Every household and business has fixed expenses to operate and generally the fixed expenses are in a range which is manageable. When one of the fixed expenses jumps in price, everyone has concerns because the income to pay the fixed expense did not jump. In Europe, due to Russia invading Ukraine, gas and oil prices have jumped and everyone has to pay more. The first thing companies and individuals do is try to find alternatives such as cutting back on usage, examining other forms of fuel but if the company uses gas and oil, it is difficult to find alternatives. The government when prices jump want to do something, but their budgets are stretched which means they have to rely on the large institutions to do something.
In an article by Valentina Za of Reuters, the government of Italy had discussions with Italy’s second biggest bank UniCredit to help its customers deal with the increased prices. The bank offered more financing for small businesses, credit card holders will be able to miss a payment without penalty, mortgage holders can change payments with their mortgages for the next 2 or 3 months.
Linking to dividend paying stocks, often the government will turn to these companies to help them because regulations tend to help the companies make profits. By doing something the government is there to help the bigger corporations when they need help. The relationship between the government and profitable companies is just not when things are going well, but shows the value when the cycle turns. What do your investments do when the economy is in slowdown?
There are more questions than answers, till the next time – to raising questions.