Corbynmania is bad news for investors – but not for the reasons you think

published 31 July 2015

15-7-31-corbyn-634 — Jeremy Corbyn has tapped into voters' fears

Corbynmania has gripped the nation. Or a small but noisy chunk of it anyway.

I can't imagine that Jeremy Corbyn's supporters think they have much in common with Nigel Farage's fans. They have very different backgrounds and they're on the opposite sides of the political spectrum.

And while SNP supporters might have some sympathy for Corbyn's views, I can't see them having a lot of time for Ukip either.

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Yet strip off the labels, and the rise of these politicians and parties is being driven by the same impulse.

I'll tell you why, and I'll also tell you why it matters for investors.

The psychological fallout from the 2008 crash

People learned that the world didn't work the way that they thought it did. Having your money sitting in a bank didn't mean it was safe. It was possible for an entire developed nation like Iceland to go bankrupt. House prices could go down as well as up.

The wealth that you'd accumulated over the years, thinking you were getting ahead, slowly but surely, could be wiped out overnight by events you didn't understand (no matter how often you heard Robert Peston explain it), happening somewhere across the Atlantic.

As the crisis rolled on, the nature of money itself became stranger and stranger. The Bank of England was printing money. Isn't that what Zimbabwe did? And if you can just print money and get away with it, then what does that even mean? How can this stuff that we all value so highly and spend our working lives trying to acquire be so insubstantial and illogical?

In fact, if you can just print it, then why am I working at all? Where's my share of this printed money? The bankers and the oligarchs and the guy down the road with the bigger house than me they're sitting back and getting rich off this while I'm still slaving my guts out in fear of losing my job. How is that fair?

People don't feel that they understand how the world works anymore. Half the time they fear that the rug could be ripped out from under them again at any moment. And when they're not worrying about that, they're worrying that they are missing out on the gains from the money-printing bonanza.

It's made worse by the fact that control over all of this lies with the world's central bankers. Nobody votes for them. Nobody seems to be telling them what to do. You don't get to choose between a left or right-wing school of central banking.

But the electorate understands that ultimately, whatever George Osborne or Ed Miliband or whoever else promises to do with the economy, the power lies with Bank of England boss Mark Carney.

This is a recipe for insecurity. And that's what breeds the sorts of politicians who are grabbing the limelight right now.

Same in politics. We should spend to get rich, says one lot. No, we should cut back to grow, says another.

No wonder voters are exasperated. Do any of these people even know what they're talking about?

It gets to a point where you just want to throw your hands up in the air and say: "I don't care about winning an election or economic security or social cohesion. I just want to feel certain about something again."

And that's where the likes of Corbyn and Ukip and the SNP come in. They speak with conviction. They have charisma. They make our problems look simple, so that they can come up with simple solutions. And it's usually someone else's fault: be that Westminster, or immigrants, or rich people and Tory toffs.

It's the easiest job in politics, being the party of protest. Heck, the SNP have almost total control of Scotland and they still act like a wounded party of protest, rather than a democratically elected government with near-North Korean levels of electoral support. It's much easier than actually having to take responsibility for tackling complicated problems with limited resources.

And the problem is that while the likes of Corbyn and Farage (and to a lesser extent, the SNP) might not ever be directly in charge of policy-making, they do drag the debate their way. And that means you can expect more radicalism from those who are actually in power.

What does all of this mean for investors?

But do understand that the political backdrop you're investing against has changed dramatically. All the things you took for granted pre-2008 all the debates that you maybe thought had been settled they're all up for grabs.

Even a Conservative chancellor is doing things that Tony Blair's lot were far too scared to do. Jacking up minimum wages. Targeting multinationals to pay more tax. Even messing around with the sacrosanct British tradition that is the housing market.

Some of these policies are good ideas, particularly where they make things simpler. Some of them are for show. And some of them are downright stupid (the extension of right-to-buy, for example).

But the long and the short of it is that when a government is getting more radical, then you need to expect more intervention and more potential for nasty surprises. And the more popular the protest politicians become, the more upheaval we'll get.

And this is only in Britain, which is after all, a pretty stable place. Things could get a lot worse in Europe, particularly in the more youthful democracies.

For now, there's not much to say beyond stay diversified and stay flexible. And avoid having your money invested in anything that looks like a too-clever-for-its-own-good tax dodging scheme.

But for more on these sorts of risks, and other lurking dangers that could impact your wealth, keep an eye out for a new project we'll be launching very soon. We'll be telling you more about it next week in Money Morning. I think you'll be keen to take part when you hear who's behind it.

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.