Juggling Dynamite

As I feared, DOGE has drastically undershot its targeted spending cuts. It’s hard to reduce overhead without the political will to reduce corporate subsidies and reform entitlement programs in a meaningful way. At the same time, the masses want tax cuts. The math is not mathing.

Elon Musk is done with the Department of Government Efficiency. The agency claims to have saved taxpayers more than $170 billion with its aggressive cost-cutting. Did DOGE live up to Musk’s promises? Here is a direct video link.

Today, we received further confirmation of Canada’s deteriorating labour market, with March payrolls falling 54,100 to a 10-month low, and a negatively revised 40,200 fewer jobs in February (Stats Can survey of employers, payrolls, and hours).

Canada’s largest lender, Royal Bank, also disappointed with an earnings miss after setting aside $1.42 billion for loan losses in the three months through April, above the $1.26 billion analysts had forecast. See RBC misses estimates as bank prepares for souring loans.

To help counter the drag on its share price, RBC announced that it would increase its dividend and buy back as many as 35 million common shares. Royal Bank shares are down 3% on the day, notwithstanding.

All of the big six Canadian banks have increased loan loss provisions in the first quarter.

With Canada’s 6.9% unemployment rate in April set to rise for the foreseeable future and 60% of Canadian mortgages set to reset to current interest rates in 2025-2026, payment stress and delinquencies are on the rise.

For sale listings are also leaping in most areas. As of May 2025, the Toronto housing market has reported a 45% year-over-year rise in new listings, surpassing 31,000.

The increase in inventory is attributed to several factors, including economic uncertainty, shifting immigration policies, and cautious buyer sentiment. As a result, sellers are more motivated to list their properties, leading to a higher supply in the market. These trends offer buyers more options and negotiating power, resulting in longer selling times and more competitive pricing. Sale prices were 3.8% to 6.9% lower year-over-year, depending on the property type (shown below, courtesy of WOWA).

At the same time, Canada’s April core inflation measures, which exclude volatile items like food and energy, rose above 3%. This elevated inflation picture complicates the Bank of Canada’s goal of promoting economic growth while maintaining price stability.

The Bank of Canada’s next rate announcement is scheduled for June 4, and although markets predict no rate cut, weaker-than-expected economic data could alter this outlook.

Ultra-luxury goods are often regarded as recession-proof, with steady demand regardless of the state of the economy. But that’s not what is happening.

During the pandemic, when ‘free money’ policies sent demand for goods through the roof, many luxury companies seized the opportunity, raising prices by an average of 36% between 2020 and 2023, according to Bernstein analysis (chart below)—roughly double the rate of overall U.S. inflation at the time. For a while, demand proved relatively inelastic, holding up despite soaring prices.

This was good for companies, where higher prices with steady demand increased total revenue. Now, as with unaffordable homes, cars and motor homes, ‘greedflation’ is coming back to bite in the form of weaker demand.

With excess inventory building in many sectors, cheaper options are taking market share from rivals that consumers now consider overpriced. That’s a problem for those who cannot or will not reduce prices, and then there is the matter of who will pay for new tariffs. See Luxury Brands Are Paying for Over-the-Top Price Hikes:

Luxury brands also can’t cut prices without damaging their image. They spend billions of dollars a year on advertising to convince shoppers to pay steep markups on their goods. Charging less is an admission that they have misread the market and that their goods aren’t as desirable as thought.

More likely, labels will sit on their hands until inflation and income growth slowly make their goods seem more affordable. They can also design new lower-priced products to boost sales.

Brands that showed restraint during the pandemic have the best chance of shielding their profit margins from President Trump’s tariffs.

…At the end of the day everything has its price, even luxury.