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Which president would be best for stocks?

When it comes to evaluating the economic and fiscal proposals of Democratic President Barack Obama, right, and his Republican challenger, Mitt Romney, in the U.S. election battle, economist Richard Duncan takes a firm pox-on-both-their-houses view.


No wonder the U.S. presidential election is such a close race right now: Just as opinion is evenly divided on which man is best suited to lead the nation over the next four years – in terms of foreign policy, getting people back to work, etc. – opinion is also split on whether Democrats or Republicans are best for the stock market in particular.

Jeremy Grantham, chairman of global asset manager GMO, told Charlie Rose last week that investors should hope for a Democratic victory. Part of this is because of Republican policy, which involves the threatening of adding "fiscal constraints into a very fragile economy."

But partly he also believes that Democratic policies, in general, have been better for the stock market: "Democrats have many tendencies, but one of them is to look after the workers, and actually that tends to be good for demand and good for markets. These capitalists who are desperate to elect Republicans should study their history books."

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Apparently, Mr. Grantham has looked at the same numbers we looked at a few weeks ago in this space. Our numbers came from Birinyi Associates, who looked at gains for the S&P 500 under various administrations going back to 1928. The score: The S&P 500 rose by an average of more than 10 per cent a year during Democratic administrations, versus 5.6 per cent for Republican administrations.

That said, Mr. Grantham is also a big fan of the Presidential cycle, or the theory that the stock market behaves according to the four years of an administration. And Year One, which for him started on Oct. 1, is usually ugly because that is the year that leaders can move ahead on policies without fear of facing an angry electorate. This Year One, he noted, could be particularly ugly because of the European recession and slowdown in China.

"I think it's a really good year to keep your head down," he said.

Donald Coxe, manager of the Coxe Commodity Strategy Fund and a strategy adviser to the Bank of Montreal, has taken a different approach. He believes that the best election result is for one party to win a clean sweep, capturing the White House and both houses of Congress.

Failing that, he believes Mitt Romney is the best candidate. In his latest Basic Points strategy note, he said:

"We think that Romney, whose essential moderation has finally emerged late in the election campaign, would have the better chance of enacting a program that avoided a crisis and sequestration, and launched the nation on a road leading to fiscal sanity. He is experienced in dealing with the other party, unlike Obama, trained in the hard-nosed single-party politics of Chicago, whose health care bill got zero Republican votes in the two houses."

(Want to know more? Mr. Coxe will be conducting an online Q&A with Globe and Mail readers here at Insider the Market today at 1 pm, ET.)

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Meanwhile, BCA Research believes that the presidential election is not going to have any immediate impact because the economic backdrop will dictate policy to either candidate. They are referring specifically to the impact on the U.S. dollar.

"Rather than party affiliation, macroeconomic policies and relative fundamentals will dictate the trend in the U.S. dollar," BCA Research said. "Importantly, regardless of who wins the November 6 election, there is unlikely to be a major change to current economic policies."

"Large fiscal deficits will persist and the Fed's balance sheet will continue to inflate."

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