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Wall Street Breakfast: Unions Make A Splash

Apr. 04, 2022 7:49 AM ET77 Comments
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Unions make a splash

Baristas at Starbucks' (NASDAQ:SBUX) Reserve Roastery in New York City have voted 46-36 in favor of forming a union as labor campaigns intensify across the country. The location is the ninth company-owned Starbucks to unionize, with another 140 stores across 27 states filing for union recognition since the first bombshell victory seen in Buffalo in December. To date, only one location that filed for elections has chosen against unionizing under Workers United, an affiliate of the Service Employees International Union.

How will Howard Schultz handle it? Today, the longtime Starbucks CEO is stepping back into the role for the third time as the company seeks a permanent replacement for departing chief Kevin Johnson. In the past, Schultz has said no employee, whom Starbucks calls "partners," has ever needed a representative and expressed his disappointment with unionization drives. Companies are often wary of unions as they can interfere with their autonomy and productivity, while Starbucks does have serious cash to keep fighting the initiatives, with annual revenue last year of $29B.

Schultz could also seek to shift the conversation, especially with SBUX shares declining nearly 22% since the start of the year. He already has a town hall planned for today, which will likely focus on take-away-oriented locations, tackling higher costs and the competition, and in a press release this morning, he suspended billions of dollars in share repurchases to free up cash to invest in cafes and employees. "I am returning to the company to work with all of you to design our next Starbucks - an evolution of our company deep with purpose, where we each have agency and where we work together to create a positive impact in the world," he wrote.

Go deeper: The big wins in the restaurant industry - where there are almost no unions - are heating up organized labor and advocacy movements nationwide. On Friday, Amazon (AMZN) lost efforts to stop unionization at its JFK8 warehouse on Staten Island, marking the first-ever labor foothold at the retail giant's U.S. operations. President Biden has also promised to be the "most pro-union president in American history," declaring on many occasions that "unions built the middle class." (3 comments)

Energy sanctions?

Europe may attempt to take additional steps away from Russian energy following the widely reported civilian atrocities in Bucha, Ukraine. Hundreds of bodies have been found in the city (and others) recaptured from retreating Russian forces - prompting an investigation into possible war crimes - though Moscow has denied the massacre, calling it a "provocation" and a "staged" performance. The EU currently gets about 40% of its natural gas from Russia, which powers everything from household heating to factory production, and makes up around 25% of the bloc's total energy consumption.

Bigger picture: While immediate steps may include a ban on Russian ships from EU ports and putting more pressure on oligarchs, the big elephant in the room is a ban on Russian oil and gas. Momentum is building in Germany for such a step (the country already announced it would be "virtually independent" by the end of 2022), while Italian Foreign Minister Luigi Di Maio revealed there could soon be "debate on the issue of imports of hydrocarbons from Russia." Last month, the U.S. pledged to boost LNG supplies to Europe after announcing its own ban on Russian oil, gas and coal imports.

Things were a lot different back in the 1960s and 70s, when Europe supplied itself with nearly all of its natural gas needs. Production then dropped off after North Sea gas fields became depleted, prompting the continent to look for foreign suppliers. Russia's reserves were larger and cheaper than any other nearby sources, so infrastructure and pipelines were built to easily connect the grids. Generating EU power from coal and nuclear has also been phased out in recent decades due to renewable energy goals and anti-nuclear movements.

Go deeper: In response to the invasion in Ukraine, Lithuania over the weekend became the first EU nation to end imports of Russian gas completely. "From now and so on Lithuania won't be consuming a cubic cm of toxic Russian gas," tweeted Prime Minister Ingrida Šimonyte. The country has turned to liquefied natural gas for its energy needs after emphasizing energy security and opening an LNG terminal in the port of Klaipeda in 2014. "If we can do it, the rest of Europe can do it too," added Lithuanian President Gitanas Nauseda. (50 comments)

Musk still likes Twitter

It was only a week ago that Elon Musk said he was considering building his own social media platform. At the time, he expressed his disappointment with Twitter's (TWTR) free-speech approach, with more than 2M people responding to a subsequent poll saying the platform does not rigorously adhere to the principle. Well, guess what. The Technoking of Tesla (TSLA) just took a 9% stake in the social media company, sending TWTR shares up 25% in premarket trading.

Snapshot: "Musk could try to take a more aggressive stance here on Twitter," Wedbush analyst Dan Ives told CNBC. "This eventually could lead to some sort of buyout." His latest tweet might also rile the SEC, ragging on Twitter before taking a major stake in the network. Recall his infamous tweet in 2018 that he was considering taking Tesla private for $420 per share, as well as a related outstanding battle with the SEC.

Also note that Musk took the stake via his own revocable trust, and it was not made through any entity related to Tesla. With a 9.2% stake, Musk would become the largest shareholder in Twitter (even founder Jack Dorsey only has a 2.25% holding).

Thought bubble: Celebrities have tried to start their own social networks before, like former President Donald Trump, but haven't seen too much success compared to the mainstream platforms that have dominated the landscape. In fact, Trump's TRUTH Social has seen a 93% drop in downloads since its launch in late February, while Trump himself has only posted once on the platform. A lot of influencers that have also migrated to newer platforms have continued to tweet or post on Instagram (FB), while a total jump to a new network could cost someone like Elon Musk his 80.1M Twitter followers. (25 comments)

Sounding the alarm

"The confluence of the dramatic stimulus-fueled recovery from the COVID-19 pandemic, the likely need for rapidly raising rates and the required reversal of QE, as well as the war in Ukraine and sanctions on Russia may be unprecedented," JPMorgan (JPM) CEO Jamie Dimon wrote in his annual letter to shareholders, which is widely read in the business community. "They present completely different circumstances than what we've experienced in the past and dramatically increase the risks ahead. While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes."

On the bright side: "The U.S. economy is strong... excellent mortgage underwriting (even though we've had home price appreciation), plentiful jobs with wage increases, and more than $2T in excess savings, mostly due to government stimulus... the consumer in excellent financial shape (on average) and leverage among the lowest on record. Banks also performed magnificently during the COVID-19 crisis... helping to weather the terrible financial storm while setting aside extensive reserves for potential future loan losses."

Not all is well: "The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy - and it could easily get worse. It is also clear that trade and supply chains, where they affect matters of national security, need to be restructured. You simply cannot rely on countries with different strategic interests for critical goods and services. Such reorganization does not need to be a disaster or decoupling. With thoughtful analysis and execution, it should be rational and orderly. This is in everyone's best interest."

Disclaimer: "I should remind the reader that we normally don’t worry about - or even try to predict - normal fluctuations of the economy. In all times, we are prepared for difficult markets and severe recessions, as well as for unpredictable events, not only so we will survive them but also so we can be there for our clients when they need us the most. However, sometimes there are powerful underlying structural trends that we must try to understand since their impact can be so large, with widespread impact on many parts of human existence." (14 comments)

Today's Markets

In Asia, Japan +0.3%. Hong Kong +2.1%. China closed. India +2.3%.
In Europe, at midday, London +0.2%. Paris +0.4%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude -0.4% to $98.92. Gold +0.4% to $1930.40. Bitcoin -0.6% to $46,009.
Ten-year Treasury Yield +2 bps to 2.40%

Today's Economic Calendar

Auto Sales
10:00 Factory Orders
12:30 PM Investor Movement Index

Companies reporting earnings today »

What else is happening...

China confirms plans to change audit rules on overseas listings.

Stricter standards: NHTSA orders 49 MPG fuel-economy standard by 2026.

Tesla (TSLA) shipped record 310K cars in Q1, slightly trailed forecasts.

Buffett-backed BYD (OTCPK:BYDDF) ends production of combustion engine cars.

Hospitals heading into turbulence as COVID admissions drop - Deutsche Bank.

Intel's (INTC) new GPUs show promise, but Nvidia (NVDA) still has advantage.

Netflix's (NFLX) Inventing Anna leads streaming for third week.

U.S. home prices 'out of step' with market fundamentals - Dallas Fed.

Petrobras (PBR) chairman nominee turns down job after football team defeat.

Three energy firms that should buy back stock and four that shouldn't - Barron's.

This article was written by

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