A month or so ago, I put on a bet on that Jeremy Corbyn would stay put as leader of the Labour party after the election.
I can’t say I expected any real Labour comeback. I just assumed that as an old-school Marxist with an unhealthy respect for dictators, he’d have to be dragged out of office, and that it would take them a long time to figure out how to do it.
When I placed the bet (with the help of MoneyWeek’s political betting columnist extraordinaire, Matthew Partridge), no one could imagine how any leader – even one as thick-skinned as Corbyn – would be able to hang on with a straight face, after the sort of drubbing predicted for Labour.
The odds on Corbyn staying were 5/4. In other words, for a £100 bet, you stood to make a profit of £125.
How things change. Now there’s virtually no chance of Corbyn going (you’ll win £22 on a £100 bet now), and you can get 3/1 odds on him leaving – ie you make £300 on a £100 bet.
Lucky me. But turns out, if I’d wanted to be really smart, I’d have taken a punt on him winning…
What Labour would mean for the economy
When Theresa May first announced next week’s general election, Corbyn was unelectable. The Labour party was doomed.
Everyone was rolling out their comparisons to the days of the SDP and wondering when David Miliband would return from his profitable charity ventures in the US, on a white steed, waving a red flag, to save the day. Nothing short of annihilation was anticipated.
How things change. Now there’s talk of everything from a hung parliament to an outright Labour victory.
Does this seem likely? I’ll get to that in a moment. But first, let’s have a quick think about what a Labour win would actually mean.
The easy assumption to make is that sterling would crash and the markets would too. I’m not so sure about that. I think that markets have grown so used to “buy the dip” that they might shrug it off at first.
Brexit would still happen. Corbyn is anti the European Union (EU), but from a left rather than right-wing point of view. Some argue that it would be a softer Brexit, which might be the case, although it depends on exactly where his own red lines lie.
Also, for the moment, no one in the world seems to care about public spending. If anything, they want more of it. So the fact that Labour would spend a lot more money than the Conservatives (who are hardly hacking and slashing themselves) may not faze the gilts market either – where yields on the ten-year are currently below 1%.
But it’s not today’s policies that concern me, it’s tomorrow’s. Corbyn has spent his life on the hard left, and so have most of his cabinet. Like any politician, he’s not above promising the world to get into power.
For now, Corbyn is presenting his cuddly uncle face to everyone in the run-up to the election, and there are freebies for all (plenty of middle-class parents of a certain age will like the sound of free university education, even although their taxes might rocket to pay for it).
But once he’s in power, he’s not above deciding to do whatever he feels like. I might be being unfair, but I do find it hard to trust someone who could ever see Venezuela as a good model for anything, let alone an economy. If you value good intentions and bold words over actual outcomes, you often end up turning a blind eye to the most hideous injustices.
A Labour win still seems unlikely – here’s why
So, is it likely to happen? My view is that it’s highly unlikely. I won’t pretend to be neutral here – I haven’t been impressed by the Tory campaign, but I do think a Labour victory would be bad news for the UK. So I’ll try to be objective, and as a reader, you can take my bias into account.
With that disclaimer out of the way, for me, the general election is an object lesson in the power of expectations versus fundamentals, and the fact that markets have an all-too-human tendency to exaggerate.
Markets were overly negative on Corbyn and overly positive on May. The fundamentals looked bad for Corbyn and good for her – and the market took that idea and ran with it.
But when expectations are high, it doesn’t take much to disappoint. And when they’re low, your stock can shoot up when you turn out to be less awful than expected.
It also makes for a great story – Icarus crashing after flying too close to the sun; the phoenix erupting from the dying embers – they are potent myths for a reason.
May has been disappointing. Corbyn has been better than expected. And so, part-fuelled by the power of narrative, May’s stock has crashed and Corbyn’s has rallied sharply.
The thing is, it’s very easy for markets to run too far in the opposite direction. And that’s probably what they’re doing now.
One thing that I found notable was the shift in the polls after the deadline for voter registration passed. The polls that show narrower Conservative leads are the ones that assume a larger youth turnout than seen in the past.
Maybe that’ll happen. Things do change. But it’s unusual. And you’re also polling a highly motivated section of a frequently politically uninterested demographic.
It’s also worth remembering that there’s an element of the London media bubble at work here. The anger about Brexit is palpable in London in a way that it isn’t elsewhere in the UK – and noisier too. So I suspect that the noise around the anti-May vote is being amplified somewhat by wishful thinking.
Also, there’s a weird English class system thing going on. There are lots of perfectly reasonable reasons to dislike May, but something about her being a vicar’s daughter seems to rub a lot of people up the wrong way.
Finally, in most cases, we’re still talking about the difference between a landslide and a narrow victory for the Tories here. This isn’t a close-run thing – it’s just gone from being a guaranteed wipeout to something approaching a proper election race.
So that’s my tuppence-worth. I wouldn’t worry about making any changes to your portfolio one way or the other (it should be long-term enough to ride out this sort of thing). As for the more short-term speculators among you, I’ll take a look at the potential effect on sterling and the like closer to the vote next week.