60,000 fast food workers skipped work today to make the point that we need to raise wages to $15 per hour versus the $9.05 average currently. I am all for people making more money and being paid what they want to make. I am also for employers paying what they can afford to pay and what is deemed fair to both parties. When I worked for a supermarket chain in college they paid me $8.40 per hour (minimum wage was $3.05). Why? Because I was offered other jobs making that wage and they wanted me to continue to work for them, and they were willing to match the hourly rate. If you don’t like what you are getting paid… find another job that will pay you what you want or make yourself so valuable to the company your are working for that they will pay you a higher wage. Seems simple enough to me. But, that is logical. It seems that more people want a hand out versus a hand up!
Why am I ranting about this? I was looking at a chart of McDonald’s (MCD) and noted that the stock has declined from $103.50 to $94.80 over the last five months. There earnings showed weakness as costs are rising and margins are shrinking. The global markets have been a drag on profits as the economies have struggled to return to growth. The outlook isn’t going to get better overnight and that means challenges for the company. Now what if they gave everyone a raise to $15 per hour? $6 per hour times 40 hours per week equals $240 per week more in expenses. That doesn’t included the matching FICA, unemployment and Medicare taxes owed on that increase at roughly 11%, depending which state is involved. With more than 400,000 employees what does that bill come to? What would happen to the stock price? I know it is not about what they make as a company it is about the people who work there. Yes it is, as long as you don’t own the stock or a franchise. My dad managed a McDonald’s when I was growing up, he left to start his own business and hopefully make more money. He used what he learned running a restaurant to run a successful business. And thus how the cycle works… not skipping work and demanding more money.
The take this full circle, the downside of McDonald’s remain in play and depending on how this pay increase plays out looking forward, being short MCD may make more sense than owning the stock long. Burger King, Wendy’s and others will be in the same boat. Worth putting them on a watch list to see how it all plays out.
The White House has engaged former President Bill Clinton to travel and tell America how Obamacare has helped the average person. I am not going to attempt to tackle this issue, but I will say it is interesting how political this is right before Congress reconvenes for the fall session and the funding for the October 1st launch of the health-care marketplace is at hand. Not to mention the budget battles relative to the debt ceiling being hit in October as well. That aside the bill has been a profit center for the healthcare sector. The overall sector (XLV) has risen more than 100% since the bill was put into place. Pharmaceutical stocks (XPH) have been a big benefactor as they now get paid by the government for what they used to lose money on. Healthcare providers (IHF) i.e. hospitals are in the same league as they now are compensated by the government for things they wrote off as a loss. Biotech (IBB) companies are winning as well as they attempt to come up with less expensive methods of packaging drugs and the delivery systems for the new plan. With this all kicking off in the fall the sector will remain positive from my view. Who said that Obamacare wasn’t good for Wall Street, oops I mean main street.
I could go on with other opportunities being created by what starts out as well intended help for people, but ends up as a business proposition for Wall Street. My grandfather always said, invest in the company and use the profits to fight the cause. Somehow it almost make sense.