Congratulations, Mr Obama - now what?

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President Barack Obama’s victory will likely not have a huge effect on the market and the US economy over the short to intermediate term. Nor will it change the bigger economic or fiscal picture for the US.

But there are perceived areas, on the margin, where Obama’s publicly stated ambitions and policies could affect some industries in subtle ways. What follows is a very brief summation of the potential impacts on various industry sectors in the US and Bermuda. It is intended to be non-partisan, and simply based on the stated policies and prior remarks made by the President.

Negatively Affected US Sectors

1. Banking and Finance. The general perception is that Obama’s win solidifies the chances that the Dodd-Frank Act and the Volcker rule will be implemented in full. This level of increased regulation on America’s banking industry will likely be costly, reducing margins and returns for banks.

2. Healthcare. Obama’s grand experiment to expand health-care coverage will almost definitely be implemented at this stage. The ultimate impact is not conclusive but in general, the market perceives “Obamacare” to be somewhat punitive to healthcare companies as it introduces a series of regulation and taxes that may constrain profitability. However, the silver lining is that part of these costs will likely be offset by increasing the volume of healthcare participants served through mandatory participation.

3. Coal. The Obama administration has never been known to be a big supporter of dirty energy. Coal would probably top the list and the stocks of coal producers felt the pain in the two days post-election. Both environmental regulations at the producer level and less demand from utilities (again due to environmental regulation) are perceived negatives. Companies leveraged to Canadian heavy oil will also be hurt if Obama’s environmental platform stalls approval of the Keystone XL pipeline which was to bring Canadian heavy oil to US refineries.

Positively Affected US Sectors

1. Construction and Engineering Companies. Obama has stated that he hopes to spend money on roads, bridges and public infrastructure to boost the economy. Increases in government allocations to these endeavours could boost revenues for engineering and construction firms

2. Green Energy. Obama’s administration favours green initiatives. In his acceptance speech he even mentioned that he wanted “our children to live in an America … that isn’t threatened by the destructive power of a warming planet”. Thus it is highly likely that he will continue to support green technologies like wind and solar through additional tax credits or subsidies. This year, Obama required automakers to double their vehicles’ average fuel economy to 54.5 miles a gallon by 2025. This trend could continue.

3. Bernanke. Part of Mitt Romney’s platform was that he would not reappoint Ben Bernanke, chairman of the Federal Reserve. The Obama victory increases the likelihood that Bernanke will be reappointed. This will be good for those assets that benefit from low interest rates like bonds and gold.

Bermuda

It is very tough to suggest that the reelection of Mr Obama is positive for Bermuda. In fact, he is known to support closing tax loopholes for offshore company schemes and even used this tactic to discredit Governor Romney in the election. If you don’t believe me watch this short video: http://www.youtube.com/watch?feature=player_embedded&v=ubQ5tX3NLvI .

Furthermore, fellow Democrat, Richard Neal, continues to threaten to introduce Bill HR 3424 which essentially questions whether foreign reinsurance companies — principally those based in Bermuda with US affiliates, who write business in the US — will be able to deduct the payments their affiliates make for reinsurance premiums to their offshore counterparts.

Perception doesn’t necessarily indicate actual effect so I would not advise investing on election outcomes. The President’s agenda still has to contend with a divided government in the US so polices may be altered or abandoned. An investor’s job is not to manage policy or politics. An investor’s job is to manage their portfolio.

Nathan Kowalksi is the chief financial officer of Anchor Investment Management.

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