The Wall Street Journal: Friday, August 23, 2013

Nasdaq in Fresh Market Failure (page A1): A technical glitch knocked out trading in all Nasdaq Stock Market securities for three hours Thursday afternoon, an unprecedented meltdown for a U.S. exchange that paralyzed a broad swath of markets and highlighted the fragility of the financial world’s electronic backbone. Nasdaq officials scrambled to figure out what happened and resume trading. They shared few of their findings with trading firms or the public during regular trading hours, sowing confusion across Wall Street and leaving many investors frustrated. The decision to reopen trading with about 35 minutes to go before the close came after exchange officials were sure that banks and brokers had enough time to prepare for securities to trade again, people familiar with the discussions said. Some hiccups persisted after Nasdaq reopened trading, though Nasdaq told traders that the markets closed normally Thursday.

Obama Proposes Rating Colleges to Curb Tuition Costs (page A2): Calling growing student debt levels a “crisis,” President Barack Obama laid out a plan Thursday aimed at reining in rising tuition costs by creating a system to rate colleges and eventually tie federal student aid to the institutions’ performance. The president called for rating colleges before the 2015 school year on measures such as affordability and graduation rates—”metrics like how much debt does the average student leave with, how easy is it to pay off, how many students graduate on time, how well do those graduates do in the workforce,” Mr. Obama told a crowd at the University at Buffalo, the first stop on a two-day bus tour. “The answers will help parents and students figure out how much value a college truly offers,” he said. Once a rating system is in place, Mr. Obama will ask Congress to allocate federal financial aid based on the scores by 2018. Students at top-performing colleges could receive larger federal grants and more affordable student loans. “It is time to stop subsidizing schools that are not producing good results,” he said.

Purchases or Promises: What Works for Fed? (page A2):  Federal Reserve officials gathering in Jackson Hole, Wyo., this week with academics, private bank economists and others will ponder a question that will influence Fed decisions in the coming months: Which of its novel monetary tools are doing the most for the economy? Is it the huge purchases of long-term Treasury bonds and mortgages, now known as “quantitative easing?” Or is it the promise to keep short-term interest rates low for a long time? The Fed is considering scaling back the first, while sticking firmly to the second. The first—the $85 billion a month in bonds it has been buying—uses the power of the Fed’s printing press. The other relies on the power of the Fed’s words. Both are aimed at holding down long-term rates, the ones that home buyers and corporations pay, and, thus, encouraging borrowing, spending and investing. Views vary widely about which works better, a disagreement that is complicating the Fed’s decision-making.

Inside a Secret Airline Club (page B1): For years, upmarket carriers including British Airways, Deutsche Lufthansa AG and Qatar Airways have used exclusive programs, lounges and perks to reward their best customers. In the U.S., United and AMR Corp.’s American Airlines have recently tried to catch up, offering unpublicized programs that afford sometimes extravagant service to those fliers incessantly at airports, like George Clooney’s character in the movie “Up in the Air,” who pursues a dream of reaching 10 million frequent-flier miles. The airlines employ teams to track these fliers’ journeys and solve disruptions before they happen, sometimes bumping coach passengers to fit rerouted elite travelers. The carriers invite these customers to expensive restaurants and professional sporting events when they aren’t traveling. At the airport, they send their mail, press their suits and sew on buttons. United said that when an elite flier once stained his shirt, an employee sent her husband to the mall to buy a replacement.

Teen Retailers Left Hanging (page B3): Abercrombie & Fitch Co.’s stock tumbled Thursday after the teen retailer said profit fell 33% on a sharp drop in sales and indicated it would continue to struggle through the current quarter. Abercrombie’s troubles stem from weaker traffic and a drop in U.S. sales, which also have been weighing on rival teen retailers American Eagle Outfitters Inc. and Aéropostale Inc. But unlike those companies, Abercrombie gave no warning to Wall Street of the expected difficulties, making Thursday’s results a surprise. Mike Jeffries, Abercrombie’s chief executive, said teens are still struggling with an economic recovery that has failed to fully include them.

Gap Avoids Retail Slump, Posts Profit Rise (page B3): Gap Inc.’s fiscal-second-quarter profit rose 25% on higher sales at the apparel retailer’s namesake and Old Navy stores, prompting the company to raise its full-year earnings outlook. The retailer has reported higher same-store sales for six consecutive quarters, bolstered by an improving product line that has tapped some hot fashion trends, including a line of colored jeans last year that were well received. Gap is facing rising competition from fast-fashion players such as Forever21 and Inditex Group Inc.’s Zara, but has managed to outperform other mall-based retailers, including Macy’s Inc. and American Eagle Outfitters Inc.

Chinese Consumers Take a Step Back, Pinching Firms (page B3): Companies as diverse as retailers and gadget makers are reporting weakened results from China, as the economic slowdown there blunts Beijing’s drive to make the nation’s consumers a bigger driver of growth. Last month, Canon Inc. cut the Japanese company’s year-end profit forecast to ¥380 billion ($3.89 billion), off 16% from forecasts three months earlier, citing in part the slowdown in China. Nike Inc. reported falling China sales in its latest results, while British supermarket chain Tesco PLC is in talks with a local company, China Resources Enterprise Ltd., about folding its 131 underperforming Chinese stores into a joint venture. Apple Inc. said last month that its revenue from the greater China region fell 14% from a year earlier to $4.6 billion for the quarter ended June 29. The figure represents a 43% decline from the previous quarter. “A lot of the China story that companies would tell their shareholders was always about 15% nominal growth in gross domestic product, 20% increases in sales,” said Derek Scissors, an expert on China’s economy at the Heritage Foundation, a Washington, D.C., think tank. “That overarching growth story has weakened.” Many are blaming China’s economic slowdown for at least part of their performance. Growth slowed to 7.5% year-to-year in the second quarter, compared with 7.7% in the first.

Wal-Mart to Grow in Sub-Saharan Africa (page B4): Wal-Mart Stores Inc.’s South African arm plans to open 90 new stores across sub-Saharan Africa over the next three years as it targets growth markets such as Nigeria and Angola. Massmart Holdings Ltd. said it will open a trial stand-alone food store in West Africa by the end of the year, in hopes of expanding to East Africa. It said it is also adding more brands from Wal-Mart stores in other parts of the world to its Africa operations, including a clothing line from the U.K. in November. Wal-Mart last year closed a deal valued at roughly $2.4 billion to buy 51% of the South African retailer, a move many industry watchers viewed as a springboard for Wal-Mart to grow across the continent. Over the coming three to five years, Massmart will open more stores in the rest of Africa, Grant Pattison, its chief executive, said Thursday. Wal-Mart and Massmart aren’t the only companies setting their sights on Africa. Companies from the U.S., China and India have poured billions of dollars into the continent, investing both in its emerging consumers market and in infrastructure deals, amid forecasts for strong growth in the region. By 2018, five of the world’s fastest-growing economies will be in sub-Saharan Africa, according to the International Monetary Fund.

Thursday’s Markets: Stocks Record a Gain (page C4): U.S. stocks rose, with blue chips snapping the longest losing streak in over a year, as investors shook off trading halts in all securities listed on the Nasdaq Stock Market due to technical issues that affected the major market indexes for most of the afternoon. Nasdaq parent Nasdaq OMX Group announced the halts at 12:15 p.m. EDT. Notices sent to traders said the technical issues were related to data feeds providing market data for Nasdaq-listed securities. One stock, Atlantic American, began trading at 3 p.m. EDT, while full trading resumed at 3:25 p.m. Nasdaq OMX shares fell 3.5%. During the halt, the Nasdaq Composite Index remained frozen at 3631.17, up 31.38, or 0.9%. The Dow Jones Industrial Average traded within a range of about 14927 to 14968, while the S&P 500-stock index held roughly within 1652 to 1656. The halts also affected the calculation of the Dow, which include Nasdaq stocks Microsoft, Cisco Systems, and Intel, and the S&P 500. The Nasdaq rose 38.92 points, or 1.1%, to 3638.71. The index added to gains after the halts were lifted. The Dow rose 66.19 points, or 0.4%, to 14963.74. It was the first gain for the blue chip index in seven sessions. The S&P 500 advanced 14.16 points, or 0.9%, to 1656.96.

Fed Seeks More Control Over Rates (page C4): A plan that has been under consideration by the Federal Reserve to borrow money from investors at fixed interest rates shows how the central bank is preparing for an eventual exit from its ultra-easy monetary policies. In the July minutes of the Fed meeting released Wednesday, officials discussed a proposal to introduce a so-called reverse repurchase program, which would let the Fed set an interest rate on securities it would sell at auctions as part of its open-market operations. Banks and other investors would then decide how much to buy. This is a departure from current procedures, in which the Fed announces the amount of government bonds it intends to buy or sell in these operations and lets the market set the rate. While this appears to be a small tweak to the Fed’s practices, the implications could be wide-ranging if the plan is adopted. Contrary to popular belief, the Fed doesn’t set outright the interest rate that banks charge each other for overnight funding. Instead, it seeks to influence the effective federal-funds rate—a widely watched benchmark—by these open-market operations, which are conducted at the New York Fed. The Fed has been planning tools to eventually exit from its easy money policies for several years. This essentially adds a new tool to its kit. The Fed wants to be sure it can control short-term interest rates and lift them from near zero when the time comes. Talk of the plan comes as financial markets are anticipating the Fed will begin reducing the extraordinary support it has provided in the form of bond purchases, known as quantitative easing.

A Breakout Band Waits to Take Off (page D4): “This is amazing! Gives me chills!” Actor and musician Kevin Bacon tweeted that message last October to hundreds of thousands of followers, along with a link to a music video by an unknown Boston band. Sung in a smoky alto by Rachael Price, Lake Street Dive’s jazzy acoustic cover of the Jackson 5’s “I Want You Back” has had more than 900,000 views since Mr. Bacon’s tweet. Produced on a shoe string—it was filmed by a friend on the street in front of his Boston home when the local bowling alley where they had planned to shoot wasn’t available—the video created an instant following for a band that has been championed by influential radio stations like New York City’s listener-supported WFUV, but ignored by mainstream radio. “When I first heard them,” says WFUV program director Rita Houston, “I immediately became an evangelist. I wanted to tell everybody. I wanted my mom to know about them.”

A Hipster Goes for Baroque (page D4): Chris Thile has never been shy about genre-hopping. In his early 20s, singing and playing with the band Nickel Creek, the mandolin virtuoso covered songs by slacker-rock heroes Pavement, picking along with a fiddler and a guitarist. And a year ago, he was onstage with his band at Bonnaroo, the Tennessee summer music festival, working the crowd with acoustic string-band covers of rock songs by The Cars, Radiohead and others. Now, he’s trying to get the same fans just as excited about classical music. For his latest record, “Bach: Sonatas and Partitas Vol. 1,” Mr. Thile, 32, has taken an approach of unadorned simplicity: It is just him, alone in a room with his mandolin, playing three suites—16 tracks in all—of works written for solo violin by Johann Sebastian Bach, the master composer of late-Baroque church music. Mr. Thile argues that the same crowds that headbang to Radiohead anthems should be just as able to get psyched for Bach or Mahler. “The great musics of the world are great for very similar structural reasons: good melody, good harmony, and a balance of feminine and masculine energy. What makes one type of music classical and one bluegrass and one folk—these things aren’t what’s important,” he said at a recent interview in midtown Manhattan. “My thesis statement would be—Bach didn’t write Baroque music. He wrote great music.” At times, Mr. Thile’s new record has the same technical “wow factor” as his work with his band, Punch Brothers. On the “Presto” from Bach’s Sonata No. 1 in G minor, for example, Mr. Thile’s fingers trace Bach’s elegant melody lines and near-nonstop arpeggios at an off-to-the-races tempo, up and down the neck of his instrument—not unlike a bluegrass fiddle tune. At other points, such as the “Allemanda” from the Partita No. 1 in B minor, Mr. Thile plays in a purely Baroque vernacular, shedding any trace of bluegrass and making his mandolin sound stately and delicate, not unlike the lutes played by Bach’s Renaissance forebears.

Running Out of Chances to Lose to Roger (page D7): For years, Roger Federer has been the most popular attraction at the U.S. Open. He has played 58 matches in Arthur Ashe Stadium, more than any other male player, and once won this tournament five years in a row. As he ages, though, his fellow pros are getting a bit nervous. “I am scared he will leave tennis and I don’t have the chance to play against him,” said Lorenzo Giustino, a 21-year-old Italian, at a small tournament in San Marino earlier this month. Giustino, ranked No. 302, didn’t qualify for the U.S. Open. “He’s a big guy,” said Illya Marchenko, a 25-year-old from the Ukraine, after his first qualifying match at the U.S. Open on Tuesday. “He was No. 1 for the longest period of time, and for me he’s the No. 1 still, even if he’s not now.” In a sport that has no shortage of legends, Federer is perhaps the most coveted opponent in history. It isn’t difficult to understand why. He has won 17 Grand Slam singles titles, more than any man who has ever played the game. His strokes have an elegance and ease that make even fellow pros marvel. He also plays at a brisk pace and doesn’t throw temper tantrums or intimidate opponents with scowls or trash talk. At worst, he might embarrass them. “That one,” Thomas Schoorel said as he recalled Federer hitting the ball between his legs for a winner when they played in Dubai in 2011, “when it landed in, I had to laugh. But I also felt pretty s—.”

Your House Is Ready for Its Closeup (page M1): Mini-movies and Hollywood-style trailers complete with scripts, musical scores and even action sequences are cropping up as a new way to pitch pricey homes and condominium buildings. According to the National Association of Realtors, 14% of sellers used video to help sell their homes in 2012, up from 9% five years ago. Mr. Hahn, director and CEO of Film House, said he shot his first real-estate mini-movie in September of last year. He has since shot nearly 10, doing about one a week since June. Real-estate agents and developers who commission the films say that perfectly lighted rooms and aspirational story lines help grab buyers, and are the next extension of a home-buying experience that has increasingly gone online. Budgets for such films are often a percentage of the home’s listing price, and can range from a couple thousand dollars to $1 million or more for large-scale productions marketing condo buildings. The cost is paid either by the listing agents or sellers, and sometimes split between them.

Cold Cash: The Effect of AC on Home Prices (page M5): Even in the winter, the air conditioner is working hard—boosting a home’s value. An analysis of property listings in 22 major metro areas found that homes with central air conditioning are offered for 13% more, on average, than homes without central air, according to real-estate brokerage Redfin. Cities in the Midwest see the widest price gap: Homes with central air are listed for 105% more than homes without central air. Of course, homes with central air may have other amenities that help bump up the list price. But AC seems to be a driving force in the decision making, according to the National Association of Realtors, a trade group. In a survey of recent home buyers released in November, central air was the No. 1 feature sought when house shopping, according to the survey of 2,005 respondents who bought a home between 2010 and 2012. Respondents who purchased a home without central AC would be willing to pay $2,520 more for a home with this feature.

 

The Wall Street Journal: Tuesday, August 20, 2013

Federal Aid Is Tapped by 57% of Undergrads (page A4): The share of undergraduates who used federal student aid to help pay for college jumped to 57% in 2011-12 from 47% in 2007-08, according to a report set to be released by the Education Department on Tuesday. The increase in federal loans, grants and work-study jobs coincides with the wider trend of climbing tuition costs and underscores the expanding use of federal aid for higher education across all income levels. The average federal aid amounts for undergraduates came to about $8,200 a recipient in 2011-12. Average in-state tuition and fees at public four-year colleges rose to about $7,700 in 2011-12 from about $5,900 in 2007-08 in current dollars, according to the National Center for Education Statistics, part of the Education Department.

School Lessons Spark Fight Over Patriotism (page A6): As public schools in Texas get ready to resume later this month, many are still not sure whether they can use lesson plans prepared by a quasi-state agency due to criticism that some of the lessons demonstrate an anti-American bias. Bowing to pressure, the creators of the popular prefab lessons have agreed to stop producing new ones after Republican legislators and other critics cited examples of what they see as bias, such as a high-school lesson in which students are asked to delve into the historical origins of Communism and Socialism. Some of the contested lessons have been phased out. Still, debate lingers about whether teachers should use any of the hundreds of existing plans, with some school officials arguing the lessons are a valuable resource and merely aim to educate Texas children on other perspectives. Curriculum fights are common in Texas and other states, particularly in science, religion and history, education experts said. In recent years, Texas Board of Education members have debated whether teachers can offer creationist critiques of evolution. They have also fought over whether former United Farm Workers of America leader Cesar Chavez and former U.S. Supreme Court Justice Thurgood Marshall should be featured prominently in history classes. Critics of the Texas lesson plans have also complained about a lesson on religion, saying it offers a more detailed examination of Islam than Christianity.

Keeping Corporate Managements Honest (page A13): In a rare burst of bipartisanship, the House of Representatives last month voted 321 to 62 to stop a government board from forcing public companies to change auditors every six or seven years. This requirement was floated by the Public Company Accounting Oversight Board, which suggested that term limits would bolster the independence of auditors. An overwhelming number of congressmen rejected this requirement as too costly, and they passed an amendment to the 2002 Sarbanes-Oxley corporate-accounting law that would prohibit the board from adopting such mandatory rotation. Keeping auditors independent of management interference remains an important goal, but there is a better and less expensive way to achieve it. The key is to switch the allegiance of the auditor from the management of a public company to the board of directors’ audit committee that must be composed entirely of independent, or outside, directors. Instead of mandatory rotation, I’d suggest that the audit committees of public companies be required, at least once every 15 years, to issue a request for proposals (RFP) for auditors to bid for the company’s audit business. The current audit firm would be permitted to submit a proposal explaining why it should be retained. The independent directors on the audit committee would then choose the company’s auditor for the next 15 years, based on a cost-benefit analysis of competing bids. A newly appointed auditor must put forth a substantial investment to get up to speed on the complexities of a large public company. These costs, which are likely to be passed on to the company, would be incurred every six or seven years under mandatory auditor rotation. Under the RFP approach, the costs would occur at most every 15 years. In practice, the committee is likely to change auditors only if the benefits would exceed the transition costs.

Why Shouldn’t Princeton Pay Taxes (page A15): For the latest evidence of the town-gown divide, look no further than New Jersey, where earlier this summer residents of Princeton banded together to sue the prestigious school in their backyard. The residents argued that Princeton University, which boasts the largest endowment per student in the country, should no longer be entitled to its tax-exempt status because the school makes money—from its scientific patents, ticketed concerts, on-campus eateries and more. The Ivy League school is operating like a business, the plaintiffs say, so the tax code should treat it like one. The conflict isn’t going away. In June, a state tax court judge said the case had merit and refused the school’s request to dismiss the case. Princeton officials don’t seem worried: Reacting to the judge’s decision, a school vice president said that he expected any adjustments to its tax bill to be “quite modest.” Perhaps, but the townies still have a point. According to the lawsuit, the university took in over $115 million from patents in 2011, of which $35 million was given to various faculty members. The lawyer for the plaintiffs told the Times of Trenton that “People in Princeton pay at least one-third more in taxes because the university has been exempt all of these years.” If all of the school’s property were taxed, the bill would come to roughly $28 million a year, instead of the roughly $10 million the university is now contributing voluntarily to town coffers. As cities and towns struggle to pay for public services, it’s hard to blame public officials and taxpayers for wondering why well-off educational institutions aren’t sharing the load for police and fire departments, sanitation and road maintenance. The reason they don’t dates to 1917, when Congress decided that educational institutions, which then operated on a far more modest scale, should be exempt from federal income taxes. State and local governments have typically followed suit by exempting schools from local taxes. Yet Princeton—with its $16 billion endowment, high tuition and research funded by federal and corporate grants—is a very different institution today than it was when the law passed nearly a century ago.

Nepotism: When Is It a Crime? (page B1): Companies seeking influence need to be careful they don’t network themselves into bribery investigations. An inquiry by U.S. securities regulators into whether J.P. Morgan Chase & Co. hired the children of some Chinese officials to win business is a fresh reminder of the risks around the practice of giving jobs to the well connected. The Justice Department has warned companies since at least the 1980s about hiring practices that appear to be attempts to curry favor with officials. In recent years, the U.S. has pursued several companies, including Tyson Foods Inc. and Daimler AG, for hiring relatives of foreign officials in violation of the Foreign Corrupt Practices Act, or FCPA. The 1977 law bars companies from giving foreign officials money or a “thing of value” in return for business. Daimler and Tyson settled their cases in 2010 and 2011, respectively. So far, many of the government cases have included allegations of hiring relatives for no-show jobs—as a way of concealing the transfer of cash to foreign officials. But the probe by the Securities and Exchange Commission into J.P. Morgan’s activities in China has to do with the bank’s hiring of children of state officials, according to a person close to the bank. And it suggests the U.S. government is reaching further—to cases in which the job itself may be the prize offered to influence an official’s decision.

Activists Spur Horse Trading for Seats on Corporate Boards (page B1): Office Depot Inc. is pursuing an unusual tactic for dealing with dissident investors: Give them seats as long as key management appointees can keep theirs. Fearing the outcome of a bitter proxy fight at its annual meeting Wednesday, the big office-supply retailer has offered to expand its 10-member board and give seats to three of Starboard Value LP’s four nominees—if two current directors get re-elected. Those two directors serve on a committee that is running the search to find a CEO to run the company after it merges with rival OfficeMax Inc. Starboard, which holds nearly 15% of Office Depot’s shares, rejected the offer. As of Monday, however, both sides were discussing a possible compromise, people familiar with the matter said. Office Depot’s defensive gambit highlights the growing clout of activist investors amid what have become increasingly competitive board elections. Activists have scored a 44% success rate in U.S. contests for board seats this year, whether through settlements or elections, according to FactSet SharkRepellent’s database. Activists won 49% of the seats they sought in 2012 and 41% in 2011, according to FactSet. “Boards are getting better at negotiating settlements with activists and getting more clever at offering hybrid boards as a possible solution because they recognize the activists carry a lot of weight in contested elections,” said Damien J. Park, managing partner of Hedge Fund Solutions LLC, who advises boards and investors about issues around activists.

Amazon Losing Its Price Edge (page B2): For a brief period on Monday afternoon, the world’s biggest e-commerce site went offline. Amazon.com Inc. customers hungry for an Internet bargain needed to go look somewhere else on the Internet. They should get used to it. Amazon’s competitors including brick-and-mortar giants and online upstarts have spent years trying to beat the famously low-margin company on prices. And they are starting to succeed: The world’s biggest online retailer is no longer the cheapest. At least in some markets it isn’t. Those looking for fluffy white towels, scented candles and curtain rods will now find cheaper prices, on average, at the brick-and-mortar Bed Bath & Beyond than they will at Amazon, according to research from BB&T Capital Markets. The home-goods chain isn’t alone in catching up to Amazon, which has spent the best part of two decades making a name by undercutting rivals on price, and earning little to no profits in the process. Others like Best Buy Co. have made guarantees to match or beat Amazon’s prices in their stores. On Monday, online seller Overstock.com said it would permanently match Amazon’s book prices.

One Size Doesn’t Fit All (page B3): There was a time when companies tried to make mobile phones as small as they possibly could. This is not that time. Samsung Electronics, which (literally) pushed the boundaries of the smartphone with its Galaxy Note line, is going where no phone maker has gone before with the Galaxy Mega. The Galaxy Note II sports a 5.5-inch screen. The Mega, making its U.S. debut this month, brings a 6.3-inch screen to the “phablet” party, although you might need custom pockets if you actually want to bring it to a party.

Apple Readies Two iPhones; Launch Likely in September (page B3): Apple Inc. has asked assembler Hon Hai Precision Industry Co. to begin shipping both a new high-end and low-end iPhone in early September, people familiar with the matter said. The shipping plans suggest that two new iPhone models could be launched as soon as next month, pointing to a strategy shift as Apple attempts to regain its momentum in the smartphone market. The company hasn’t previously announced different iPhone models around the same time.

LinkedIn Drops Minimum Age to 14 (page B3): For LinkedIn Corp., the next frontier for the professional-networking site is high school. The social network said Monday it is lowering the minimum age of its membership to 14 years old in the U.S. next month to try to become a go-to resource for college-bound teenagers. LinkedIn is also offering a new feature, “University Pages,” to encourage colleges to build out their profiles on LinkedIn, in the same way that companies currently do. By changing its minimum age—which had been 18—the Silicon Valley company is following in the footsteps of Facebook Inc., which initially targeted college students but later expanded to high-school students and has been open to users 13 and older since 2006. With University Pages, users—especially prospective and current students—can follow updates from colleges, such as campus news or information about activities, and discover and connect with other students or alumni. Members will also be able to trace the careers of alumni, who selected particular majors, a potentially useful tool for students trying to decide which track to take. So far, about 200 schools have signed up.

Activist Investors: A Roar or a Bark? (page C1): Can a lion be confused with a dog? In Luohe, China, the answer is a resolute “no.” Visitors at the local zoo weren’t impressed last week when they found a Tibetan mastiff in the cage earmarked for the king of the jungle. When it comes to activist investors, though, the situation is less clear-cut. On Wall Street, this breed of hedge-fund manager engenders extreme reactions. Some lionize them as intrepid champions of shareholders’ rights in the face of corporate ineptitude. Others accuse them of terrier-like aggression, snapping at executives’ heels with short-term demands that end up harming companies. Investors and corporate executives are watching, because activists punch above their weight. They control just over $84 billion in assets, according to HFR, a drop in the bucket when compared with the trillions of dollars managed by passive funds. But activists’ campaigns can often move share prices because of their following in the market.

Flaws Cited Anew in Audit Reviews (page C3): Auditors of broker-dealers need to improve their performance when it comes to compliance with independence requirements and other accounting rules, an industry regulator said, citing for the second year in a row “disappointing” results from a review of such audits. A report released Monday by the Public Company Accounting Oversight Board, which oversees audits of public companies, found deficiencies in an expanded review of audit firms performing work for securities brokers and dealers. The reviews were conducted from March to December 2012 as part of an interim inspection program it started under new powers granted by the Dodd-Frank financial-overhaul legislation. The results are “very similar” to the oversight board’s report released a year earlier, showing auditors have a “long way to go” to ensure compliance with audit requirements, Jay Hanson, a member of the group’s board, said during a conference call with reporters. Auditors, he said, should “up their game.”

Monday’s Markets: Stocks on a Streak Lower (page C4): U.S. stocks tumbled for a fourth session in a row, their longest losing streak this year, as investors braced for the possible end of the Federal Reserve’s easy-money policies. The Dow Jones Industrial Average lost 70.73 points, or 0.5%, to 15010.74. The S&P 500-stock index sank 9.77 points, or 0.6%, to 1646.06. Both marked a fourth consecutive session of losses for the first time this year. The Nasdaq Composite Index shed 13.69 points, or 0.4%, to 3589.09.

Antibiotics Do’s and Don’ts (page D1): Doctors aren’t only handing out too many antibiotics, they also are frequently prescribing the wrong ones, researchers and public-health officials say. Recent studies have shown that doctors are overprescribing broad-spectrum antibiotics, sometimes called the big guns, that kill a wide swath of both good and bad bacteria in the body. Instead, narrow-spectrum antibiotics, like penicillin, amoxicillin and cephalexin, can usually clear up many infections, while targeting a smaller number of bacteria. Overuse of antibiotics, and prescribing broad-spectrum drugs when they aren’t needed, can cause a range of problems. It can make the drugs less effective against the bacteria they are intended to treat by fostering the growth of antibiotic-resistant infections. And it can wipe out the body’s good bacteria, which help digest food, produce vitamins and protect from infections, among other functions.

antibiotics

Does Going from Hot to Cold Cause Colds (page D2): For most people, summer involves numerous daily shifts between scorching outdoor heat and frosty air-conditioned interiors. But does exposing the body to extreme temperature swings make people sick? Professor Ron Eccles, director of the Common Cold Centre at Cardiff University in Wales, which performs clinical trials for treatments for coughs, colds and flu, explains why keeping a sweater at work isn’t such a bad idea.

Health Research (page D3):

  • How Song Selection Affects Driving: Fumbling with the buttons to find a good song while driving has been linked to increased risk of crashes, but is listening to that song risky? It depends on the music, says a report to be published in the October issue of Accident Analysis & Prevention. The study found teenage drivers who played their own music had significantly more traffic violations compared with background music designed by the researchers to minimize driving distractions, or no music.
  • Stress Hormones: The chronic anxiety experienced by shy people in social situations may alter a physiological mechanism that controls how the body adapts to daily stress, says a study scheduled for publication in the October issue of Personality and Individual Differences.
  • Alzheimer’s Resilience: Scientists have been at a loss to explain why some patients with characteristic hallmarks of Alzheimer’s disease—a buildup of abnormal plaque and tangled fibers in the brain—don’t develop dementia. New research has identified other cellular brain anomalies that may help to explain human resilience to Alzheimer’s disease and serve as potential targets for preventive treatments, according to a report in the journal Brain.
  • Standing Tall: Babies learning how to stand look tottering and unstable, but a new study reported in PLoS One found they are significantly more balanced than they appear and can remain standing for significantly longer periods if they’re focused on a specific goal.
  • Hip Retraining: Middle-age men enrolled in an accelerated rehabilitation program after undergoing hip-resurfacing surgery, with full weight-bearing starting on the first day, were significantly more active a year later than patients in a standard hip-recovery program, according to a study in the September issue of Clinical Rehabilitation. Hip surfacing is a modified form of hip replacement, resulting in more stable hips than total replacements.
  • Caesarean Birth and Immunity: How babies are born can influence their chances of developing allergic and autoimmune diseases later in life, suggests a study published online in the journal Gut. The study found infants delivered by caesarean section had significantly fewer beneficial bacteria in their gastrointestinal tract from birth to 2 years old than infants born vaginally. A healthy mix of gut microorganisms is believed to help a newborn’s immune system develop.

Extra Load on Your Back to Help Build Bones (page D4): Weight-bearing exercise can help make bones stronger and stave off the effects of osteoporosis. But walking—popular because of its gentleness on the joints—isn’t as good at building bone mass as higher-impact activities, such as running. The Claim: Wearing a weighted vest can boost the amount of bone mass built while walking. Running or jumping with a vest may provide even more benefit. The Verdict: Several small studies have shown exercise with a weighted vest increases bone-mineral density in older women and improves balance. The evidence isn’t conclusive, says Felicia Cosman, senior clinical director of the National Osteoporosis Foundation, but it’s logical to think the vests would be beneficial because “bone responds to the magnitude of the force put on it.”