The Prime Minister of Greece stepped down after a very unpopular bailout agreement, which followed a trying time to save Greece. Wal-Mart stock dropped after the company reported how much it will cost to pay staffers higher wages. Canadian college students are continuing to rely on the bank of mommy and daddy. Subway is in damage control after the Jared Fogle debacle. And one Nobel laureate economist says the worst of the market correction isn’t over yet.
These are the five biggest global business headlines from last week.
1. Greek PM Resigns and Calls an Election
After serving as head of Greece for just eight months, Prime Minister Alexis Tspiras announced he will be stepping down from his post and will call an election for September 20. “The political mandate of the 25 January elections has exhausted its limits and now the Greek people have to have their say,” he said in a televised address. “I want to be honest with you. We did not achieve the agreement we expected before the January elections.”
The left-leaning PM had ostensibly lost significant support from his own Syriza Party following the deal he approved with the European Union and bankers. The deal meant that Greece would receive $14.5 billion in bailout money in exchange for significant pension reforms and public sector job cuts. Apparently, this wasn’t supported neither by members of his own party, nor by the people of Greece.
Tspiras defended his actions by arguing that a majority of Greeks wanted to stay in the eurozone and it wouldn’t have been feasible without agreeing to the demands of creditors and governments. Moving forward, the newly imposed banking regulations remain the same. This means Greeks will still have to face capital controls and daily withdrawal limits.
2. Wal-Mart Stock Takes Hit After Wage Hikes
Since Wal-Mart announced earlier this year that it would be giving raises to all new employees - from store clerks to store managers - everyone was celebrating. The Fight for $15 movement was convinced it had made gains and that the push for higher wages would succeed. Well, many companies and governments are instituting higher wages, but not everyone is happy about that.
Last week, Wal-Mart’s stock fell after the global retail juggernaut announced how much it will cost to raise the wages for employees in the United States. By hiking wages to at least $10 per hour in 2016 as well as enhancing training and development and increasing staff levels, profits will decline by 24 cents per share. This accounts for about $773 million.
On Tuesday, Wal-Mart shares tumbled $2.42, or 3.3 percent, to $69.48, which reflected investor concerns that Wal-Mart’s labor costs are growing more rapidly than sales growth. In fact, operating costs, which did include labor expenses, climbed more than three percent in the last quarter, while revenues hardly budged.
Meanwhile, its full-year outlook was cut by more than two percent. This past April, wages for hourly associates started at $9 per hour, which will increase to $10 per hour early next year. Department managers received $13 per hour this summer, which will climb to $15 early next year.
“After all, we’re all associates. We have different roles at different times in our career and every one of them is important,” wrote Doug McMillon, Wal-Mart CEO, in a blog post in February. "Today’s cashiers will be tomorrow’s store or club managers. Today’s managers are tomorrow’s vice presidents. Tomorrow’s CEO will almost definitely come from inside our company.”
Many expect this drop in stock appreciation to be temporary, citing the two percent devaluation of the Chinese yuan. Wal-Mart is a huge purchaser of Chinese manufacturing goods, and with the debasement of the renminbi, it will be cheaper to buy Chinese products.
3. Canadian College Students Need a Bailout From Parents
In Canada, the average student loan debt is around $25,000. With youth unemployment topping 13 percent and the country heading into a recession, today’s crop of college students need to rely on their parents for shelter and basic living expenses. And this isn’t anecdotal evidence of a neighbor’s 23-year-old daughter moving back home.
A new survey by CIBC found that more than half (51 percent) of college students asked their parents for additional financial assistance last year because they ran out of the necessary funds to pay for their living expenses.
This isn’t just an income gap issue, either. The study discovered that about half of families with affluent households and about half of families in poorer households had post-secondary students turning to the bank of mom and dad.
Despite an overwhelming majority of parents (86 percent) considering themselves as superb role models for anything financial, the survey found that many students are treating their parents as if they were their own personal ATMs.
Sarah Widmeyer, CIBC’s managing director and head of Wealth Advisory Services, noted that young people today need to sympathize with their parents and realize that not only can they stop asking their parents for help, but they have to learn the fundamental principles of personal finance and budgeting.
At the end of the press release, the financial institution listed five tips for college and university students to successfully manage their personal finances:
- Differentiate between wants and needs.
- Create a budget.
- Manage your cash flow.
- Borrow responsibly; use credit only when you have to.
- Start building credit by paying your bills on time.
4. Jared Fogle Saga Continues
Iconic Subway pitchman Jared Fogle, who was fired from his position earlier this summer, pled guilty to child pornography charges and crossing state lines to pay for sex with minors. The plea deal will see Fogle, who lost a lot of weight eating subs, serve between five and 12 years in prison.
As Fogle heads to prison, Subway will now have a tough time separating itself from Fogle. From the 1990s to the mid-2000s, Fogle was a major figure for the chain of restaurants. He shed an enormous amount of weight by eating subs for breakfast, lunch and dinner and walks. This story not only garnered a ton of publicity for Subway, but it gave so many overweight and obese individuals hope of losing those extra pounds.
"Jared Fogle’s actions are inexcusable and do not represent our brand’s values," the company said in a statement issued on Twitter. "We had already ended our relationship with Jared."
Although Subway has attempted to distance itself from the Fogle scandal over the last several weeks, reports are surfacing that two women had alleged they contacted the company and warned them about inappropriate comments Fogle made about minors and sex.
It was reported that Fogle had allegedly asked a Subway franchisee if he could have sex with her underage cousin and conceded he previously paid a 16-year-old for sex. The franchisee then brought this to management, but nothing was done as they continued to use Fogle as the figurehead for their national campaigns.
A Florida radio host had also allegedly given management similar information.
"I told them how Jared had approached my children -that I met him during my radio show program- and that he had approached my children and had made sexual comments about wanting to do things with my children and their friends,” Rochelle Herman-Walrond said. “I never got a ‘Thank you for emailing’ or anything like that, but I sent it and it did go through.”
5. Market 'Aftershocks' Will Continue Ahead
Last week, markets worldwide experienced a significant beating that led to steep losses. Economists and financial analysts say it’s a matter of weak economic data coming out of China and a market experiencing a correction. The Dow Jones, the Shanghai Composite Index and the DAX have been on considerable runs since the financial collapse. If you think this is just a temporary downturn then you better think again.
Nobel Prize-winning economist Robert Shiller told CNBC last week that the market will undergo a series of "aftershocks" over the coming months. Shiller, who has warned that the market is both overheated and overvalued, warned that these things "unfold for years."
"It could be followed by even bigger and bigger moves," he told the business news outlet in an interview. "I have a general bias towards down because the market is overpriced, but these things unfold over years."
Shiller did admit that the selloffs could create aftershocks in either direction for a short period of time. However, Shiller alluded more to the psychological aspect of the stock market and its bull-run over the last couple of years.
"When people who don’t normally pay attention to the market are brought in, it can feed on itself like an epidemic," averred Shiller.
He suggested that people shouldn’t necessarily be ultra-worried about a correction as there could be various gains in other sectors of the economy, plus he still has confidence in the Chinese economy in the long-run.
So while the past week was bad for the economy, it looks as it was difficult for the Greek people as well, as they’ll soon be called to elect a new government. Wal-Mart may have done a good deed but it cost them plenty. College students, despite a somewhat improving economy, are still turning to their parents for some money. Subway persists in separating itself from pitchman Jared Fogle. And economist Robert Shiller thinks last week’s market collapse will come with quite a bit of "aftershocks."
What are your thoughts on these business headlines? Let us know in the comment section below.