Mish's Global Economic Trend Analysis

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Three Cheers for Starbucks, But ... Posted: 16 Jun 2014 07:14 PM PDT Earlier today, Starbucks announced a College Achievement Plan in which it will pay for its baristi and other employees to go back and finish their college degrees. Employees only have to work 20 hours a week to be eligible. The plan is an online program in partnership with Arizona State University. For the first two years, Starbucks will pick up about half the employees expenses. For the final two years, Starbucks will pick up all of them. This presumes the students are eligible for Pell grants, which most of them should be as the employees make about $10 per hour. Moreover, and unlike programs at other companies, there are no strings attached. Workers do not have to stay employed at Starbucks for any length of time after they graduate. The offer only applies to company owned stores, not franchises. But that's not my "but ...", which I will get to in a moment. Many Positives From a marketing standpoint as well as a business standpoint, the announcement makes sense. For the students, what can be better? In return, Starbucks will get very dedicated workers for four years. Employee loyalty will be exceptional and turnover low. Think students will prefer Starbucks over other brands? I do. Many will be loyal to Starbucks for the rest of their lives. Other Details MarketWatch has other details in its report. Bloomberg reports Starbucks to Pay U.S. Workers to Get Degree From ASU Online Starbucks employees who work at least 20 hours a week and enroll in the university's online bachelor's degree will get $6,500 -- about half of their tuition -- for the first two years, the company said in a statement. They will then get full tuition for the final two. "We've always known that our partners work hard every day," Cliff Burrows, president of Starbucks' Americas region, said in a phone interview. "This is the best way we can serve them." Of Starbucks' 135,000 U.S. store employees, about 25 percent already have a bachelor's degree. Seattle-based Starbucks has about 11,600 U.S. locations. More schools besides ASU may be added to the program in the future, Schultz said during a webcast earlier today. Please note that 25% of Starbucks workforce already has a degree. Clearly they cannot find jobs in their field of expertise. Cost of Education The Huffington Post reports "Tuition for an online degree at ASU is about $10,000 a year, roughly the same for its traditional educational programs." That is my "but ...": Why should an online education cost as much as a traditional program? What has Arizona State done to lower costs for everyone? To be sure, a degree at ASU is not as expensive as degrees from other universities, but $40,000 is a lot of money for most kids attempting to work their way through college. Moreover, I am not in favor of Pell grants or student loans. The former is a taxpayer subsidy to teachers and administrators, not students. Pell grants do nothing to increase competition, and everything to keep costs high. And student loans make debt slaves out of kids for decades. While the Starbucks program addresses the debt slave issue, it does nothing to address the real problem: the extremely high cost of education at most US universities. Still, this move by Starbucks is likely to pay dividends to both the students and the company. Things would be much better still if only government would get out of the way. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Russia Announces "Pay-First" Gas for Ukraine; Revised Estimates on How Long Ukraine's Gas Stockpile Will Last Posted: 16 Jun 2014 11:34 AM PDT Ukraine is now on a pay as you go system for natural gas following a breakdown in negotiations with Russia. Ukraine is not under immediate threat having enough gas to last until September according to some reports, December in others. Much depends on how cold, how fast Autumn turns into winter, and also on how much conservation Ukraine can manage in the meantime. For now, I will accept Gazprom's estimate of mid-October rather than Ukraine's estimate of "until December" or earlier reports of "until September". Please consider Russia Cuts Gas Supply to Ukraine as Tensions Soar. Russia halted natural gas deliveries to Ukraine on Monday, spurning Ukraine's offer to pay some of its multibillion-dollar gas debt and demanding upfront payments for future supplies. Ukraine has enough reserves to last until December, according to the head of its state gas company Naftogaz. Russia had demanded $1.95 billion by Monday for past-due bills. At talks over the weekend in Kiev, Ukraine was ready to accept a compromise of paying $1 billion now and more later, but Russia rejected the offer, the European Commission said. Sergei Kupriyanov, spokesman for the Russian gas giant Gazprom, said since Ukraine missed the deadline, from now on it had to pay in advance for energy. Yet that's a nearly impossible demand for the cash-strapped nation, which is fighting an insurgency and investigating possibly billions lost to corruption under its former pro-Russian president, Viktor Yanukovych. In 2013, Ukraine imported nearly 26 billion cubic meters of gas from Russia, just over half of its annual consumption. Kupriyanov said Russian gas supplies for Europe will continue through Ukrainian pipelines as planned and warned Ukraine to make sure they reach European customers. At a news conference in Moscow, Alexei Miller, the CEO of Gazprom, berated the Ukrainian government, saying it scoffed at compromise and was deliberately turning commercial negotiations into a political discourse. "Ukraine will get as much gas as it pays for," Miller said Monday. "The risks to the (gas) transit are there and they're significant." He said in order to prevent serious disruptions to energy supplies in winter, Ukraine needs to pump in gas to its underground storages before mid-October. The current amount of gas in storage is not enough for Europe to last through the winter, he said. Ukrainian consumers, however, will be facing higher prices no matter what Russia does. Previous governments had sold gas to consumers at about a fifth of what Naftogaz pays for it — leaving little incentive to conserve and saddling the government with huge deficits. Ukraine's new government is in the process of raising domestic gas prices, a condition of its $17 billion bailout loan from the International Monetary Fund. Biting the Hand that Feeds You Tensions are high enough already, yet Ukrainian Prime Minister Arseniy Yatsenyuk added fat tom the fire with his statement "We won't subsidize Gazprom," he said. "Ukrainians will not take $5 billion per year (out of their pockets) to let Russia spend this money on weapons, tanks and planes to bomb Ukrainian territory." That's quite the charge. If Russia is indeed doing what Yatsenyuk stated, the two countries would be in an open state of warfare, and all gas would have been shut off long ago. Meanwhile, Russia will keep the pipeline open provided gas flows through to Europe. The risk to Russia is substantial as the chance Ukraine siphons gas from the pipeline is high. Last year, Russia offered gas to former prime minister Victor Yanukovych at a discounted rate, but that deal ended with his ouster. It's ironic that Yatsenyuk complains about subsidizing Gazprom when Ukraine had a sweetheart deal and did not even pay discounted prices. Ukraine now owes Russia $4.458 billion for unpaid gas bills from the past two years. I still expect cooler heads to prevail, with some agreement in due time, say the end of September or the middle of October, but there is always a chance things escalate out of control given reckless political comments and the downing of a Ukrainian jet by pro-Russia separatists. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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