The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from Oct 6-12, 2007
Professor Guide with Summaries Fall 2007
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Where Has All The Oil Gone?
By ANN DAVIS
October 6, 2007; Page A1
http://online.wsj.com/article/SB119162309507450611.html
Since summer, one of North America's most important oil towns has witnessed a
disappearing act.
The mammoth storage tanks that blanket the rolling grasslands around this remote prairie
town had been filled to the brim with crude oil. They aren't anymore. Since May, millions
of barrels of crude have been sold off, and Cushing's inventory has fallen by nearly 35%.
Oil traders around the globe obsess about inventory. Storage levels have fallen, not just in
Cushing, but in other oil depots as well. Fearful that the U.S. cushion of spare fuel could
hit a low by year-end, traders drove prices to a record of nearly $84 a barrel last month.
On Friday, oil closed at $81.22 on the New York Mercantile Exchange, up 33% this year.
The reasons Cushing's crude has been disappearing are surprisingly complex, and shed
light on the growing involvement of speculators in the global oil market. Tanks are
emptying partly because producers have been straining to keep up with demand. But
investment banks and other financial firms also played a part by abruptly shifting their
oil-trading strategies this summer. Even the credit crunch sparked by the subprime
mortgage fiasco had an effect.
Until mid-July, unprecedented conditions in the oil market had given oil companies and
speculators alike a financial incentive to sock away oil in storage tanks for sale later.
Then, almost overnight, it became more lucrative to sell oil immediately, and in short
order, the cushion of stored oil shrank.
The financial players who have piled en masse into commodities trading in recent years
have made oil markets more unpredictable. Some are simply betting that oil prices will
rise over the long term. Others are pouncing on pricing anomalies as short-term trading
opportunities. Many of them move in herds.
"Factors other than supply and demand are now impacting the price," contends oil-andgas trader Stephen Schork, who publishes the Schork Report on energy markets. "We
now have to factor in how the speculators are going to affect the market, because they
have different priorities in managing their portfolios."
U.S. storage tanks are being drained at a time when fears of a recession have been
looming. That could make the economy more vulnerable to an oil-price spike that would
lead to higher prices at the gas pump.
Investing in oil is more complicated than buying stocks or bonds or bars of gold. Most
institutional investors don't want to actually own crude. To bet on it, they invest in oil
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 20
futures -- agreements to buy or sell oil at a set date in the future. They usually unwind the
contracts before the oil-delivery date arrives, eventually taking their profits or losses
without actually handling the oil. If they leave the contracts in place, oil must be
delivered to an officially designated delivery point. Cushing is the main such point in the
U.S.
The price of oil for future delivery isn't the same as the price for immediate delivery.
When traders figure supplies might run low, oil delivered in the future can become
significantly more expensive than oil purchased on the spot market for delivery right
away. Until recently, such price differentials gave oil companies and trading firms alike
an incentive buy oil and store it in tanks in Cushing and elsewhere.
Although Cushing isn't located on a major highway or railroad, it's one of the world's
main oil junctions. It's home to just 8,500 people -- if you count the 1,000 or so prison
inmates. Downtown has one stand-alone bar, the Buckhorn. At the movie theater near
City Hall, tickets cost $1.50, $2 on weekends.
About a century ago, wildcat drillers discovered oil here. By 1940, most of the wells had
run dry, but a maze of pipelines and tanks had sprouted. Cushing's position as a global oil
crossroads was cemented in 1983 when the New York Mercantile Exchange, or Nymex,
designated it as the official delivery point for its new futures contract for light, sweet
crude -- a grade preferred by gasoline refiners. This Nymex price now serves as a global
benchmark. Cushing has also become an important way station for heavier Canadian
crude.
1. Oil tanks in the US are emptying partly because:
a. the winter season has started
b. producers have been straining to keep up with demand Correct
c. increased natural gas usage
d. US oil exports to Mexico
2. Cushing's position as a global oil crossroads was cemented in 1983 when ____,
designated it as the official delivery point for its new futures contract for light, sweet
crude a grade preferred by gasoline refiners.
a. the Chicago Mercantile Exchange
b. Opec
c. Mynex
d. Nymex Correct
Plan to Sell Iraqis M-16s Triggers New Controversy
By YOCHI J. DREAZEN and GREG JAFFE
October 8, 2007; Page A1
http://online.wsj.com/article/SB119180608991151863.html
CAMP TAJI, Iraq -- In this war-ravaged country, a man is often measured by the make of
his gun.
When Iraqi soldier Abbas Ali Eadan picked up his brand new, U.S.-made M-16 rifle in
August at this sprawling base north of Baghdad, his pride was palpable.
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 20
"I can put a cigarette in an ashtray and hit it with my M-16 from far away, like a sniper,"
boasted the 39-year-old. "The terrorists may have rockets and grenades, but only the Iraqi
army has M-16s."
This spring, after years of requests from senior Iraq politicians and generals, the U.S.
began quietly converting the Iraqi army over to the M-16, the main rifle for U.S. soldiers
since 1963. According to the Pentagon, the Iraqis have thus far purchased about 21,000
of the rifles, worth roughly $27 million, from Colt Defense LLC. Current plans allow for
the Iraqis to eventually buy 123,544 of the American-made firearms.
The shift to M-16s is stoking a debate about how the new Iraqi army should be equipped.
The M-16 is a far more accurate weapon than the AK-47 assault rifle the Iraqis relied on
through decades of fighting. But it's also tougher to maintain and could strain the Iraqis'
supply and maintenance systems. More to the point, the Iraqi army is riven with
conflicting loyalties, leading many in the U.S. military to worry that the very weapons the
U.S. is supplying could be turned against them some day.
"There has been a lot of anxiety about having modern assault rifles fall into the hands of
terrorists," says Col. Michael Clark, who advises the Iraqi ground command in Baghdad.
"The M-16 is just a much, much better weapon…It can do real damage."
The argument over the M-16 is part of a broader issue that has dogged U.S. efforts to
rebuild the Iraqi military since the beginning of the war: Should the U.S. seek to model
Iraqi forces after its own -- and in the process familiarize soldiers with advanced, modern
American equipment? Or should it simply teach the Iraqi army to better use the weapons
and vehicles it already possesses?
During Saddam Hussein's rule, Iraq relied on Soviet-made helicopters, tanks, MiG fighter
jets and artillery. Most of that equipment fell into disrepair after the first Gulf War in
1991. After U.S. forces toppled Mr. Hussein in 2003, the armaments were further
destroyed or looted.
3. The US began quietly converting the Iraqi army over to the ______
a. AK-47
b. M-16 Correct
c. Kalashnikov
d. AR-15
4. During Saddam Hussein's rule, Iraq relied on Soviet made:
a. helicopters
b. fighter jets
c. artillery
d. all of the above Correct
Zoellick Charts Inclusive Course At World Bank
By BOB DAVIS
October 9, 2007; Page A1
http://online.wsj.com/article/SB119188906753952859.html
WASHINGTON -- The World Bank's new president, Robert Zoellick, has put an end to a
staff insurrection at the bank by styling himself as the opposite of his predecessor, Paul
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 20
Wolfowitz, a former Pentagon official. Three months on the job, he has become the unWolfowitz. Where Mr. Wolfowitz relied on a few recruits from the Bush administration,
Mr. Zoellick hasn't hired a single one. While Mr. Wolfowitz froze out bank staff, Mr.
Zoellick meets with the bank's 24 vice presidents every morning.
Now, Mr. Zoellick must show he can revamp the world's largest poverty-fighting
institution, which risks irrelevance in a world where even poor countries have easy access
to credit and as many as 230 competing institutions run by billionaires, celebrities and
individual nations. In that effort, he may have to take on the very staff that he has wooed,
a 10,000-strong army of international technocrats known for successfully resisting
change.
In a speech tomorrow, a week before the bank's shareholders descend on Washington for
their annual meeting, the 54-year-old Mr. Zoellick will lay out his agenda for the bank,
building partly on ideas of Mr. Wolfowitz and his predecessor and trying to avoid the
criticism leveled at both of them for failing to follow through on grand announcements.
In short, Mr. Zoellick proposes to use free trade to try to spur economic growth and social
cohesion in Arab nations, to re-energize efforts to rebuild impoverished nations emerging
from civil wars and to boost environmental programs and regional development in China,
India, Brazil and other fast-growing developing nations. His mantra: "Inclusive and
sustainable globalization."
Conservative critics argue that the bank no longer has a role to play in China and other
nations that can finance development projects from their bulging financial reserves or
from global markets. They say Mr. Zoellick already has gone soft. Pointing to Mr.
Zoellick's goal of increasing lending and other services to developing nations, Allan
Meltzer, a Carnegie Mellon economist, says he already "has shown he won't make major
reforms at the bank." Mr. Meltzer chaired a commission in 2000 that recommended
overhauling the bank so it focused on giving grants -- not loans -- to the world's poorest
nations
But Mr. Zoellick, in an interview, insists that continuing do business with these "middle
income" countries, even though they have money or can easily borrow on world capital
markets, will give the bank influence over their policies so their growing economic might
won't seem as threatening to the U.S. and wealthy nations in Europe. "Frankly, we need
more ways in the world for countries to work together on common problems, not fewer,"
he says.
5. Mr Zoellick's “mantra” for the World Bank is
a. “peace and goodwill”
b. "inclusive and sustainable globalization" Correct
c. “antiglobalization”
d. “one world, one bank”
6. Conservative critics argue that the World Bank no longer has a role to play in ____ and
other nations that can finance development projects from their bulging financial reserves
or from global markets.
a. Mexico
b. India
c. China Correct
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 20
d. Brazil
Honda and UAW Clash Over New Factory Jobs
By NEAL E. BOUDETTE
October 10, 2007; Page A1
http://online.wsj.com/article/SB119196377029953821.html
ANDERSON, Ind. -- When Honda Motor Co. announced last year that it was building a
new plant amid the farms of southeastern Indiana, Hoosiers cheered. Then Honda
announced in August that only people living in 20 of the state's 92 counties could apply
for jobs -- a move that excluded most of the state's thousands of unionized laid-off auto
workers.
Honda's unusual hiring restriction highlights an often overlooked aspect of the United
Auto Workers union's declining power. While Detroit's big auto makers and their
unionized suppliers have been slashing jobs, wages and benefits, foreign car companies
have added U.S. plants and created thousands of new automotive jobs. Yet they have
effectively kept auto workers with UAW membership cards out of their factories,
hampering the union from gaining any foothold where the jobs are.
Of the 33 auto, engine and transmission plants in the U.S. that are wholly owned by
foreign companies, none have been organized by the UAW, despite repeated attempts.
Mainly, foreign auto makers have located plants in Southern states where the UAW has
little presence and where right-to-work laws limit union power. When they have ventured
into Northern states such as Indiana and Ohio, they have mostly chosen rural locations far
from any unionized plants and UAW halls. The moves now are helping the foreignowned plants begin to lower wage scales.
In the case of Honda's latest plant, in Greensburg, Ind., the company received $140
million in tax breaks and other incentives, at least $50 million of it in statewide funds.
But the company wasn't required to consider all state residents for jobs.
7. Of the 33 auto, engine and transmission plants in the US that are wholly owned by
foreign companies, _____ have been organized by the UAW.
a. none Correct
b. 10
c. 15
d. all
8. Honda Motor Co announced last year that it was building a new plant in _____.
a. Tennessee
b. Ohio
c. Illinois
d. Indiana Correct
Boeing, in Embarrassing Setback, Says 787 Dreamliner Will Be Delayed
By J. LYNN LUNSFORD
October 11, 2007; Page A1
http://online.wsj.com/article/SB119203025791454746.html
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 20
Boeing Co. reversed itself after weeks of promising its new widebody jet would be
delivered on time, saying the ambitious project now faces a delay of at least six months.
The setback for the 787 Dreamliner marks a blow for Boeing's plan to revamp how it
builds airplanes by having suppliers take on a greater role in design and manufacturing.
Executives were forced to apologize for breaking their commitments to customers. They
said the first airplane would be delivered in late November or early December of next
year instead of May. Boeing shares fell 2.7%.
The delay, which Boeing attributed to shortages of key materials and slow deliveries by
suppliers, damages the company's prestige and could hurt the bottom line if airlines can't
receive their big orders on time and demand penalty payments. The snafus are
particularly embarrassing because Boeing had picked up business from rival Airbus after
the European plane maker had to postpone its own highly anticipated new models.
"Every one of [Boeing's] customers will be watching this program much more closely for
signs of trouble," said John Plueger, president of leasing giant International Lease
Finance Corp., a big Boeing customer.
Many airlines are relying on the 787 for fleet expansion, and now will have a tougher
time expanding their schedules. Frequent fliers will be spending more time on aging jets
as they await the new amenities airlines are planning to include in their Dreamliners.
The delay irked the airlines that have flocked to buy the 787, and poses the most serious
setback for Boeing Chief Executive Jim McNerney since he took the reins in 2005. Mr.
McNerney, who cut his teeth in aviation as an executive at General Electric Co.'s jet
engine business, acknowledged the challenges but said: "We remain confident in the
design of the 787, and in the fundamental innovation and technologies that underpin it."
In planning for the 787, Boeing remade its production process to rely heavily on major
suppliers as risk-sharing partners. In return for investing more upfront and taking on a
share of the development costs, suppliers have been given major sections of the airplane
to build. The wing sections are made in Japan, while factories in Italy, South Carolina
and Wichita, Kan., assemble the bulk of the fuselage. The parts are flown aboard
modified 747 cargo planes to Everett, Wash., for final assembly.
Boeing says that when the system is up and running, it will eventually be able to snap
together Dreamliners in as little as three days, in a manner not unlike how plastic model
airplanes are assembled.
9. The delay for the Boeing 787 Dreamliner is now
a. 2 weeks
b. 6 weeks
c. 6 months Correct
d. one year
10. Boeing attributed the delay of the 787 to:
a. PLM
b. poor project management
c. shortages of key materials Correct
d. too many scope changes
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 20
Bush Vows Push On Trade, Chides Boards on Pay
By JOHN D. MCKINNON and GREG HITT
October 12, 2007; Page A1
http://online.wsj.com/article/SB119214622722956668.html
WASHINGTON -- President Bush, saying many Americans have lost faith in their ability
to compete in the global economy, vowed to revive the country's free-trade agenda, and
he chastised corporate America for behavior that is adding to the public's anxiety.
"We have lost sight of what it means to be a nation willing to be aggressive in the world,
and spread freedom or deal with disease," he said in an interview with The Wall Street
Journal. "We have lost our confidence in the ability to compete internationally."
Mr. Bush pledged to turn the situation around.
In yesterday's interview, Mr. Bush said that some executive compensation is excessive,
and that some corporate boards fail to ensure that shareholders know how company funds
are being spent. Those practices, he said, can give rise to feelings the economy isn't
working fairly for all Americans.
"Do I think some of the salaries are excessive at the top? I do," the president said. "I don't
think it's the role of government to regulate salary. But I do believe it's a role of boards of
directors to be very transparent with shareholders about these different packages, the
employment packages that these executives get."
Excessive executive compensation "just sends a signal of unfairness, and people in
America want...fairness," Mr. Bush said, adding that he has raised the issue with both
Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman
Christopher Cox. Mr. Bush raised some concerns about executive compensation in late
January in a speech in New York, but yesterday's comments went further.
The president's remarks came amid recent polls showing declining voter support for
globalization and free trade, even within his own Republican Party, where such support
traditionally has been strongest. His statements reflect a new White House strategy of
acknowledging economic imbalances as a way of gaining credibility to push a final
handful of free-trade agreements through a skeptical Democratic-controlled Congress.
Those agreements include trade deals with Colombia, Panama, Peru and South Korea.
The White House also is seeking a breakthrough in the long-stalled Doha Round of
global trade talks.
The administration is stressing the strategic importance of the pending Latin American
trade deals, especially the pact with Colombia. The country is a close ally of the U.S. in a
region where anti-American sentiment is on the rise, and where populist Venezuelan
President Hugo Chávez is trying to extend his influence.
11. President Bush, recently said many Americans have lost faith in their ability to:
a. pay for college
b. buy a home
c. buy a new car
d. compete in the global economy Correct
12. The Bush administration is stressing the strategic importance of the pending:
a. Chinese trade deals
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 20
b. Japanese trade deals
c. Latin American trade deals Correct
d. Canadian trade deals
Questions 13 – 17 from Marketplace
Deloitte Tries a Different Sales Pitch for Women
By ERIN WHITE
October 8, 2007; Page B1
http://online.wsj.com/article/SB119180210846051773.html
Nancy Camarota, a customer-relations executive at Allied Waste Industries Inc., said she
thought it was odd when a Deloitte & Touche USA LLP consultant used an exclamation
point in an email. "Guys do not use exclamation points," she thought. "Is he making fun
of me?"
She later learned the email reflected a new Deloitte strategy to approach women clients
differently than men. Among other things, Deloitte is training consultants to sit across
from women at a table, rather than next to them, and to bring subordinates to meetings
because women value knowing the people who do the work. In the case of the
exclamation point, Ms. Camarota had used one in an earlier email; the Deloitte consultant
says he was responding to her enthusiasm as part of the new program.
The strategy is based on a simple, yet radical, idea: Just as women consumers shop
differently than men, Deloitte believes businesswomen shop for professional services
differently than men. "You need to understand where women are coming from," says
Cathy Benko, a Deloitte partner who runs the program.
Ms. Benko started exploring the issue while researching ways to retain and attract female
employees. She teamed up with TrendSight Group, a Winnetka, Ill., consulting firm and
after interviewing senior women executives and Deloitte employees, they concluded that
the same discovery process women use when doing personal shopping applies to
purchasing business services. A woman might go into a store for black pants, for
example, but then see something else she likes and buy that, too, or change her mind.
Men just buy the pants.
"Men think, 'She's so fickle'," says Ms. Benko. But "she's not fickle at all -- she's using
this process of discovery."
Deloitte began offering four-hour workshops on gender differences to its employees last
year. Among its other suggestions:
Don't be frustrated if female clients reevaluate or modify their initial requests; because
they discover as they shop, women may be very receptive to suggestions about other
services.
13. Gender differences in the business world include:
a. businesswomen shop for professional services differently than men
b. women prefer doing dinner instead of lunch for meetings
c. seating preferences
d. both a and c Correct
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 20
Nothing Can Kill Drive and Inspiration Like a Long Wait
By JARED SANDBERG
October 9, 2007; Page B1
http://online.wsj.com/article/SB119188420773652765.html
Home life has its interminable waits: for the clothes to dry, for the MIA cable guy or for a
renovation. But at work, waiting is often endemic.
The specialization of office tasks creates an interdependence of staffers that makes every
move susceptible to delays that can slip toward forever. A project can only be as speedy
as its most sluggish participant.
When Tim Munson worked for a start-up, he had to funnel all requests to the company's
founder for a nod, even pen and paper requisitions. "There were projects that were started
my first year, and 5½ years later I was still waiting," says Mr. Munson.
Without anything to show for long waits, people stopped caring, waiting instead for their
options to vest. Mr. Munson left to raise horses. "I only have to wait when I want to
wait," he says.
When Heather Newcomb, who is currently waiting to hear back from clients and vendors,
used to work at a bank, she waited for approvals and annual reviews. Just as routinely,
she waited for someone to finish using the microwave, a product that was supposed to
alleviate the pain of watching water boil.
"Invariably he or she has to reheat two or three times," she says of her colleagues.
She was always struck by how long things could be dragged out and how little one of her
former bosses claimed he could do to speed the process. She attributes that to apathy. But
she allows that maybe the boss was just too busy waiting, too.
"No matter how senior you are," she says, "it makes you feel like a fief in the big, fat
corporate fiefdom."
14. Waiting in the office:
a. usually happens because of apathy
b. is caused by the interdependence of staff to complete a task
c. may cause employees to make “dumb” choices
d. all of the above Correct
How Less Pay, More Risk 'Sells Itself'
By MIKE SPECTOR in Lordstown, Ohio, and JEFFREY MCCRACKEN and JOHN D.
STOLL in Detroit
October 10, 2007; Page B1
http://online.wsj.com/article/SB119193955185153413.html
The contract agreement the United Auto Workers struck with General Motors Corp. after
a two-day strike last month freezes union members' base pay for four years. It shifts $51
billion in health-care obligations for retirees from GM to a union-run trust fund. And it
pays new UAW workers lower wages for the same work as veterans.
Yet, to Dave Green, a local union leader at GM's Lordstown, Ohio, plant, this deal for
lower pay and higher risk is "awesome." It's "huge." It "sells itself."
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 20
As voting concludes today, the leadership of the UAW is expected to win its campaign to
persuade workers to approve the contract. To understand why, look no further than this
economically depressed town halfway between Cleveland and Pittsburgh in Ohio's
Mahoning Valley.
Drivers exiting the Ohio Turnpike are greeted with a giant banner draped across the wall
of GM's Lordstown Complex: "Home of the Cobalt and G5." But those Chevrolets and
Pontiacs are believed to be money losers, the latest in a three-decade litany of small cars
built here that have suffered at the hands of Japanese competition. If the plant -- the size
of 100 football fields with 3,200 jobs and a $360 million payroll -- shut down, the town
would be devastated.
15. The contract agreement the United Auto Workers struck with General Motors Corp
after a two day strike last month:
a. freezes union members' base pay for four years
b. shifts $51 billion in health-care obligations for retirees to a union-run trust fund
c. pays new UAW workers lower wages for the same work as veterans
d. all of the above Correct
Don't Tell Your Boss, But There Is a Way To IM Despite Blocks
By SARMAD ALI
October 11, 2007; Page B1
http://online.wsj.com/article/SB119205933351855322.html
Does your company stop you from downloading instant-messaging software in an effort
to keep you from wasting precious time? Well, there's a way to get around company
barriers so you can chat away with family and friends.
Just use an Internet-based service so that you can chat from a Web page without having
to install any software, which might be blocked by a firewall. I tested two such services:
Meebo at www.meebo.com1 and KoolIM at www.koolim.com2. Both are free.
These services let you simultaneously log in to multiple IM accounts -- and communicate
with people with various services. If you have a friend who uses Yahoo Messenger, for
example, and another who likes MSN Messenger, you can chat with either.
Another plus: Meebo and KoolIM are far less vulnerable to viruses than downloadable
applications. They're also more efficient, saving users the hassle of installing multiple
programs on a computer. This is especially handy for people with old computers that
slow down when running several applications.
Meebo has a well-designed, sleek interface that makes it appealing to even the least tech
savvy. From its home page, you simply sign in for different IM services—MSN
Messenger, Yahoo Messenger, GTalk (or Jabber) and AIM (or ICQ). Your buddy list will
be combined automatically. You don't have to register, but if you do, you get perks such
as a single sign-on for all of your accounts, and the ability to share files, save chat logs
and store conversations.
16. The two services Meebo and KoolIM let you simultaneously log in to ___ accounts.
a. multiple email
b. multiple web video
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 20
c. multiple IM Correct
d. multiple voicemail
Business Magazines' Issues: Ad Slump, Web, New Rival
By MATTHEW KARNITSCHNIG
October 12, 2007; Page B1
http://online.wsj.com/article/SB119214635778456669.html
For many decades, publishers of business magazines such as BusinessWeek, Fortune and
Forbes thrived by following a simple formula: Target upscale executives and sell ad
space to auto makers, financial-services firms and technology companies.
But in recent years, that formula has come undone. The dot-com meltdown in 2000 sent
technology advertising into a steep decline. The slump in the auto industry has led to a
cutback in car advertising. And then there's the Web, which has weakened the magazines'
hold on their readers and advertisers.
Complicating matters further, the three incumbents face a new threat from a deeppocketed competitor: Condé Nast's Portfolio, a glossy general-interest business magazine
that debuted in April. McGraw-Hill Publications' BusinessWeek and Time Warner Inc.'s
Fortune are responding to these crosswinds with redesigns. BusinessWeek's new version
hits newsstands today, and Fortune's will debut in December.
With Detroit in a slump and the subprime mortgage crisis taking a toll on the financial
sector, the situation may get worse. Total financial advertising pages fell 7.3% in the first
half of this year, while technology dropped 12.8%, and autos fell 4.5%, according to the
Publishers Information Bureau. Hardest hit were BusinessWeek and Fortune, each of
which saw ad pages drop 20% in the second quarter, while Forbes LLC's Forbes was
down 1.1%.
Forbes's competitors say its tally includes supplements and other pages that the rivals
don't count. Adjusting for these factors, they say the performance of the three is roughly
equal. Forbes denies this and says the data prove that it is well ahead of the competition
in terms of ad pages even without the special sections. "They ought to spend more time
making ad calls than slinging mud," says James S. Berrien, president of the Forbes
magazine group.
17. For many decades, publishers of business magazines such as BusinessWeek, Fortune
and Forbes thrived by selling ad space to:
a. golf courses
b. boat makers
c. airlines
d. auto makers Correct
Questions 18 – 23 from Money & Investing
How Safe Is the Soaring Stock Market?
By TOM LAURICELLA
October 6, 2007; Page B1
http://online.wsj.com/article/SB119162779236650806.html
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 20
Investors who just weeks ago were fleeing stocks now think it's safe to return -- driving
the markets to a record high in the past week. Their hope: that the worst is over.
Much of the buying is driven by the notion that stocks are a safer bet than risky debt and
other investments at the heart of the summer's market meltdown. But there are some who
question whether the market is being complacent.
"This story is not over," says Steven Romick, manager of the $1.4 billion FPA Crescent
Fund. "There are a lot of risks in the market."
Among them: For the first time since the 2001 terrorist attacks, corporate profits are
expected to post a third-quarter decline. The companies in the Standard & Poor's 500stock index are now expected to see a 0.4% drop in operating earnings, a figure that
doesn't yet reflect the sizeable hits announced on Friday by Merrill Lynch & Co.,
Washington Mutual Inc. and Alcoa Inc. All three are in the S&P 500.
Merrill Lynch on Friday said it would take a $5.5 billion hit because of losses in complex
bonds stemming from this summer's market meltdown. Washington Mutual, meanwhile,
warned that net income will fall 75% in the third quarter because of problem loans.
Looking at earnings forecasts, S&P analyst Howard Silverblatt says, "Is there light at the
end of the tunnel, or is it an oncoming train?"
Soaring stock prices suggest that investors see a strong rebound in earnings, and Wall
Street analysts share that view, predicting that corporate profits will only shrink for one
quarter before rebounding strong in the fourth quarter and holding that momentum
through next year.
Friday's stock gains were fueled by an unexpectedly strong employment report,
suggesting that the economy has enough strength to avoid recession. The Dow Jones
Industrial Average gained 91.70 points, or 0.7%, up 9.5% from its mid-August low. The
S&P 500 index closed at a record high.
Even stocks that announced problem earnings jumped. Merrill Lynch gained 2.5% and
Washington Mutual rose 2.2%.
In fact, says, Fritz Meyer, senior market strategist at AIM Investments, many are betting
that even the third quarter won't turn out to be as bad as feared. "My hunch -- and maybe
what the market is hunching -- is that we're going to get an upward surprise to thirdquarter earnings."
18. Friday's stock gains were fueled by an unexpectedly strong employment report,
suggesting that:
a. companies are laying off worker
b. interest rates are going up
c. oil price will go up
d. the economy has enough strength to avoid recession Correct
AMR's Long-Term Solution Needs to Gain Some Altitude
By MELANIE TROTTMAN
October 8, 2007; Page C1
http://online.wsj.com/article/SB119180368741551794.html
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 20
Investors feeling ebullient about the recent lift in American Airlines' sputtering share
price should be cautious. The world's largest airline by traffic is setting a slower recovery
pace than its competitors -- and that drag on the stock isn't likely to go away soon.
The Fort Worth, Texas, airline is burdened with higher costs and hasn't been able to
muster the kind of recent revenue gains seen by its legacy-airline peers. Despite the latest
uptick, shares of American's parent, AMR Corp., are down 15% so far this year.
In 4 p.m. composite trading Friday on the New York Stock Exchange, AMR's shares
were up 47 cents to $25.64, giving the company a market value of about $6.36 billion.
Shareholders have been getting antsy with Chief Executive Gerard Arpey's adherence to a
long-term strategy that often eschews short-term, investor-pleasing fixes. During the
industry downturn after the Sept. 11, 2001, terrorist attacks, American was one of the
most frugal spenders and, in some areas, aggressive cost-cutters as Mr. Arpey avoided the
easier path taken by rivals in bankruptcy-court proceedings. Now, investments to
improve operations for the long haul, including better customer service and new aircraft
interiors, are adding to the carrier's high costs.
"They have a lot more work ahead of them than other names because of the fact that they
haven't been through bankruptcy," said Standard & Poor's airline equity analyst Jim
Corridore, who has a "hold" recommendation on the stock.
Some argue that American could bounce back fast if industry fundamentals improved.
"There's such huge financial and operating leverage at American that when they start
turning, you're going to see kind of an explosive upside," said FTN Midwest Securities
Corp. analyst Michael Derchin, who has a "buy" rating on the stock and a 12-month price
target of $38. FTN doesn't own any AMR shares.
But American would have to regain a lot of altitude. Most airline stocks have been hurt in
recent months by soaring energy prices, but shares of AMR have been battered more than
others. They plunged 14% one day last month on word that the airline's third-quarter unitrevenue growth would fall short of analysts' expectations. Unit revenue is revenue per
seat, per mile flown.
American spokesman Andy Backover said, "It is hard to compare the unit-revenue
performance of different airlines until the companies report their actual quarterly results
and provide color behind that." He also noted that American's unit-revenue is still
growing.
19. The world's largest airline by traffic is:
a. United
b. American Correct
c. TWA
d. Delta
Why Street's CEOs Escaped Big Losses With Their Jobs
By DENNIS K. BERMAN
October 9, 2007; Page C1
http://online.wsj.com/article/SB119189227560552955.html
For the rank and file on Wall Street, the message is clear: Mess up and lose your job.
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 20
But it's a different equation for the average Street CEO. The top men (they're all men)
who run the country's big financial houses have talked away a collective $20 billion in
losses. The difference? They get paid to balance the risk of doing business versus the risk
of passing on a deal.
They made bets, and, on the whole, the good bets outweighed the bad, even in the tumult
of the last quarter.
This is what makes the Street CEO job different not only from the jobs of those who
work for them, but from the top posts in other sectors. Big losses are largely tolerated, as
investors stomach the inherent volatility of the Street game. Without that risk, firms risk
becoming irrelevant, atrophying away in safety.
At financial-services firms, CEOs have to create an environment where risk is tolerated.
"The CEO is more like a politician, worried about maintaining the goodwill of the
professionals he's managing," says John Coates, a Harvard Law professor who is author
of a study of CEO longevity (average tenure: five years). "Investors understand the CEO
is not personally involved in making a lot of big bets on the trading floor, or on large new
lending."
That's not to say they shouldn't be held to account for some of the problems that
emanated from that tumultuous, ever-distant period of August and September. There are
questions of judgment, and is it not the last marginal piece of judgment for which the last
massive, marginal compensation is rewarded?
20. At financial services firms, CEOs have to create an environment where ___ is
tolerated.
a. debt
b. profit
c. risk Correct
d. credit
Retailers Aren't Just Sweating About Weather
By JUSTIN LAHART
October 10, 2007; Page C1
http://online.wsj.com/article/SB119197378269554103.html
A look at sweaters and jackets hanging untouched on store racks gives rise to a renegade
notion: Maybe the weather really is to blame for the latest bout of soft sales.
It is a thought many retailers are likely to encourage when they report September sales
tomorrow. Behind the scenes, they are acting as if their troubles aren't merely
meteorological.
Last month was one of the warmest Septembers on record, and in much of the country's
high temperatures persisted into this month. That has made a hash of sales of winter
clothes, and some retailers have entered desperation mode and started slashing prices.
Target, which initially forecast September sales at stores open for a year or more would
be 4% to 6% higher than last year, trimmed its expected gain to 1.5% to 2.5%. Children's
Place Retail Stores warned yesterday weaker-than-anticipated sales would cut into
earnings, commenting that "certain external factors, such as unseasonably warm weather
particularly in the last 10 days of the month, put substantial pressure on the business."
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 20
Analysts surveyed by Thomson Financial estimate overall sales at stores open for a year
or more were up 2.3% in September versus a year earlier. That is down from the 2.7%
gain they expected two weeks ago. In August, same-store sales rose 3.1%.
After sweating through the past several weeks, it is hard to say there isn't something to
the weather excuse. But it also may be that the latest leg down in the housing market is
cutting into consumer spending.
One sign retailers themselves may be worried: The West Coast's three largest ports
reported inbound container volume in August down 6.6% from a year ago, compared
with a 14.9% gain in August 2006. That suggests retailers are gearing up for light holiday
shopping. September container traffic along U.S. rails also was down versus last year.
Regardless of the weather, it looks like retailers are battening down the hatches.
Will Infosys's Results Add Spice to India's Sensex?
India's stock market has been as hot as a five-alarm curry. The earnings report by Indian
technology giant Infosys Technologies, released late today U.S. time, could show how
much zest remains.
India's benchmark Sensex index has jumped 31% since its low on Aug. 21, partly
because of signs the U.S. economy might dodge a recession. The index could gain more
altitude if Infosys reports strong results. The reason: Many tech companies in India
haven't joined the party. An index that tracks Indian info-tech companies is down 10%
this year, compared with a 33% gain by the Sensex. Infosys's American depositary
receipts are off 1.1% year to date. Infosys is expected to post fiscal second-quarter
earnings of 46 cents a share, up 31% from last year, according to Thomson Financial's
survey of analysts.
A problem for India's tech outfits -- which get most of their revenue from the U.S. -- has
been a 12% gain in the rupee against the dollar this year, the dollars they get from their
U.S. customers worth fewer rupees.
To diversify, the companies are selling more products in Southeast Asia and Europe. In
fiscal 2007, 63% of Infosys sales were in North America, down from 71% in fiscal 2004.
In that period, Infosys's revenue nearly tripled -- a recipe for spicy profits in the future.
21. Retail stores are concerned that weaker than anticipated sales due to ____ will cut
into earnings.
a. high interest rates
b. unseasonably warm weather Correct
c. high oil prices
d. job cuts
The Upsides of a Soft Economy
By JUSTIN LAHART
October 11, 2007; Page C1
http://online.wsj.com/article/SB119206377120355446.html
Consumers may be tightening their belts, but that doesn't mean the economy is about to
buckle.
Retailers will be reporting September sales today, and it doesn't appear they'll be pretty.
The International Council of Shopping Centers estimates sales at stores open for a year or
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 20
more will be 2% above last year's level -- barely enough to keep up with inflation.
Meantime, the Commerce Department is set to report the August trade balance.
Economists polled by Dow Jones Newswires estimate the trade gap narrowed a bit to $59
billion from $59.2 billion in July and a record $67.6 billion in August 2006.
The two -- the weakness at the stores and the drop in the trade deficit -- are related. A
large chunk of what gets sold to consumers these days gets produced overseas. When
spending slows, imports to the U.S. are affected.
As a result, past U.S. consumer slowdowns were seen as a major threat to the world
economy. But now growth seems to be bubbling along outside the U.S. That, in
combination with the weak dollar, is increasing demand for U.S. goods and services.
A sign of how rapidly the trade situation is changing: In August, 41% of the containers
shipped from the Port of Los Angeles were loaded, up from a year-earlier 32%.
With exports rising and imports slowing, the U.S. trade deficit has been getting whittled
away. That's one important bit of good news for an economy facing plenty of challenges
right now. Rising exports underpin domestic growth, slowing imports mean the pain of a
consumer slowdown is dispersed far and wide and a narrower deficit means Americans
are in effect saving more of what they earn.
"In an odd way, our growth gets better, because so much of what we were buying isn't
produced here," says AllianceBernstein economist Joseph Carson.
Tech Is Also Keeping Investors Happy
Wall Street's analysts have been busy dialing down expectations for third-quarter
earnings. But one group of stocks has seen meaningful upward revisions in estimates:
technology.
22. The International Council of Shopping Centers estimates sales at stores open for a
year or more will be ____ above last year's level.
a. 2% above Correct
b. 2% below
c. 12% above
d. 12% below
Buffett's PetroChina Sale
October 12, 2007; Page C1
Shai Oster and Carolyn Cui
http://online.wsj.com/article/SB119214767060856721.html
Warren Buffett is selling off his most high-profile investment in China and investors and
social activists are wondering why.
The investors, who closely follow Mr. Buffett's market moves, say the sale of most of
Berkshire Hathaway Inc.'s stake in PetroChina Co. is a sign that some Chinese stocks are
overvalued after a huge run-up and that now could be the time to cash in by getting out.
The social activists, who have been pushing investors to sell their shares in PetroChina,
see a small victory. They say that PetroChina's government-controlled parent invests
heavily in Sudan and buys a large part of Sudan's oil exports and that the money is being
used by Khartoum to sponsor widespread killings in the Darfur region.
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 20
PetroChina explores for oil and produces fuel products for China, where rapid
industrialization has led to a ravenous appetite for energy. PetroChina investors believe
Beijing, which sets prices for certain oil products, will eventually move toward market
prices, giving PetroChina an even bigger boost to its earnings and share price.
"There are a lot of people paying attention to what he is doing and watching the trajectory
of his move," says Andrew Foster, director of research at Matthews China Fund, which
manages about $2.2 billion. "As investors, we're all wrestling with the fact that it's
difficult to justify current valuations in China, even though there has been a lot of
fundamental, macroeconomic progress there."
Some investors in China and emerging markets are feeling queasy about the country's
stock valuations. PetroChina's shares are up 40% in Hong Kong this year, and climbed
nearly 6% a day after the news of Berkshire's latest stake reduction. The company's
American depositary receipts are up 37% this year, at $193.28 on the New York Stock
Exchange.
Further, the American depositary shares of Sinopec Shanghai Petrochemical Co., China's
largest refiner, are up 63% this year, while the Hong Kong-listed shares of China
Shenhua Energy Co., China's biggest coal miner, are up 209%, valuing it higher than
Australia's BHP Billiton Ltd.
"There is a lot of euphoria and blue sky in the valuations, with very little worry over
downside risk," says Devan Kaloo, head of global emerging market equities at Aberdeen
Asset Managers Ltd. in London. "We've been taking some money off the table, and it
looks like old Warren's been doing the same." Aberdeen, which manages $179 billion,
has about 7% of its emerging-market portfolio in Chinese stocks.
23. Warren Buffett is selling off his most high profile investment in China, ______, and
investors and social activists are wondering why.
a. Sinopec Shanghai Petrochemical
b. PetroChina Co Correct
c. Aberdeen
d. BHP
Questions 24 – 26 from Personal Journal, Section D
Adviser Turnover Roils Investors
By JEFF D. OPDYKE
October 9, 2007; Page D1
http://online.wsj.com/article/SB119188604300852754.html
When Jerry Roberts got news that his longtime financial planner was retiring and selling
his practice to a larger company, "it was very unnerving."
"I very carefully chose my original planner," a sole practitioner in the Robertses'
hometown of Indianapolis. "I was cognizant of his investment philosophy, his range of
capabilities, and his past experience. I didn't know anything about the new firm coming
on," says Mr. Roberts, a 64-year-old retired bank officer.
Like the Robertses, a growing number of people who have spent years building a
relationship with a trusted financial adviser are having to start over again with someone
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 20
new. Planners are getting older -- the average age is 55, and nearly a third are over 60 -and they are retiring at an accelerating pace, often without a specific succession plan in
place. That in turn is helping to fuel a wave of consolidation in the industry, as big
financial-advisory firms and banks, including Wachovia Corp., Pennsylvania's
Susquehanna Bancshares Inc. and Alabama's Compass Bancshares Inc., seek to control a
larger share of Americans' retirement assets.
Investors can feel left in the lurch when a planning firm they've known for years is
suddenly gone or swallowed up inside a larger shop. A retiring planner often will provide
clients with referrals to other professionals, or an acquiring firm will assign your account
to one of their planners. Sometimes, it's necessary to go hunting for a new planner on
your own.
It's essential to carefully assess the candidates: Will they be a good fit in terms of
investment style and service levels? Is the fee structure different from what you're used
to? And will they be looking out for your financial welfare, or just trying to sell you more
products?
"This is a relationship business, and you have to have a comfort level with people who
handle your money," says John Verret, a 61-year-old former advertising executive in
Sharon, Mass., who learned last month that his planner's firm was being bought by a
larger company.
When Rob and Marilyn Edwards's planner of five years retired recently, he provided the
Providence, R.I., couple with a list of four potential replacements. Not content with a
phone call, the Edwardses arranged a meeting with one of the candidates, Angela
Thomson, in a nearby town.
"We wanted to know if we'd be able to really work with her," says Mr. Edwards, a 61year-old attorney. "Are we on the same page in terms of investment philosophy. We
wanted to establish whether there was a level of trust." He asked her questions about her
relationship with clients, her work history and even her own family.
Mr. Edwards found that Ms. Thomson's approach to investing is largely similar to that of
his former planner, though with one key difference: Ms. Thomson favors actively
managed mutual funds, including a global real-estate fund. The previous planner largely
stuck to index funds and ETFs. Mr. Edwards says he isn't troubled by what he calls "a bit
more aggressive approach," because "I think she's making a reasoned judgment." Still, he
says, he'll be monitoring his nest egg's performance quarterly to make sure the
investments are working out.
The technical parts of switching from one planner to another are mostly relatively easy.
Transferring your assets generally can happen quickly with a few documents. With some
products, though, particularly annuities that might not be titled in your name, the process
can be more complex.
24. _____ are getting older, the average age is 55, and they are retiring at an accelerating
pace.
a. Bankers
b. Financial planners Correct
c. Truckers
d. Stock traders
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 20
Families Rethink Their Estate Plans
By RACHEL EMMA SILVERMAN
October 10, 2007; Page D1
http://online.wsj.com/article/SB119197946028754282.html
After flirting with death, the estate tax now looks like it isn't going away anytime soon -and that's creating headaches for wealthy families and their advisers.
Instead of having an estate plan that's set in stone, many people have been flocking to
flexible strategies that can help minimize taxes but can still be adjusted as tax laws and
circumstances change.
Among the tactics: creating provisions in wills and trusts that give beneficiaries or
trustees power to make changes as laws and family financial situations change. At the
same time, more people are opting for plans that allow their heirs to "disclaim," or
decline, part of their inheritance, thereby reducing their estate. Or they're using simple
measures, with little or no risk or setup costs, to benefit their families and trim their
estates, such as making annual gifts to family members or setting up special short-term
trusts.
Right now, the estate-tax system is in a state of flux, thanks to tax laws passed in 2001. In
recent years, advisers say that some clients were essentially frozen and unwilling to enter
into expensive estate-tax savings plans, because they were hoping that the tax would soon
disappear or be substantially reduced. They didn't want to enter into a complex tax-saving
trust or other strategy, or be subject to hefty gift taxes, if the estate tax were to go away.
Currently, the amount that can be exempted from federal estate taxes is $2 million per
person, but that number rises to $3.5 million in 2009. (Spouses can typically leave an
unlimited amount to each other.) Then the tax is slated to disappear altogether in 2010,
but it comes back with a vengeance the following year when the exemption reverts to just
$1 million. The top federal estate-tax rate on the largest estates is 45% until 2009, then
rises to 55% in 2011.
When the law was passed, no one expected the uncertainty to drag on this long, and the
betting in Washington is that Congress will alter the law in the next couple of years, most
likely before the estate tax evaporates -- but not until after next year's elections. Estatetax experts now think it's unlikely that the tax will be repealed, though the exemption
may well be raised and the tax rate lowered. As a result, many advisers are
recommending that clients keep their options open and stay flexible.
25. Right now, the ____ system is in a state of flux, thanks to tax laws passed in 2001.
a. estate-tax Correct
b. national sales-tax
c. inventory-tax
d. real estate-tax
New Incentives May Bolster Public Service
By ANNE MARIE CHAKER
October 11, 2007; Page D1
http://online.wsj.com/article/SB119206289655155389.html
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 20
A law President Bush signed last month drew a lot of attention for trying to make college
more affordable for many. Less trumpeted were provisions that support the altruists
among us.
The law, signed by President Bush last month, appropriates $20 billion to cut interest
rates on certain federal student loans and increase grant aid for low-income students over
the next five years. But the College Cost Reduction and Access Act also creates an
important incentive for all students to enter fields of public service by offering to forgive
what could amount to tens of thousands of dollars of school debt per student.
The legislation broadly defines public service to include a wide range of occupations,
such as public health, public education, working for a nonprofit organization and serving
in law enforcement or as a public-interest lawyer. The Education Department says it
expects to issue guidance to clarify exactly which professions will qualify.
"It changes the whole calculus of the situation," says Honora Spillane, a 25-year-old law
student at Syracuse University. After graduation, Ms. Spillane wants to work in state and
local government, but for a long time, she wasn't sure she could afford to. Now, the new
law makes that a more realistic goal, she says.
26. The College Cost Reduction and Access Act creates an important incentive for all
students to enter:
a. five year colleges
b. fields of public service Correct
c. law school
d. land grant schools
© Copyright 2007 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 20