact. This is the interesting thing. Around the world, parks face fierce local opposition.
Five, 10 years go by and that opposition sort of evaporates. If
you went to West Yellowstone and you told them there that they
were going to decommission Yellowstone National Park, well,
theyd threaten to shoot ya, or write you off as a nutcase. But if
we go back to Yellowstonewow, there was all sort of opposition
in the beginning. Kris similarly takes comfort in the story of
Wyomings Grand Teton National Park, 47 years in the making.
Were trying to think 100 and even 150 years down the road,
she says. There are parts of Patagonia that are just as they were
when Ferdinand Magellan and, later, Charles Darwin first set
eyes on them, and thats really our goalto have some of this
remain just as they found it.  Additional reporting by Cristina
Lindblad, Lois Parshley, and Javiera Quiroga


Martin Shkreli made a name,

and millions, bashing biotech startups.
Now hes running one


By Paul M. Barrett
Photographs by Francesco Nazardo


artin Shkreli doesnt sit still.

Slouching in a modern black chair at
the Manhattan offices of Retrophin,
the biotechnology company he started three
years ago, he fiddles with a keyboard connected to a wall-mounted monitor, multitasking even as he gives an interview. As he
talks, he flips through a copy of the Journal
of the American Medical Association. He
tugs at the blue hoodie hes wearing over a
crimson golf shirt and jeans. Hes 31 years old
but could easily pass for an undergraduate.
The child of working-class immigrants from Albania and Croatia, Shkreli
skipped grades and landed his first job as
a 17-year-old college intern for Jim Cramer,
the hedge fund manager and host of
CNBCs Mad Money. Restless in his clerical role, Shkreli recommended shorting
a biotech stockbetting the companys
share price would drop. Sure enough, it
did. Cramers hedge fund profited, and
the Securities and Exchange Commission
called to ask if thered been any funny business behind the prescient wager. At 19,
Shkreli found himself under SEC scrutiny.
The agency found nothing amiss.
In his twenties, after hed set up his
own hedge fund, Shkreli developed a reputation for using a stock-gossip website to
savage biotech companies whose shares
he was shorting. This was not a path to
popularity in biotech. In 2012 the nonprofit
Citizens for Responsibility and Ethics in
Washington (CREW) publicly accused him
of trying to manipulate the U.S. Food and
Drug Administration for financial gain.
Once again, Shkreli emerged without facing
government charges. I hit this field like a
tornado, he boasts.
By the time regulators finished clearing
him of misusing the FDA, Shkreli had started
Retrophin. The name refers to recombinant
dystrophin, Shkrelis initial product idea
for an engineered form of a protein thats
lacking in patients with a type of muscular dystrophy. Self-trained in biology, he
says he wrote the genetic sequence himself
for recombinant dystrophin after reading
copious academic literature on the topic.
One day he plans to manufacture the drug.
Meanwhile, Retrophin has been acquiring
the rights to obsolete remedies Shkreli says
can be put to new and lucrative purposes.
He describes the transition from hedge
funder to corporate leader as a function of
maturing and realizing his lifes mission.
I want to cure many diseases and save childrens lives, he says.
This January, Retrophin jumped from
an over-the-counter stock to a Nasdaq
listing. To celebrate, the company held a
supplementary stock sale that easily raised
$40 million. One investor was hedge fund
mogul Steven Cohen (whose SAC Capital
Advisors pleaded guilty in November to
securities fraud). In February, Shkreli
announced a $63 million acquisition

that brought Retrophin its first revenueproducing FDA-approved drugs. Between

New Years and early April the companys
stock rocketed 230 percent, to more than
$23, before falling to $12 in a biotech downdraft. Without having recorded revenue, let
alone profit, Retrophin has a market cap of
$300 million, even as its SEC filings contain
a disclaimer from its auditor, common for
early-stage startups, about uncertainty as
to the companys ability to continue as a
going concern. When it was shooting up,
Cramer called Retrophin a frothy stock
on his cable show.
Perhaps, but Shkreli, having helped
drive the early-spring surge by buying
Retrophin shares on the open market, has
become, on paper, a rich young man. Subordinates refer to him as the boy genius;
from an investors perspective, hes a highrisk, high-reward play, says Alan Geller, a
retired oil trader and investor in Retrophin.
Rarely does someone whos made a
name for himself as a short seller turn
around and take the ultimate long position:
starting his own company in the very industry hes spent years strafing. Geller, who
invested with Shkreli back in his hedge fund
days, says this is what makes Retrophin so
compelling. But has Shkreli undergone a
conversion, as he claims, to creating value
and saving lives? Or is he using what he
learned about biotecha field notorious for
empty promisesto game the field? Hes
definitely a genius, Geller says. Hes also
a little flaky. Im betting hes going to make
a billion dollars rather than blow up.
Shkrelis formal education culminated
with a bachelors degree in business from
Baruch College. His corner office is stocked

original, and they could save lives.

Shkreli grew up in the Sheepshead Bay
section of Brooklyn, a bright kid whose
immigrant parents had janitorial jobs. He
played electric guitar and chess and idolized
Bill Gates: I always wanted to start a public
company and make a lot of money, he
says. In 2000, lacking resources and gravitas, he got his foot in the door at Cramer,
Berkowitz & Co., a small, high- profile
hedge fund with investors such as New
York real estate scion Eliot Spitzer, then
the states attorney general and later its governor until he resigned in a prostitution
scandal. (Cramer left his namesake fund
less than a year after Shkreli arrived and
didnt know Shkreli well. Rarely at a loss
for words, Cramer declined to comment
for this article.) I was supposed to keep
the copier filled with paper, Shkreli recalls.
Soon, though, he was recommending trades
to more senior colleagues.
He researched Regeneron Pharmaceuticals, which was testing a weight-loss
drug. It looked like bulls--- to me, Shkreli
says, and in early 2003, Cramer Berkowitz
backed his hunch. That spring, Regeneron
admitted the drug was a disappointment;
the companys shares lost half their value
in a single day. Not long after, several SEC
attorneys called Cramer Berkowitz to ask
whether the firm had traded on insider
information. No, Shkreli said, hed done
his homework and followed all the rules.
The SEC dropped its inquiry, he says. I
had a ball with it.
After four years at Cramer Berkowitz, he
moved on to jobs at UBS and Intrepid Capital
Management before starting his own hedge
fund in 2006. Elea Capital Management, by
his own description, wasnt terribly success-


with an arsenal of Nerf assault weapons,
and he periodically reminds his 3,500-plus
followers on Twitter of his affection for the
cartoonish pop singer Katy Perry. At the
same time, established scientists whose
drug trials Retrophin is sponsoring express
deep respect for his scientific and medical
insights. Martins brash, says Dr. Susan
Hayflick, chair of Molecular & Medical
Genetics at Oregon Health & Science
University in Portland, but his ideas are

ful. In 2007, Lehman Brothers sued Elea in

New York state court for failing to cover a
put option transaction in which Shkreli
bet the wrong way on a broad market
decline. When stocks rose, Shkreli didnt
have the funds to make the bank whole. In
October 2007, Lehman won a $2.3 million
default judgment against Shkreli and Elea.
The following year, however, Lehman
imploded. No one ever demanded the
$2.3 million, Shkreli says, adding, I would

make them whole now if they wanted.

Despite setbacks at Elea, Shkreli
retained the faith of enough wealthy
individuals to start a new hedge fund
called MSMB Capital Management in 2008.
At MSMB (his initials combined with those
of a childhood friend and business partner,
Marek Biestek), Shkreli found his trading
legs as a short seller. Rather than pick

targets and sit back to wait for them to

falter, he combined short sales with loud
public pressure. On Christmas Day 2010,
he wrote a letter to FDA officials urging
them to reject an inhaled insulin remedy
produced by MannKind of Valencia, Calif.
Making no secret of his financial interest in seeing MannKinds stock decline,
Shkreli criticized the companys clinical trials as deficient. Weeks later, at an
investment conference in San Francisco,
he confronted MannKind Chief Executive Officer Alfred Mann, a stalwart in the
medical device field. There was a lot of
shouting, Shkreli recalls.
Over the course of 2011, MannKinds
shares lost two-thirds of their value,
falling to $2.50, and Shkrelis short sale
paid off. On Jan. 20, 2012, the FDA formally
requested that the company run additional
trials on its inhaler. Asked for comment,
Mann respectfully declined, spokesman
Jeff Hoyak said. On April 1, 2014, the companys Afrezza inhaled insulin product won
the backing of a panel of FDA advisers.
MannKinds stock has bounced to about $6.

Shkreli often advertised his short

positions on an investing website called
Seeking Alpha, where he encouraged
others to follow his lead. In March 2012
he took on San Diego-based Cytori
Therapeutics, criticizing regenerative
treatments it was developing to use stem
cells to rebuild damaged tissue. Regenerative medicine is a meaningless and embarrassing buzzword that
means nothing, Shkreli
declared. By early April
the companys stock had
plummeted 30 percent, to
about $2.
In our field, sentiment affects stock price,
and even one negative
comment that seems informed, whether or not
it really is informed, can
have an impact, says
Mark Saad, Cytoris chief
financial officer. He points
out that one of the companys devices for treating
heart patients has received
regula tory approvals in
Europe and is in clinical
trials in the U.S. If the
data weve seen in Europe
are repeated in the U.S., we
anticipate very successful
products, Saad says. The
companys stock has gone
up and down, with a high
of $3.35 last November and
an April 15 close of $2.25.
Another observer troubled by Shkrelis methods
was Citizens for Responsibilit y and Ethics in
Washington. The nonprofit watchdog
group did extensive research on MSMBs
activities and then asked the SEC and
the U.S. Department of Justice to investigate Shkrelis alleged behind the scenes
efforts to manipulate the biotech industry
market for financial gain. In a July 9, 2012,
letter to Preet Bharara, the U.S. attorney
in Manhattan, CREW listed obscure companies with names such as Avanir Pharmaceuticals, Zalicus, and Mesoblast that
Shkreli had shorted and publicly debased.
In the case of yet another company, now
known as Navidea Biopharmaceuticals,
hed submitted whats known as a citizens
petition to the FDA, asking the agency in
June 2011 not to approve a lymph-node
mapping agent he claimed hadnt been
tested properly. Navideas stock dropped
33 percent in a month, to $3.29 on July 1,
2011. This evidence suggests a pattern
of suspicious behavior in the trading of
biotech stocks that warrants a thorough
investigation, CREW told Bharara.
The Justice Department and the SEC
apparently disagreed. Theres no evidence

that either launched a formal probe, and

spokesmen for both agencies declined
comment. A spokeswoman for Navidea also
declined to comment. Its stock is trading
at less than $2, although in March 2013
it announced that the FDA approved its
Lymphoseek product. Its obvious CREW
just didnt know what they were talking
about, Shkreli says. I fully disclosed my
financial interests in every case, and theres
nothing wrong with taking short positions.
I even gave CREW tons of documents to
help explain how this works. The whole
thing was kind of fun.
On the general topic of short selling,
Shkreli has the better of the debate with
his antagonists. Although his analysis of a
given product might or might not be scientifically correct, he operates in the open
and hasnt been accused of wrongdoing
by government authorities. Even though
theyre considered distasteful by some
in corporate management, short sellers,
similar to plaintiffs attorneys, have a
financial incentive to ferret out corporate foibles and shed light on information that may have broad societal value.
Nevertheless, Shkreli says he yearned to
do more with his life than swashbuckling speculation.
Darren Blanton, a Dallas-based biotech
investor who made money on Shkrelis
short bets at MSMB, takes credit for urging
the younger man to switch from profitably maligning other peoples products
to developing his own. I told him about
a friends son who died of myotubular
myopathy, and Martin seemed genuinely
moved, Blanton recalls. Shkreli, he
adds, is someone who showed real skill
in digging through thousands of pages of
drug trial results and really understanding what hed read.
In 2011, Shkreli used $3 million raised
from MSMB investors to start Retrophin.
In addition to Blanton, Retrophins initial
financial backers included the family of
Fred Hassan, former CEO of pharmaceutical giant Schering-Plough, to whom
Shkreli introduced himself at a pharmaceutical conference in 2004.
To realize his aspirations with
Retrophin, Shkreli had to grow up in more
ways than one. As a hedge fund manager,
he admits, I did sleep on the floor of my
office sometimes. I didnt brush my teeth
as often as I should have. Today, he continues, I think my hygiene has improved
quite a bit. On the other hand, he still
prides himself on obsessiveness, pointing to the stacks of well-thumbed medical
journals that make sitting on his office
couch impossible. I had an investor, he
recounts, who said to me hed keep his
money with me as long as I didnt have a
girlfriend and I didnt start combing
my hair. Geller, the former oil trader



who invested in MSMB and Retrophin, says

that during one visit to the companys new
headquarters on Third Avenue, he encountered Shkreli wandering around in fluffy
slippers with a stethoscope around his
neck. Noting that the newly minted CEO
lacks an M.D., Geller asked Shkreli about
the get-up. Im working, and Im comfortable this way, he responded. Geniuses do
stuff like that, Geller says, unperturbed.
Shkreli took the company public in late
2012 by means of a reverse merger with
an existing shell company called Desert
Gateway. Some investors frown on reverse
mergers, as they suggest a corporation
cant raise funds through a straightforward
initial public offering. Shkreli, however,
was in a hurry. Retrophins $63 million
purchase in February of Manchester Pharmaceuticals illustrates Shkrelis strategy
of buying the rights to obsolete drugs
and repurposing them as treatments for
rare illnesses. Manchesters main asset is
Chenodal, an FDA-approved drug to treat
gallstones that hadnt caught on commercially. Chenodal, or chenodeoxycholic acid,
can also be used to treat a rare disease
called CTX, or cerebrotendinous xanthomatosis, which, if unaddressed, can cause
brain damage and early death. The FDA has
granted Chenodal orphan drug status for
CTX patients, meaning that for a period of
years, its owner receives valuable financial
incentives to proceed.
A years course of Chenodal costs
$110,000. Retrophin plans to raise the price

even further to normalize Chenodals

pricing to be more in line with other ultra
orphan drugs, Shkreli said during a Feb. 13
investor conference call. There are at least
500 to 1,000 CTX patients in the U.S., he
added, with fewer than 10 percent taking
Chenodal. In other words, theres an underexploited market with sky-high possible
margins. This might seem cynical, noted
Evaluate, a London-based biotech-industry
research firm, in a report after the conference call. And it might work, Evaluate indicated. The Chenodal plan broadly reflects
the rest of Retrophins pipeline.
Synctocinon, a drug Retrophin licensed
from Novartis, was approved in the 1960s
for assisting new mothers with lactation.
It was withdrawn in the late 1990s because
of poor sales. Retrophin plans to develop
it as a treatment for schizophrenia and
autism. It has also licensed Sparsentan
from Ligand Pharmaceuticals, intending
to develop the hypertension drug for the
treatment of focal segmental glomerulosclerosis, a rare childrens kidney disease.
Shkreli takes every opportunity to
emphasize his humanitarian motives. Only
a day after his Feb. 13 conference call forecasting price hikes for Chenodal, he read a
Bloomberg News dispatch about pharmaceutical shortages in Venezuela. The report
described an 11-month-old boy awaiting a
liver transplant. His father was struggling
to find the medication his son needed to
stay alive until the operation. Shkreli asked
me to put him in touch with the Bloomberg


And what Shkreli was tweeting at the time
I have more dating
RE-024: Well know
site requests than
in next 7-10 days on
bio 2013 partnering
investigator trial. Perhaps
NIH: most arrogant
requests. Not saying
DMD folks can give us
& inept organization
how manyNot sure if
advice? :) Expect news
i think one day were
(good, bad or ugly) soon.
achievement deserving
going to look back
at how individualistic
diseases are and
realize almost all
diseases are rare
Im just going to type
up a form letter
for investors who are im glad i sold katy
angry at me that they
perry at the top
didnt get any
$RTRX in the offering
Im presenting at
the #BIOCEO13
conference tomorrow
at 330. speaking of
im doing a
20-something biotech
conference call at
CEOs (pretty sure im
4:30 tonight which
it) Conference
will give a brief
overview of Retrophin
if you are new to
the company $RTRX
At the
concert in
Williamsburg with my
brother. Im a guitar
player at heart.


correspondent in Caracas. On Feb. 15,

Shkreli took to Twitter to announce,
Five executives at RTRX [Retrophins
stock symbol] spent most of Friday night
and this morning trying to get a non-RTRX
drug to a dying kid in Venezuela. At no
charge to the infants family, the company
arranged for a years supply of ursodeoxycholic acid, which it doesnt produce, to
be shipped to Venezuela. This has been
a blessing to us, the father, Joel Correa,
26, told Bloomberg. In an e-mail, Shkreli
wrote, It is our obligation to take responsibility for the community of people that
we have joined by being drug developers.
Shkrelis aggressive style can surprise
some in his field. Hayflick of Oregon Health
& Science University was taken aback when
he first called her out of the blue in 2012 to
ask about her quarter-century of research
on pantothenate kinase-associated neurodegeneration, or PKAN. Stemming from
a protein malfunction, PKAN can cause
severe childhood nerve and muscle
symptomsincluding jerking, twisting,
and rigidityand typically kills its victims
by the age of 10. Its thought to afflict 5,000
to 10,000 children worldwide. In her lab,
Hayflick had identified the relevant gene
behind PKAN, but accepted theory held
that a remedy couldnt be formulated. To
Hayflicks surprise, the cocky young man
on the phone proposed a molecular modification he thought would do the trick. He
needed a Ph.D. researcher to see if he was
right and asked Hayflick what she thought.
Damned if it doesnt do what he thought
it could do, Hayflick says. Its impressive.
Its humbling.
Financed by Retrophin, Hayflick is doing
further testing on toxicity and efficacy.
Were laying the groundwork for human
studies, she says. Shkreli showed genuine
appreciation for the 25 years of work wed
done. He visited her lab and observed her
research. Hes nerdy, like myself, she says.
Retrophins PKAN compound, known
as RE-024, appears to be the most promising remedy for addressing the disease.
Shkreli speculates the market has been
under estimated. There have to be
more PKAN patients than anyone currently thinks, he wrote on Twitter last
November. I hope we can stamp out this
most horrific illness. He hasnt yet put a
possible price tag on RE-024.
Even skeptics such as Stephen Brozak,
president of WBB Securities in Clark, N.J.,
concede that Shkreli has spun a story that
appeals to risk-tolerant investors. Wall
Street likes him, he says, but what products do they have? Given biotechs legacy
of broken dreams and Shkrelis background
as a short seller, Brozak says, for now, Im
taking a pass on Retrophin. Someone
bolder, who bought the companys stock
in January and sold it in early April, could
already have made a small fortune. 

For watching, listening and participating.
We look forward to welcoming you in 2015!
Over three days, leaders at the intersection of industry, technology, nance and
policy shared the stage to debate, collaborate and dene the future of energy.

With warm thanks to all our 2014 Partners:

and #BNEF2014 for 2014 highlights
2014 Bloomberg Finance L.P. All rights reserved. 57680816 0414








How a restaurateur
who doesnt speak Japanese opened
Americas hottest sushi restaurant
By Richard Morgan

Photographs by Brian Vu



bout 20 minutes into dinner at New

Yorks Sushi Nakazawa, the fish on
the plate is still moving. The chef
puts down a sea scallop and flicks it
gently; it twitches once, then he adds
tart yuzu and spicy chili pepper. I
wanted it to be theatrical, says Alessandro Borgognone, the
bald 33-year-old who owns the restaurant and runs the show,
usually wearing jeans. A sushi bar without theatricswhat
fun is that? It becomes
a game, the poking of
the scallop. Its early in
the meal, so it gets customers excited.
The customers,
who have waited for
weeks or even months
for their seats, dont
necessarily need the
extra stimulus. Last
D e c e m b e r, S u s h i
Nakazawa, a tiny joint
in the West Village,
became one of only
s i x re s t au r a n t s i n
Manhattan to get a
top rating of four stars
from the Ne w York
Times. The review
m a d e B o r go g n o n e
the youngest restaurateur to receive that
honor. But even before
the space opened in
August, advance coverage by food bloggers
caused a crush of 1,000
reservations. Most were
vying for one of the
10 seats at the restaurants pristine white
marble bar, where chef
and namesake Daisuke
Nakazawa serves from
his knife directly to diners. There are 30 additional spots in
the adjacent dining room, filled with patrons who have flown
in from Brazil, China, Hong Kong, and San Francisco. On one
February night, a group of Japanese women from London said
they bought plane tickets just to try the meal. A three-star
Michelin chef also stopped by, still hungry after a dinner at
the four-star Le Bernardin.
Phenomenal restaurant success is always somewhat

unexpected, but Borgognones status as a noviceto the world

of Manhattan haute cuisine and to sushi in particularmakes
the acclaim more surprising. Before opening Sushi Nakazawa,
Borgognone chipped in for years at Patricias, his familys
20-year-old Italian restaurant in the Bronx. He took it over in
2008 and transformed it from an 800-square-foot pizza parlor
into a three-story fine Italian restaurant, complete with chandeliers he brought from a church in Rome. Today, Patricias claim
to fame is that its 13,000-bottle wine rack is the largest in New
Yorks outer boroughs.
In September 2012,
Borgognone was
browsing Netflix to
find one of the documentaries about chefs
he likes to watch. This
time he chose Jiro
Dreams of Sushi, about
the 87-year-old master
wh o r u n s To k yos
best sushi bar in the
bowels of a subway
station. Afterward, on
a whim, Borgognone
went on Facebook
to look for the man
listed as Jiros senior
apprentice. Using
Google Translate, he
sent Nakazawa, 35, an
introductory message
in Japanese.
Borgognone soon
learned that Nakazawa
was in Seattle consulting on Shiros, run by
another Jiro apprentice, and persuaded
him to visit New
York. The first trip
was mostly touristic;
Borgognone showed
Nakazawa the sights,
and the chef bought a
Michael Kors bag for his wife. When Nakazawa came back
three months later, Borgognone took him out for sushi and
broached the idea of opening a restaurant together. In February
2013 they signed papers to become co- owners. I sold him on
the business aspect. I know how to raise money, get permits,
Borgognone says, and thats a proven fact.
He found a derelict 1,100-square-foot former hair salon
in the West Village, took out a loan of $450,000, and spent


1600s: Ready Raw

emerges. Rural Japanese
began eating a mixture of
fermented rice and fish
aged for a month. Later,
a doctor experimented
with adding vinegar
directly to the rice.

How Japans greatest
culinary innovation,
dating back to at least
the eighth century,
became a staple at
takeout joints and top
restaurants in the U.S.
Katie van Syckle

718 A.D.: Sushi as currency.

According to Trevor Corson, author of
The Story of Sushi, early varieties were
created by fermenting rice in a jar with
fish. People paid taxes with it.

1818: Birth of nigiri.

In Edo (modern-day
Tokyo), day laborers and
Samurai alike ate handsqueezed sushi, a close
approximation of whats
available today.

1926: Sushi spreads stateside.

Los Angeles immigrants who owned
small stores came together to form
the Mutual Trading Co., importing
foodstuffs from Japan, then supplying
places like New York, San Francisco,
Salt Lake City, and Portland, Ore., with
their bounty of rice and soy sauce.




three months building
out the space, adding
an enormous picture
window so you can
see the chef from the
street . He avoided
the arduous liquorlicensing process by
limiting alcohol to
sake, wine, and beer.
He also decided to
focus on a 20-course
prix fixe menu, for $140
per person$40 more
with sake pairings
that would allow for
better financial planning as long as every
seat remained filled.
B ec ause the menu
c h a n g e s n i g h t l y,
Nakazawa can import
seasonal ingredients, avoiding any momentarily
expensive fish that might throw off the books. The
restaurant declined to disclose its revenue, but
Borgognone says its on track to pull in the highseven-digits for the year. The restaurateur and chef
pay themselves and split the 16 percent profit, which
most in the industry would consider successful.
It helps that New York is mad for raw fish right
now, with about a half-dozen luxury sushi counters
opening in the past year. Bonnie Riggs, a fine-dining
analyst for NPD Group, says sushi is booming nationwide because its at the confluence of several trends.
Its luxurious, its exotic, its healthy, and it often
feels personal with a great show from the chef, she
says. And sushi especially is one of the only things
people cant really do at home.
Although Nakazawa is formally trained, hes
52 years younger than his famous teacher, and his
puckish cuisine reflects that. Chum salmon is haysmoked in the tradition of Nordic food. Mackerel is
pickled for seven days until it develops pungency.
Theres a rare golden-eye snapper that he calls butter
of the sea. In a nod to Jiros training, every bite is
served at its own precise temperature. I change little
by little every day. Better and better, Nakazawa says in his
ever-improving English. Like golf, every swing is different
even when your skill is the same.
Borgognone loves sushi, but he could just as easily be selling
marble columns or porcelain fountains. We set out for the
best in New York, the best on the East Coast, the best in the
1963: Nippon opens in New York. The first
restaurant in Manhattan to serve raw fish, it becomes
a fixture of the Grand Central Station scene.
1966: Tokyo Kaikan opens in Los Angeles. Chefs there
invent the California roll to attract non-Japanese diners.
1968: Sushi goes Hollywood. Kawafuku becomes
the U.S.s first real sushi bar. A high-end niche
gourmet food for adventurous, wealthy L.A., says
Sasha Issenberg, author of The Sushi Economy.

1970s: Commercial
fisheries expand
in Asia. There was a
glut of farmed salmon,
and sushi soaked
it up, Corson says.
Prices drop sharply.

country, he says. Im not in the business of making

mistakes. That doesnt prevent him from changing his mind often. He switched all the chairs five
months in, deciding they should be plush European
designs. He swaps out the contemporary art on the
walls regularly; and using an $850 weekly budget,
he refreshes the flowers twice a week.
Still, Sushi Nakazawa is a homey place. Lemme
tell you something. Listen to this, Im gonna tell you
something nobody else knows, Borgognone says.
The secret in this business: Its paying attention,
making people feel special. I go to every table and
introduce myself. I want them to know my name.
How can you possiOpposite page: The restaurants
bly do that with all
exterior, on Commerce Street.
these celebrity chefs
Nakazawa (below) and his team
opening 10 or 15 places
serve fish directly to customers
from behind the subway-tiled bar
in a year? Guess what?
You cant. When he
enters the restaurant,
he frequently greets
Nakazawa with a bear
hug, lifting him off
the ground. Their
young kids play
together often.
Borgognone sees
himself as a throwback to another era.
He compares himself
to Sirio Maccioni, the
hospitality industry
legend who opened
Le Cirque in 1974, and
to Elaine Kaufman,
who ran her eponymous nightclub-asrestaurant from 1963
until her death in
2010. It would be an
honor someday to be
spoken of on that level,
where now theres only
Danny Meyer, he says
of the prolific New
York restaurateur. To
get there, he plans to open a restaurant next year that serves
comfort food with complexity, as he describes it. Its going to
be spectacular, unlike anything else youve ever tried. Already,
hes got a few partners in mind. We have been talking to the
most talented chefs in America, he says. This time, he didnt
have to find them on Facebook. 

1983: FedEx reports

$1 billion in revenue.
The rise of air distribution
networks makes it easy
to get good-quality fish
for less anywhere, even in
middle America.

1983: The New

York Times gives
Hatsuhana four stars.
For the first time, the
Establishment treats
sushi as a cuisine
worthy of attention.
1989: Nobu opens
in L.A. It soon
becomes a worldwide
luxury sushi empire.

2010: Duane Reade,

a New York drugstore,
sells takeout sushi.
This is the closest to
Tokyo 200 years ago, when
it was a snack food, not a
ritualized bar experience.
Issenberg says.






$4,065 (set of four)





ptions ent
D el i
e a s ta
that s







Sleeves, clockwise from top left: Kenzo,

price upon request; Michael Kors, $795;
Tanya Taylor, $595; Marni, $2,760.
Nail polish, clockwise from top left:
Deborah Lippmann in Naked, $18; Nicole
by OPI in the Coral of the Story, $3.99;
Maybelline in Pretty in Peach, $3.99; Sally
Hansen in Barracuda, $7.99; Essie in
Guchi Muchi Puchi, $8









An awards show for intuitive ad makers

By Mickey Rapkin

crowd of 250 has gathered on

April 2 at yet another Hollywood
awards show, this one at the El Rey
Theater on Wilshire Boulevard.
Theres a buffet of spring pea
salad and ginger-almond salmon
catered by Wolfgang Puck, plus
the promise of a surprise celebrity presenter (Kisss Gene Simmons). But
instead of the usual entertainment-industry
sorts, the event is filled with gawky guys
more comfortable sitting behind their computers than standing onstage in ill-fitting
rental tuxes and receiving statuettes. Its
the first annual Tongies, a night honoring the best of Tongalthe crowdsourcing
website that pairs creative types with bluechip brands such as Procter & Gamble and
McDonalds to make advertisements and
so-called sticky content, addictive website
features that get browsers to return often.
Tongal was co-founded in 2008 by
James De Julio, who once worked for
movie producer Robert
Evans but became frustrated
by Hollywoods inefficiency.
De Julio saw Tongal as a way
to help innovative people get
to work faster and to upend
the traditional Madison
Avenue game. Tongals
name is inspired by
James Surowieckis
2004 book The
Wisdom of Crowds
about the benefits of
group collaboration
(Tongal is an anagram
for Francis Galton, a
British statistician
who, while attending a fair in 1906,
found that during
a contest to guess
the weight of an ox,
the average of the

crowds wagers was more accurate than

any one individuals guess.)
The company handles as many as 200
projects annually, and the process is pretty
straightforward. For example, AnheuserBusch InBev recently asked Tongal users to
think about Natural Light beer and a campaign that keeps it real. Tongalers submitted ideas on Twitter. Producers pitched
video treatments. Budgets were awarded.
The winners earned as much as $2,500,
plus residuals.
Tongal has competitors such as Poptent
and Zooppa, as well as critics from traditional advertising. The big agencies rely
on psychometric research and lengthy
breakdowns of return on investment.
Tongal assumes its citizen Don Drapers
instinctively know what the market wants
because they are the market.
Colgate-Palmolive spent $17,000 on a
Tongal-produced ad for Speed Stick. The
commercial proved so winning that the

company paid $4 million to air it on TV
during the 2013 Super Bowl. The spot,
featuring a man in a laundromat caught
holding sexy girls underwear, ranked
higher on USA Todays ad meter than traditionally produced ads from Coca-Cola and
Subway. Thats a great calling card for
us, says De Julio, who raised $15 million
in financing last year from Insight Venture
Partners, backer of Twitter and Tumblr.
Karim Lakhani, an associate professor
at Harvard Business School, puts Tongal in
the same category as crowdsourcing businesses such as TopCoder, a site for programmers that recently teamed up with
NASA on an asteroid project, and T-shirt
site Threadless. Theres no turning back
from this model, he says. Were allowing
more people access to the problems and
[offering] the ability to present themselves
to interested buyers, says Lakhani. By
the time some of these contributors get
to Madison Avenue, it might be too late.
Or they might never get there.
The Tongies began as something of a
joke around the companys Santa Monica,
Calif., office but quickly morphed into a
night that features a signature cocktail and
an ice sculpture of the Tongal logo, a bull.
De Julio sees the awards as a way to foster a
sense of community among the sites users.
We have 50,000 people that work for us
who have no obligation to do anything, he
says. The 53 nominees are a diverse group,
ranging from aspiring creative types such
as 17-year-old Zach Boivin, who opened his
YouTube channel at 13 and learned animation from a book, to established professionals such as Chris Marrs Piliero, who won an
MTV Video Music Award in 2010 for directing the Black Keys Tighten Up. Piliero
was nominated for
a Tongie for his
Ivory Soap spot,
5th Mom.
The lights
dim. The first
category is Idea
of the Yearand the
Tongie goes to David
Kilgo from Tuscaloosa, Ala., for
his Pringles potato chip concept,
Imitating Vader. (The pitch:
Somebody using an empty Pringles
can to sound like Darth Vader. Then
the real Darth Vader taps him on the
shoulder, not amused.) Kilgo, handsome and confident, approaches the
podium like a pro. I have no idea
how to give a speech, he says. So I
watched Ben Afflecks [Oscar] speech
from Argo. He adds, Id like to
thank my wife, Jennifer Garner. 
An actual Tongie. Not actual nominees.




Comes with
toothpaste that
for deep cleaning

Testing a new crop of electronic toothbrushes made to get your mouth in

Marrying a water flosser
with an electronic
toothbrush, it uses either
liquid or pressure to
sweep away debris a
regular brush might leave
behind. This water-flossing
function is meant to
supplement, not replace,
regular brushing twice
daily. $99.99;

Billed as the worlds
first portable sonic
toothbrush, the Slim
Sonic is for times when
chewing gum wont do.
A powerful motor
provides 22,000 strokes
per minute, belying
its mascara-tube size.
Each one comes with
a battery and an extra
brush head. $14.95;


Available in dozens
of colors and
patterns, from navy
to magenta
and camouflage to

This German import
uses ultrasound from a
chip embedded in the
brush head to clean
your teeth. Instead of
scrubbing away, hold the
brush over each tooth
for several seconds to
gently clean and banish
bacteria. Its ideal for
those with sensitive or
eroding gums.


working order. By Katie Chang


A pulsing function
feels nice on the
gums and helps curb

Four innovations to replace

the free stuff youve been using since
your last visit to the dentist


BLACK 7000
Gadget geeks will
enjoy the six cleaning
modes, including one
for the tongue, plus
three brush heads, a
built-in pressure sensor,
and a wireless timer to
keep your routine in
check. The matte black
wand looks sleek on
your counter. $219.99;

Choose the mode

you need: daily
clean, deep clean,
massage, even
one for sensitive

Rounded nylon bristles
tilt at a 45-degree angle
to gently but thoroughly
clean the gums and
polish tooth enamel,
helping diminish
stubborn coffee, wine,
tobacco, and other
stains. The brush pauses
every 30 seconds for
four intervals and shuts
off after two minutes, so
you know when to quit.

Fancy toothpaste
The Theodent Classic
formula ($9.99; includes
Rennou, a nontoxic
ingredient derived from
cocoa beans. Its safe
to swallow and free of

Gentle mouthwash
Listerines Naturals
Antiseptic ($8.19; has
no fake color or
flavor. Eucalyptus and
menthol fight germs
while offering a bracing
minty punch.

Tech-y teeth whitener

In 30 minutes, Lusters
ProLight system ($43.99;
.com), which comprises
a rinse, gel, and UV light,
gets results without
making teeth feel
sensitive afterward.

A better floss
Made of real silk, Radius
Biodegradable floss
($2.99; radiustoothbrush
.com) glides effortlessly
between teeth and
wont fray, shred, or
snap the way many
competitors do.



The temptation
is there,
especially after
lunch or before a
meeting, when it feels
like your teeth could
benefit from a quick
polish. Many of us even
have a toothbrush
hidden, disgustingly,
in a cluttered desk
drawer. Yet cleaning
your mouth in an office
bathroom presents all
sorts of challenges. At
best, youre hogging
a sink while forcing
co-workers to look at
something they should
never have to seeyour
dirty tongue. At worst,
youre leaving white
specks of spittle on the
communal mirror and
trying to nod at your
boss while frothing at
the mouth. You can

avoid scenarios like

these by chewing gum,
invented 3,000 years ago
for similarly awkward
moments; advances
since have brought
us Trident and other
varieties that clean your
teeth as they freshen
your breath. If you must,
floss in the privacy of
a stall. Or, after your
salad lunch, spit a little
mouthwash discreetly
into a plastic cup. But
leave the bristles at
home, where you can
use a better, motorized
brush. According to
the American Dental
Associationand every
single toothbrush ad
everfour out of five
dentists recommend
brushing only twice a
day anyway. Listen to
the experts.


The humble-looking
tumbler this arrives
with isnt only for
gargling; it also recharges
the brush without
collecting the gunk other
toothbrush bases do. The
Diamondclean comes
with a second charger,
too, built into a handy
travel case. Diamondshape bristles aggressively
polish teeth, leaving them
feeling smoother and
cleaner with regular use.

The Critic


Fargo the movie disappears into Fargo the miniseries
By Drake Bennett


absurdist humor, and lots of bloodstained snow. The salesman in the series,
Lester Nygaard (played by English actor
Martin Freeman), sells insurance, not
cars. Molly Solverson, the cop played
by Allison Tolman, isnt the chief, and
shes not pregnantbut the chief s wife
is. Theres a bickering pair of hit men
from Fargo, N.D., but their roles arent
central. Its as if someone described the
film and got every detail wrong.
The concept was born out of MGMs
desire to get more of its movie properties onto television, and the goal
was to franchise Fargo without remaking it. According to Noah Hawley, the
shows creator, FX asked
him to make his own Coen
masterpiece. The challenge was to sit down and
think, Well, what made
that movie that movie?
And what makes a Coen
brothers movie unique?
he says. The actual Coen
brothers were not involved:
They read the script, liked
it enough to add their names as producers, then did nothing else.
Even without star directors, most
actors turn in solid performances. Billy
Bob Thornton plays Lorne Malvo, a
smart, sadistic hit man who has a lot of
fun at everyone elses expense, either
by mocking them, ruining their lives,
or both. Tolman, a newcomer, is


Studying the trajectory of the Avon CEO is

a great way to learn leadership. Andreas
careeroffers invaluable lessons about
finding the right balance between
substance and style. p2



Beauty Queen: Inside the

Reign of Avons Andrea Jung
By Deborrah Himsel
(Palgrave Macmillan), $26

convincing as Deputy Solverson. So is

Bob Odenkirk, who plays her colleague, a
dim, petty deputy. Most of the other characters seem plucked from elsewhere in
the Coen-iverse: Theres a boorish retail
magnate whos a lot like Nathan Arizona
from Raising Arizona and a devious but
stupid personal trainer like Brad Pitts
character in Burn After Reading.
The problem with making a TV show
based explicitly on other peoples work is
that it invites comparisons. By that standard, the TV show suffers, even though
Hawley is an astute student of the Coen
style. You have to be open to mixing all
of these elements of drama and comedy
and violence and crime and a bit of the
absurd and a bit of mysticism and some
philosophy thrown in, he says. And
then really making it about the characters, because the most important thing
in a Coen brothers movie is never the
plot. Its very hard to get that mix just
right, it turns out, and the show hasnt
yet. Thorntons hit man is prone to issuing
threats in the form of riddles and disquisitions, but they make him sound less like
an unhinged mastermind and more like a
stoned undergraduate.
And yet, at the end of four episodes,
the hook is set. I need to know whether
Lester and Lorne get away with what
theyve done. I bet they wont. In the
Fargo of my mind, the arc of the moral universe is long, but it bends toward bloody

But dont rush up the

corporate ladder. Follow
your compass not your
clock.[People] are so
eager to advance that they
sometimes jump at the
wrong jobs or react with
anger rather than
thoughtfulness. p40

Like Jung, be yourself. Too often, young

leaders feel as if they have to fit a particular
company style to get ahead. p19

Know when to go. If

Andrea had departed in
2008, she would have
left with her reputation
and halo fully intact
CEOs that are
successful early on
often err on the side of
staying too long. p102


ne of the most famous thought

experiments in philosophy is
something called the ship of
Theseus. An ancient Greek
warship is preserved as a monument, and as its planks rot,
they are replaced, one by one,
until none of the original wood
remains. Is it still the same ship?
A similar question arises when watching Fargo, an FX miniseries that premiered on April 15. Its based, of course,
on the 1996 film by Joel and Ethan Coen,
perhaps their best-loved work. The movie
tells the story of a henpecked loser of a
car salesman, Jerry Lundegaard, who
hires two violent criminals
to kidnap his wife (then tries
to keep the ransom from his
father-in-law), and of Marge
Gunderson, the extremely
pregnant police chief who
solves the crime after it goes
bloodily awry. The TV show
is likewise about a loser
salesman, some out-of-town
crooks, and a dogged female
cop. But you wont see any of the actual
characters or events from the film. Until
the appearance of a mysterious briefcase,
theres nothing to suggest both stories even
exist in the same universe.
But the show still feels like Fargo.
There are sudden murders, bulky parkas,
bungled plots, Minnesota accents,
dimwits, psychopaths, moments of

What I Wear to Work


What do you
landscapes that are
mostly abstract.
Whats your
I get up and have a
long breakfast. Then I
take care of any business errands and start
to paint in the early
afternoon. I slow
down around 10 p.m.

How do you avoid getting

caught up in the business
side of things?
I wear many hats: the painting
hat, the money-making hat, the
sign-the-gallery-contracts hat,
the social hat. Freedom comes
in the act of painting, but
the act of painting is just one
aspect of what it takes.

Youre not wearing

any jewelry.
Im not a jewelry
person. Jewelry
changes the lineit
moves the eye around.
And I cant gesticulate.


What do you wear?

Im a pajama painter. I wear
soft cotton tops and sweatshirts. Today Im wearing
my favorite dress for gallery
openings. It fits really well
and is bright and splashy like
my paintings. Its buoyant.

Those are some

shiny shoes.
They gleam! Theyre
from Eva Gentry
Consignment in


53, visual artist, New York
and Tampa


Thats a great bag.

I got it in a museum
store in Beijing. I
thought it was fabulous,
schlepped it back, and
of course everyone in
New York had it.



How do you make a

living as a painter?
For big paintings, the
stretcher is $900, and
I use good handmade
paints and brushes. So
my professorship at
the University of South
Florida subsidizes a
good amount of that.

Interview by Arianne Cohen

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How Did I Get Here?

Fashion designer and founder, Tommy Hilfiger


Elmira Free Academy,

Elmira, N.Y.,
class of 1969

I wanted to look like a rock star;

my schoolmates wanted to look
like me. Theyd ask me, Where did
you get your clothes, how do we get
bell-bottom jeans?

I made $1.25 an
hour and saved $150
to open up my own
clothing store.


I overexpanded, and
I went into Chapter 11
when I was 23.

Hess gas station

Opens Peoples Place,
expands it to eight stores

Freelance fashion


If Id done
advertising, it would
take years for me to
be known. With this
one ad we launched
the brand, and
within minutes we
were famous.

Launches Tommy
Hilfiger with the help of
Mohan Murjani,
owner of Gloria
Vanderbilt jeans

We were the edge of the

casual-wear revolution. I
wanted to rethink preppy.

It fueled
a lot of
growth, but
it took us
away from
our roots.

Sportswear Holdings
acquires Tommy Hilfiger

Signs a fragrance deal
with Este Lauder

Snoop Dogg appears
on Saturday Night Live
in Hilfiger gear

The company reports
a loss of $439 million;
37 out of 44 U.S.
stores close

Apax Partners acquires
Hilfiger for $1.6 billion

We took the company private so

we could revitalize the brand.
asy to think youre invinciblebut youre not.


With Vogue
editor Anna
Wintour in

Apax sells Tommy
Hilfiger to apparel
conglomerate PVH for
$3 billion



Posing for a paint-splattered portrait in 1997

Its not that we sold it and

walked away. We have a
lifetime contract with them,
and I will stay involved.

1. A business is like a child: It needs all sorts of constant attention. 2. You have to balance the art with the commerce. 3. Once you reach a certain level

, it

Alamy (2); Getty Images (5); Seth Poppel/Yearbook

Library (1)


research counts
Deliver insights that clients value,
and everyone wins.

Voted Top Global Research Firm

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entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the
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Bank of America Corporation, registered in the U.S. Patent and Trademark Ofce. 2014 Bank of America Corporation

Thom Richard is one of the few pilots in the world to possess the talent,
experience and courage required to compete in the final of the famous
Reno Air Races the worlds fastest motorsport. Less than ten champions
are capable of vying with each other at speeds of almost 500 mph, flying
wing to wing at the risk of their lives, just a few feet off the ground.
It is for these elite aviators that Breitling develops its chronographs:
sturdy, functional and ultra high-performance instruments all
equipped with movements chronometer-certified by the COSC the
highest official benchmark in terms of reliability and precision.
Welcome to the Breitling world.