Written by our Director of Equity Advisory, Jeremy McKeown, the HyperNormalTimes provides in-depth and considered long-term commentary on major macroeconomic and market-shaping themes.

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July 10, 2022

The Greased Piglet Departs Survived by Brexit & Cakeism

‘You knew it must come to this, sooner or later, Toad,’ the Badger explained severely. You’ve disregarded all the warnings we’ve given you, you’ve gone on squandering the money your father left you, and you’re getting us animals a bad name in the district by your furious driving and your smashes and your rows with the police. Independence is all very well, but we animals never allow our friends to make fools of themselves beyond a certain limit; and that limit you’ve reached. Now, you’re a good fellow in many respects, and I don’t want to be too hard on you. I’ll make one more effort to bring you to reason. You will come with me into the smoking-room, and there you will hear some facts about yourself; and we’ll see whether you come out of that room the same Toad that you went in. `THAT’S no good!’ said the Rat contemptuously. `TALKING to Toad’ll never cure him. He’ll SAY anything.’  Kenneth Grahame, Wind in the Willows (courtesy of The Rest is History Podcast)

Boris really has adopted a disgracefully cavalier attitude to his classical studies . . . Boris sometimes seems affronted when criticised for what amounts to a gross failure of responsibility (and surprised at the same time that he was not appointed Captain of the School for next half): I think he honestly believes that it is churlish of us not to regard him as an exception, one who should be free of the network of obligation which binds everyone else. Eton School report to Stanley Johnson in 1982 regarding his son, Boris.  

Absurd Theatre -

The political drama that erupted last week came at the right time. Financial markets have been quieter, and Wimbledon was progressing predictably. As we were starting to focus on holidays (will we ever get there?) and the upcoming media summer silly season (what will they dredge up this year?), the Westminster theatre exploded into full-on absurdity. The naked pursuit of power always lurks beneath the surface of politics, and last week in Westminster, it ripped into the open. The ensuing political farce illustrated the yawning gap left in our lives since the end of the last season of Succession. As the HBO mini-series demonstrated, we become attached to despicable, amoral characters we find ourselves inadvertently siding with, despite their apparent flaws.

Chief Rule Breaker -

In this fashion, over the last few years, the UK has been enthralled by the character of Boris Johnson. We were dramatically shocked but unsurprised how he clung to office. His refusal to depart long after others would have sloped off with heads bowed demonstrated a willful disregard for his impact on others, the state’s operational machinery and its constitutional norms. But his stubbornness also confirmed Boris’s ingrained belief in his exceptionalism. He doesn’t believe that rules apply to him.

Personal Mandate -

To the bitter end, Boris told his parliamentary underlings that his mandate came directly from the people and threatened to call a snap election to prove it. Even James II, the last British monarch to proclaim his divine right to rule, eventually slipped away to France without a fight when faced with British parliamentary authority in an earlier episode of our constitutional drama. (It’s possible to believe that Jacob Rees-Mogg was present urging the absolute monarch to stay and fight).

It's a Tragedy -

True to his love of Greek tragedy, Boris’ last act before succumbing to the inevitable was to sack his most capable senior minister, Michael Gove, in a bloody and vengeful deed of unfinished business for his high-profile 2016 betrayal. But finally, by mid-week, the greased piglet was cornered and agreed to leave office. Albeit his former boss, Max Hastings said, in a rather sinister tone, that he “won’t believe it until Boris has an oak stake through his heart and buried at a crossroads at midnight”. No matter what happens, Boris unfailingly keeps on being Boris. His old school chum and university contemporary David Cameron marvelled at his ability to defy all forms of gravity. The Greek goddess Fortuna always smiles at him no matter the scrapes or japes. It would not be advisable to bet against his return.

Cakeist -

Due to the Succession effect, despite his known flaws, Boris regularly polls as the UK politician with whom respondents would most like to have a pint (think about the alternatives for a moment). His default setting is to tell people what they want to hear and make them laugh. In this sense, cake and eating it defines Boris. But as the thinker and economist Thomas Sewell said, if you want to help people tell them the truth; if you’re going to help yourself, tell them what they want to hear.

Beyond Brexit -

What the electorate wanted to hear in 2019 was Get Brexit Done. Despite being a late convert to the Brexit cause, he lent his formidable campaigning talent to its prosecution. While Remainer holdouts, such as Lord Heseltine and the Financial Times, still see Johnson’s defenestration as an opportunity to rejoin the EU, even Keir Starmer has moved off that particular Pacific Island. But like his hero Winston Churchill before him, Johnson failed to follow his Brexit victory with a coherent election-winning follow-on plan, or more truthfully, any plan whatsover.

In Future Episodes -

As we look forward to the next instalments of this must-watch political mini-series, the Conservative party selects its next leader, and the economic fault lines beneath the political surface become apparent. In the Grand National array of riders in the race to be our next Prime Minister, the bookies’ early favourite, Rishi Sunak, has launched his campaign on the economic reality ticket of urging people not to listen to comforting fairytales. This admirable refutation of cakeism (itself more an existential denial of the economic problem than a policy) risks scaring people with the truth of our perilous financial condition. (Spoiler alert, watch for a posse of tax-cutting parliamentarians solidifying behind a get Rishi coalition).

Wisdom or Delusion of Crowds -

Politicians pursue power, and in our parliamentary democracy, that means they must get elected. Conservative MPs, in the first instance, followed by the party membership in the final ballot, need to decide which candidate can deliver victory at the next election. It is then up to the general public to determine if they have got this decision right. In this sense, the decision on who to pick is nuanced. As John Maynard Keynes said, comparing the stock market to a beauty pageant, It is not a case of choosing those faces that, to the best of one’s judgment, are the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree, where we devote our intelligence to anticipating what the average opinion expects the average opinion to be. And some, I believe, practise the fourth, fifth and higher degrees. Maybe we should be warned by Mencken’s observation that nobody ever went broke underestimating the taste of the [American] public.

Economic Reality -

Regardless of the selection process, there will be real-world economic consequences. Crucial and often conflicting policy areas will determine our economic and financial performance over the remainder of this decade. The next government’s economic intray will feature fiscal policy, the cost of living crisis and energy policy. Having been outsourced to the Bank of England, monetary policy is a somewhat subsidiary, albeit important item.

Slightly Cakey -

In one of his last acts as Chancellor, Sunak replied to Bank of England Governor Bailey’s most recent letter explaining why inflation was above the targeted 2% annual rate. Sunak reassured the Governor that “fiscal policy must be responsible and not exacerbate inflationary pressures”. With inflation likely to remain above its targeted rate for several months, it will be interesting to see how this letter thread develops. Sunak’s interim successor, Nadhim Zahawi, is running on a leadership ticket of distinctly cakeist tendencies. How inflationary tax cuts are is a hotly contested debate among economists (what important economic issue isn’t)?

The Truth Hurts -

However, the debate about monetary and fiscal policy will have moved on when we get to the next general election. A policy overhaul from a supply-side perspective is long overdue. But no candidate of any party to be elected our next Prime Minister will understand the aphorism that few problems in the world are so serious that they cannot be made worse by government intervention. (Or, more truthfully, would they be prepared to articulate it). This reality explains why elements of cakeism will survive long after the laughing cavalier’s final departure, whoever succeeds him.



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