The most important election of our time! The fate of the free world hangs in balance! Yadda yadda yadda!

Every four years, the usual clichés comes out. I suggest you ignore them, and instead focus on the policies where there are unambiguous differences,  where the policies of the candidates yield very different outcomes.

Reviewing the specific policy pronouncements made by candidates Barack Obama and Mitt Romney, what are the key differences in these policies that directly affect investors?

Asked differently, what does the outcome of the Presidential election mean for the investing public? I refer not to things that impact investors indirectly, like estate taxes or income tax brackets; rather, what are the specific areas of significant disagreement, where substantial policy differences exist, and where the candidates’ different approaches have a meaningful impact to investors.

These include:

1. Sectors: In particular, Energy, Healthcare, Defense Policy
2. Federal Reserve Philosophy and Appointments (re: Interest rate policy)
3. Investment Taxes (Dividend Treatment/Capital Gains Taxes)
4. Regulatory Approach / Legal

Before we begin, a caveat: What the candidates say and what they can and will actually accomplish are often two different things. I have no idea what policies either OObama or Romney as President will manage to get through Congress. What we are looking is the impact of their stated policies if enacted.


1. Let’s begin with a sector analysis. Three key areas where the policies of the candidates are so significantly different that the stocks in these sectors have begun to shift with the polls. They are Energy, Healthcare, and Defense.

Energy, a victory by Governor Romney will work to the benefit of Coal, Pipelines, and the Oil sub sector known as Exploration & Drilling. President Obama has been much friendlier to Wind, Solar and Electric Vehicles.

Romney would be a much easier administration in terms of allowing more drilling and exploration, especially in Alaska and on other public lands. Obama has been more environmentally protective. However, the President has been far friendlier to “Big Oil” than most of his supporters expected.

Ethanol: Neither candidate has committed to discontinuing Ethanol, a giant subsidy to Iowa farmers that has us burning food and befouling engines for no damned good reason.

One final energy note: Neither candidate has been especially aggressive about charging Oil or Mining companies full carry price for crucial resources they extract from public lands. Compared to nations like Norway, we grant licenses to the private sector far too cheaply. It would generate enormous revenues and help close the deficit if we charged closer to fair value for these assets than we do; instead, we subsidize these industries with giant giveaways at the taxpayers expense.

Healthcare probably has the starkest comparison between the two candidates. Under Obama, Insurers and Hospitals are likely to do well. Obamacare guarantees health insurance to millions of people who otherwise would not have coverage. This creates lots of new paying customers for the insurers (either privately or through the government); Emergency rooms will no longer act as free walk in clinics at Hospitals – their accounts receivable will improve immeasurably.

As far as big Pharma, I don’t see much of a difference. There is a possibility that a win by Romney could crimp stem cell research (again), but its less clear under Romney than under Bush how the research would fare.

Defense is simple: A Romney victory means more major weapons program purchases. A Romney win means you should look at the big providers of weapons systems, especially naval and aircraft manufacturers.

Finance: As much as Wall Street and big Banks are angry at Obama, he has been rather accommodating to them. I don’t see much of a difference between either candidate for finance, other than the tax loophole giving friendlier treatment of carried interest for hedge fund and private equity managers. (Obama would repeal it, Romeny would keep it). There has been some signs of Obama getting tougher on banks, suing Bank of America for its fraudulent mortgage underwriting. Relative to these other two sectors, however, there is only a small difference between the two when it comes to Wall Street. (see section on Regulations for greater differences)

For a list of companies in all of these sectors, see the Yahoo Finance Industry Browser (


2.  Federal Reserve: There is an enormous sated difference between the candidates when it comes to their announced policies and philosophies regarding the Federal Reserve.

Governor Romney has stated he is against quantitative easing (QE) and Zero Interest Rate Policies (ZIRP) of the past 5 years. He has stated he would not reappoint Ben Bernnake (who may be stepping down in 2014 regardless).

Some anaysts have noted that stock markets have been riding on a Fed induced sugar high. Jim Bianco, chief strategist at Bianco research, notes that the most recent market turmoil began after the first debate. Obama’s poor performance improved the odds of a Romney victory. After trailing badly in the polls, the possibility of a Romney appointed Fed chief, according to Bianco, spooked the markets who have become “addicted to an easy Fed.”

Romney is more likely to appoint a Fed chief who will normalize interest rates, and stop the extraordinary accommodations the Federal Reserve has provided to the capital markets.

Current Fed chairman Ben Bernanke has suggested he would step down when his term is up in Some of the names circulated as possible replacements by Romney have been John Taylor of Stanford and Glenn Hubbard of Columbia.

Addendum: We don’t know who will be Treasury Secretary (or other related positions) but we can assume these appointments will be similar philosophically to Fed appointments.

The president selects his Treasury Secretary, the head of the Council of Economic Advisors, along with other positions that can have a big impact on how policy gets executed. Important under normal circumstances, it becomes crucial during crises.


3. Investment Related Taxes

Obama versus Romney, Investor Related Positions

Policy Obama Romney
Dividend Taxes
(< $250k)
Maintain current 0% and 15% tax rates on qualified dividends for couples with income under $250,000 (singles under $200,000); Would maintain the current 0% and 15% rates on qualified dividends
Dividend Taxes
For couples over $250,000 (singles over$200,000) Taxes on dividends treated as ordinary income Maintains 15% rates
Capital Gains Taxes Maintain current 15% tax rates on long-term capital gains for couples with income under $250,000 (singles under $200,000); Over those incomes, taxes go to 20% Would eliminate tax on capital gains, dividends and interest income for any taxpayer with adjusted gross income below $200,000
HealthCare Tax Would maintain the additional 3.8% Medicare tax included in the health care act on investment income. Would repeal the 3.8% Medicare tax on investment income (as a result of repealing the health care act).
Municipal Bond Taxes Would cap the tax benefit of municipal interest at 28%, effectively creating a tax of 8% or 11.6% for those in the top two tax brackets No change in tax treatment
Corporate Tax Rates Cut corporate tax rate from 35% to 28%; Would target oil and gas companies for higher taxes, would offer tax breaks for manufacturers Cut them from 35% to 25%; Move to a territorial system, rather than taxing corporations on income earned overseas
Corporate Tax Deductions Would ban unspecified tax deductions Would eliminate unspecified tax loopholes

Sources: DollarwiseForbes, Presidential campaigns

* UPDATE: Top brackets changed to reflect dividends taxed as ordinary income


4. Regulatory Approach/Legal

The key difference between the two candidates: Obama is more regulatory oriented; Romney is more deregulatory.Obama prefers some regulation, and was a proponent of Dodd-Frank.

Romney would like to see less regulation, would overturn Dodd Frank.Obama supports the Volcker Rule; Romney does not.

Neither candidate supports a restoration of Glass Steagall or the full repeal of the Commodity Futures Modernization Act of 2000. Neither would treat derivatives as insurance products.

In terms of litigation, the Obama adminsitration has (very belatedly) begun suing banks for mortgage fraud and misrepresentation; he has not pursued any actions against Wall Street firms. Romney has stated he would not pursue litigation against money center banks or Wall Street firms.

Category: Investing, Markets, Podcast

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “An Investor’s Guide to the Presidential Elections”

  1. charchar says:

    Thanks a lot Barry!

  2. crutcher says:

    “Neither would treat derivatives as insurance products.”

    That’s saying a lot about how serious either candidates is about financial reform. Thanks for the great post.

  3. Greg0658 says:

    I could pick at some of those items .. but I’ll keep it short:
    its all about the fans in the stands – and which party brings home the redistribution of federal collections back to the troops .. the 50/50 split shows its pretty equal back n forth .. that makes for some tidal waves that swamp some 1 year – and 2 years down the road swamps back – to be victims or not

    I almost – maybe I will – this is what I’ve been think’g about doing in retaliation if “The Wrong Side Absolutely … Wins” .. for I’m just a j6p with limited type’g get out abilities and tiny gun power

    -ditch the printed newspaper – it just doesn’t matter what ya know
    -disconnect the landline – cell makes it ok
    -move the mothership cable box to the garage – then when I’m in my man cave looking out – yadayada
    -delete Facebook and other blogs – it just doesn’t matter
    -live on soup & stew / goodbye BK & McD

    skip all those and go for the bucket list trek – me and the husky go up north and get bear mauled / or better yet – keep on living without this mess of the mind ;-)

  4. denim says:

    Very good summary.
    Investors are a broad, diverse class. Employees and retirees of businesses ranging from fast food outlets to jetliners factories have stock plans, 401k’s, IRA’s, pensions, and etc. and are therefore investors too.

  5. Bill Wilson says:

    I’m going to get flack for writing this, but I believe this election is a choice between two pretty good candidates. I’m disappointed that neither candidate will make meaningful reforms to the financial markets, but I don’t believe that any President will until the electorate demands it. The country just isn’t there yet.

    Contrast this year’s candidates with the choice we had in 2004. This year looks pretty good.

  6. Doug says:

    Wouldn’t dividend income be taxed at the ordinary tax rate under Obama in 2012?

  7. Jim67545 says:

    Watched Frontline (PBS) and one segment dealt with Mitt’s run against Ted Kennedy for Senator. Mitt was a liberal/moderate Republican then and claimed to be left of Kennedy. He supported all of the liberal themes. Then he became governor and championed the health care plan voicing all of the reasons for the mandate, etc. that he now totally rejects.

    The bottom line is that Mitt morphs with no seeming internal conflict into whatever he thinks will get him whatever he wishes. So, are his “positions” as listed here worth discussing? Perhaps as an economic exercise but since there is no assurance that tomorrow they will still be his positions, drawing any firm conclusions is questionable at best. It would be better to look at those around him and those who paid for him since they will be telling Mitt how to get what Mitt wants – and he will morph accordingly.

  8. A says:

    It will be such a relief when this lie-fest is over with.

    Just re-read Orwell’s 1945 classic Animal Farm: amazing how relevant it is to today’s activities.
    Lying, hypocrisy, voter complacency, the corruption of power…it’s all there.

    A good manual for those hoping to comprehend politics.

  9. Expat says:

    you forgot

    5. Democracy and Human Rights

    Both candidates have similar positions on constitutional democracy and human rights. Obama would continue government policy of maintaining a fascist regime in America, kidnapping, torturing and murdering civilians, and invading any country without nukes while pretending we are freedom loving, caring people.

    Romney would continue government policy of maintaining a fascist regime in America, kidnapping, torturing, and murdering civilians, and invading any country without nukes while bragging about it and arranging for private industry to handle the “icky stuff”.

    Both the Democratic and Republican platforms have shared the common theme of defending our Constitution except for the silly amendments…I mean, why mess with a perfect document?

  10. Neil C Denver says:

    The “giveaways” granted to the oil companies at taxpayer expense have directed supported artificially low gasoline prices. These government subsidized at-the-pump gasoline prices have in turn kept distribution costs (and consumer prices) artificially low, not to mention the inefficient national highway system.

    While eliminating the government support of low-cost leases is the right thing to do, we should anticipate lower GDP rates as well as a lower standard of living.

  11. spartan2000 says:

    Dividend taxes are slated to rise substantially, at least for some, under Obama. As high as 43.4% including the 3.8% Medicare tax. A major omission under the comparison of Dividend Tax Policy.


    BR: See Forbes and this

  12. mathman says:

    Neither of these candidates wants to offend the oil, gas and coal industries so we’ll just keep suffering and it will most likely get worse in coming years.

  13. spartan2000 says:

    As I said, dividends will be taxed as high as 43.4% not “Maintain current 0% and 15% tax rates on qualified dividends” as stated in your comparison. The Forbes link does indeed mention this policy change as does the other link. However those reading your comparison of Obama vs. Romney will be left with the impression that their dividend tax policies are the same, which is simply not true.

  14. spartan2000 says:

    Ignore my previous post. The edit had not yet been made to your comparison.

  15. VennData says:

    If you need to know how the GOP would manage things, Austerity. Toughness. Unyielding morality, Look to Texas:

    Dallas Cowboys Give Dez Bryant a Curfew, Tell Him He Can’t Drink or Go to Strip Clubs Ever Again

    Dallas Cowboys: Dez Bryant allowed to miss curfew, go to strip clubs and drink, but just this once.

  16. willid3 says:

    well if R&R win, expect the austerity plans to die in the GOP world. while it will arise in the Democratics. it was and will be nothing but politics.

  17. [...] An Investor's Guide to the Presidential Elections (The Big Picture) [...]

  18. realgm says:

    The only thing importance about this election is to help Gary Johnson and the Libertarian party to gain 5% vote so that there can be a 3rd party (as long as the next “dictator” wouldn’t make up some BS laws to forbidden it) in 2016.

  19. [...] An investor’s guide to the 2012 Presidential Elections | The Big Picture Nobody knows whether Obama or Romney will win, but we do know how markets will react, given the policies on which the candidates differ: 1. Sectors- energy, healthcare & defense 2. Federal Reserve- appointments & philosophy 3. Taxes- dividends & capital gains 4. Regulatory [#1 is a short term effect, the rest are longer term.] [...]