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The Globe and Mail

Rude awakening for investors who bet against Obama

U.S. President Barack Obama speaks to supporters during his victory speech during his election night rally in Chicago, November 7, 2012.

JASON REED/REUTERS

And now we face a second term for Barack Obama. Bad news for investors, according to much of the prognostication before Tuesday's election.

Don't believe it.

The idea that Mr. Obama is a feckless and reckless steward of the nation's health was always false, no matter what was said this election.

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Certainly, given the precarious fiscal state in the United States, tax rates on dividend income and capital gains are more likely to rise, rather than fall, with Mr. Obama in the White House.

Those, however, are incremental issues; the bigger picture is, and should be, the overall fiscal health of the U.S. economy. And those who recommended Mitt Romney on the basis that we was a more moderate figure, more ready to compromise, seem not to have actually observed politics in the United States in the last four years – or were allowing their own ideologies to colour their views.

Don Coxe, a strategy adviser to the Bank of Montreal (and a former colleague of conservative-movement patriarch William F. Buckley), told The Globe and Mail in an online chat last week that Obama "doesn't negotiate, but make[s] demands," while Mr. Romney is "an accomplished moderate and dealmaker" who, with the assistance of Paul Ryan, could persuade the Tea Party "to be reasonable and achieve a compromise that would avert the fiscal cliff."

David Rosenberg, chief economist and strategist at Gluskin Sheff, told Yahoo Finance's Daily Ticker earlier "I think Romney's is portrayed aptly as candidate that could more readily come to a compromise with the opposition."

There are many reasons why the U.S. electorate chose to re-hire Mr. Obama yesterday and reject Mr. Romney as his successor. Surely some of Mr. Obama's votes, however, came from people who recall who was truly responsible for the fiscal standoff of 2011 that very nearly wrecked the U.S. economy: the Republican Party, driven by its willingness to see the country default on its debt rather than raise taxes.

Mr. Romney may not truly have been a soulmate with the fringe element that has captured control of the Republican Party, but he had to campaign as one; he stuck by his position, taken by every Republican candidate in primary season, that they wouldn't take a budget deal that included $10 in spending cuts for every $1 in new taxes. "The only solution …" he said in an August interview, "is to cut spending."

Funny about that impression of an explosion of federal spending under Mr. Obama: It simply isn't true.

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Yes, the U.S. has posted four trillion-dollar deficits in the last four years. But numbers from the Congressional Budget Office show the problem has been a drop in revenue, concurrent with federal spending that has remained at the level it was as the presidency of George W. Bush was concluding.

Specifically: In the year that began Oct. 1, 2008, prior to Mr. Obama's election, Federal spending jumped to $3.52-trillion from $2.98-trillion. This was in large part due to the bailout and stimulus programs launched by Mr. Bush and continued by Mr. Obama.

Spending actually fell in fiscal 2012 by about 1.6 per cent, and it remains about where it was three years ago, in fiscal 2009.

Federal revenue, however, peaked at $2.57-trillion in the year ended in September 2007; receipts in the year ended a few weeks ago are still shy of that high-water mark of five years prior.

The deficit will narrow as the U.S economy continues to improve; most forecasts see it falling below $1-trillion this year.

As for spending cuts that will improve the fiscal picture further? Mr. Obama, the true moderate compromiser, favours them, as he made clear in the 2011 negotiations and has reiterated now, in this election season. Republicans can sign on to the plan or risk spending several election cycles wandering in the woods.

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Investors who are playing the Obamapocalypse angle – buying buckets of gold and expecting a collapse of the U.S. dollar – may well be surprised. All others, who will prosper as the U.S. does, should feel at ease with today's results.

READERS: How about you? Are you long on Obamanomics, or short on the President's recovery plans? Trade your shots in the comments, even tell us what Mitt Romney would have done better.

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More

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