Had Canadians been able to vote in this week’s US presidential election, polls indicate more than 75 percent would have supported now re-elected President Obama.

And their preference cut across all regions, age groups, genders and even political parties, with even 58 percent of ruling Tory supporters favoring the Democrat.

That’s not to say Canadians haven’t had their differences with the US president over the last four years, over energy policy for one thing. Mr. Obama, however, was a known element, whereas the challenger was a wild card.

And even Alberta residents, the most conservative voters in Canada and fiercely loyal to the energy industry, favored his re-election by a better than a 2-to-1 margin for that reason.

That, incidentally, is the polar opposite of the way many conservative voters in the US felt about the contest.

In fact one of the great ironies of this year is how many Americans came to believe Mr. Obama has a “secret agenda” yet to be revealed.

That’s despite the fact that he’s already had two years in which to do pretty much anything he wanted from 2009-10 and that Republicans still have power to veto any legislation he wants to enact.

The greatest danger coming out of this election is lies in the fact that the status quo prevailed.

The main worry is President Obama, a Democratic Senate and a Republican House of Representatives will be as unable to work together as they were from 2011-12.

In 2008-09, for the first time ever, Canada was actually able to avoid the worst of a US recession.

That was thanks to conservative financial policies as well as a burgeoning trade and economic relationship with China.

Since then the eastern alliance has deepened, and the legacy of the crash has made financial policies if anything much more conservative, further hardening the country against negative developments south of the border. As our graph “North American and the Middle Kingdom” shows, however, the US is still far and away the Northern Tiger’s biggest trading partner. Moreover, it’s certain to always be for geographic reasons alone.

That means what happens here continues to have a huge impact on Canada and therefore on anyone who invests there.

Below I explore several major areas where the US politics post the 2012 election can impact Canadian Edge recommendations, from the Keystone XL pipeline to the potential “fiscal cliff” the US faces, should Congress and the president fail to reach a budget agreement by the end of the year.

Back from the Brink

After four years in office it’s hard to argue that President Obama isn’t a known quantity to Americans. On taxes and spending he basically favors the policies that prevailed under President Bill Clinton in the 1990s, including a return to tax rates of that period.

On regulation his appointees have been somewhat more willing to extend their reach than most Clinton administration personnel were.

And they’ve been decisively more interventionist than officials who oversaw Bush policy.

The Obama administration will face several huge challenges during the next four years.

One is administering the health care law, which has provisions that start to kick in as early as next year. Another concerns Dodd-Frank’s impact on the financial services industry, which is already bracing for new restrictions.

None, however, are likely to be as momentous for the country as dealing with Uncle Sam’s budget. The biggest issue is the impending “fiscal cliff,” a package of across-the-board spending cuts and tax increases passed in 2011 as a condition for raising the country’s borrowing limit, or “debt ceiling.”

If allowed to stand as is, the 2 percent spending cut and immediate reversion to Clinton-era tax rates would undeniably have sharp contractionary impact on what’s been improving but still tepid US economic growth.

Some project as much as a 4 percentage point decline in GDP growth, resulting in an overall contraction of 1 percent to 2 percent next year. That almost surely means higher unemployment, and it could destabilize credit markets once again, as austerity measures have done in Europe the past few years.

In 2008-09 many Canadian industries were hurt by the crash in the US. That would almost certainly happen again, and natural resource-related companies would certainly be the most vulnerable.

To the extent Asia can keep growing, this impact would be muted. In fact the market for scores of resources such as metallurgical coal and iron ore used to make steel, copper and thermal coal for electricity is now dominated by demand from China and other developing nations rather than the US.

What’s in question, however, is just how robust growth in Asia can be if the US really does go over the cliff. The crash of Europe the past few years has left the US as China’s biggest trading partner and more critical than ever to the Middle Kingdom’s ability to grow.

Such are the growing interrelationships between nations in the 21st century. On the plus side, countries that trade heavily generally don’t attack each other militarily. In fact no two powers today have a greater common interest in global stability than the US and China.

The downside is it’s no longer possible to isolate one country’s problems from those of another. If the US goes off a cliff China will suffer. Canada, meanwhile, will suffer from reduced trade with both countries.

The most hopeful thing I can say about the fiscal cliff and Canada is that, unlike the 2008 crash, everyone has seen this one coming for a while.

As a result conservative operating and financial policies are in higher favor than ever at Canadian companies.

This is particularly true of Canadian Edge Portfolio Holdings, most of which have no debt maturities whatsoever between now and the end of 2013.

Much has been made about the greater leverage of Canadian households, and what that might portend for the country’s banks if there were another financial crisis. And as David Dittman pointed out in the Oct. 17 Maple Leaf Memo, Here’s the Thing about Canadian Household Debt, Canada’s financial system would be dangerously exposed should housing prices decline sharply, unemployment spike and Canadians be unable to service loans.

On the other hand, Canada has some of the strictest mortgage lending requirements in the developed world. Finance Minister Jim Flaherty of income trust-buster infamy recently cut the maximum amortization period for mortgages to 25 years from 30 years. He also cut the percentage Canadians can borrow against the value of their homes to 80 percent from the previous 85 percent. And while low interest rates are encouraging home buyers, there’s no mortgage interest tax deduction.

That’s a set of rules that couldn’t be more different from what fueled the boom and bust in the US a decade ago. And it means things would have to get pretty bad indeed to ignite anything close in Canada to what happened here in 2007-09.

To be sure, stock prices could take a real hit if the crisis began to feed on itself. But by making sure your companies are on solid ground now–with reliable revenue and low debt–you’ll be able to ride out the downturn and recover all losses and then some in the inevitable recovery while continuing to enjoy hefty dividends.

I review third-quarter results and prospects of our Portfolio Holdings in the November Portfolio Update.

The second hopeful thing I can say is that China and the US have been showing signs of strength the past few months. That holds open the possibility that going over the fiscal cliff may not be so deadly as many fear.

China, for example, reported acceleration in industrial production to an annualized growth rate of 9.6 percent in October. That’s up from 9.2 percent in September and a low of 8.9 percent in August.

US employment, meanwhile, continues to gain, despite the fact that many businesses remain hesitant to hire with the fiscal cliff looming.

Going over the cliff would also almost certainly keep interest rates very low in the US, as investors forsake stocks for bonds and global capital rushes for the safe haven of US Treasuries.

If US growth proves more resilient than expected, we could see a dramatic closing of the US fiscal deficit.

If that sounds like “whistling past the graveyard,” it very well may be. But it is a fact that markets tend to price in the worst long before whatever worry materializes. If things really do come to a head on this, the damage to the markets is already likely to be done long before. We’ve already seen quite a bit of damage to stocks in anticipation of a disaster that may never occur.

Finally, there’s still the very real likelihood Washington will come together on this, just as the politicians did to raise the debt ceiling in 2011. Post-election talk has been a mixed bag, and some on both sides are still threatening to block anything if they don’t get their way.

That’s essentially what investors have been reacting to as they’ve sold off stocks this week. What’s not mentioned much–at least outside the Beltway–is that both Democrats and Republicans are also talking deal a lot more than they ever have. And there have been some interesting ideas posited by both sides, including a possible carbon tax to avoid raising income tax rates.

Politics and economics, like political views and investment decisions, are often a horrible combination. And I certainly can’t assure anyone that there will be a deal on the fiscal cliff in the end.

What is sure, however, is that a majority of politicians on both sides have a lot to lose if they fail to reach compromise and the economy really does crack. And nothing motivates politicians more than the threat of being turned out of office.

The best way to protect yourself against a sudden drop in North American economic growth is to ensure your companies have resilient revenue and limited leverage. But there will also be opportunities if the worst does happen.

Natural resource giants such as Teck Resources Ltd (TSX: TCK/B, NYSE: TCK) have already been hit by reduced global demand for metallurgical coal used in steel manufacture. But the company’s reserves in the ground are among the most valuable in the world and its finances are far stronger than in 2008, when it survived despite taking on heavy leverage to buy the former Fording Canadian Coal.

I rate Teck Resources a buy now. But a fiscal cliff scare, though not likely to push the stock to low single digits as in 2008, could certainly take it 20 percent to 30 percent lower, setting up a really compelling value. And the same is true of other already cheap resource companies.

The bottom line is this: US fiscal cliff or no, the best course is to stick with strong Canadian companies and to keep your eye on what bargains might emerge.

Even the worst-case isn’t going to trigger a reprise of 2008, and following that crash the best did come back with a vengeance, rewarding patient investors who kept their heads.

Environment and Energy

Will the Obama administration finally approve the northern leg of the Keystone XL pipeline now that the election is over? My answer to that question for some time has been “yes,” with jobs factoring front and center.

The administration has already approved the project’s southern leg, linking the Cushing, Oklahoma, hub with the Gulf Coast. Some still fear a re-elected president would bow to environmental lobby pressure and reject the northern leg.

But with light oil output from shale in the Bakken formation in North Dakota and Alberta ramping up–production in North America is expected to rise 73 percent in 20 years–the need for new infrastructure is becoming ever-more acute. And President Obama made greater US energy independence a centerpiece of his administration’s first four years as well as the recent election campaign.

The decision is certain to be controversial. The important thing for investors, however, is a successful pipeline build is definitely not in the prices of the stocks of companies that will benefit most.

That definitely includes TransCanada Corp (TSX: TRP, NYSE: TRP), the builder of the 1,661-mile system. The stock trades below my buy target of USD45, though it has CAD13 billion in energy projects it will build even if it can’t do the northern leg of Keystone.

That investment will flow right to cash flow, dividends and share prices in coming years. TransCanada Corp is a buy under USD45.

Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) isn’t a partner on Keystone. But it is a major player in energy infrastructure serving the leading oil sands producers, including Canadian Oil Sands Ltd (TSX: COS, OTC: COSWF) and Canadian Natural Resources Ltd (TSX: CNQ, NYSE: CNQ). The former is the target stock for the Syncrude partnership run by Exxon Mobil Corp (NYSE: XOM), while the latter runs the Horizon properties.

Whether Keystone gets built or not, Pembina will still profit in coming years from a growing array of light oil and natural gas liquids projects, from which it earns fees. If oil sands investment goes into reverse–either because Keystone is rejected or energy prices keep falling–it will still get its money from existing projects. Contracts are take-or-pay–the producer has to pay even if no energy is shipped.

Pembina’s third quarter results are highlighted in Portfolio Update. It’s a buy up to USD30.

President Obama’s re-election means his Environmental Protection Agency (EPA) will continue to push forward new rules on hydraulic fracturing in the US. As fracking is now the dominant form of new drilling for both gas and oil in North America, significant new rules could disadvantage US producers and, by extension, advantage Canadians.

That could also right some of the pricing differentials that now exist between producers north and south, which would benefit companies such as ARC Resources Ltd (TSX: ARX, OTC: AETUF) that do all their development in Canada. ARC’s a buy up to USD26.

It would hurt Encana Corp (TSX: ECA, NYSE: ECA), which has extensive investments in the US and has already run afoul of the EPA in Wyoming. That’s one reason to be cautious on this hold rated company.

My view is it’s doubtful EPA is going to do anything that significantly disadvantages US producers. But the possibility it could is not reflected in the prices of Canadian energy producers now–and that’s another reason to favor them.

Another energy policy that will continue under four more years of President Obama is more support for renewable energy in the US. We may not see an extension of the wind power tax credit. But this is a potential plus not fully reflected in the prices of leading Canadian developers with a presence here, including Atlantic Power Corp (TSX: ATP, NYSE: AT) and Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF). Both are highlighted in Portfolio Update, Atlantic Power here and Brookfield Renewable here.

Focus on Growth

Over and again during the campaign candidate Mitt Romney lambasted US Federal Reserve Chairman Ben Bernanke’s “easy money” policy. The implication was “Heliocopter Ben” could start packing his bags unless Mr. Obama was returned to office.

One of the real consequences of the election for Canada is that Mr. Bernanke will remain in office to the end of his term in 2014. And should he leave office then his successor would be like-minded–i.e. supportive of quantitative easing until today’s deflationary pressures are at last quelled.

Not even a loose Fed policy would be able to offset a real US fiscal cliff. But continuing to flood the system with money will keep interest rates low until economic growth really does ignite. And so long as that keeps happening recovery is inevitable.

One of the more benign comparisons for the current economy is 1992. Then, an American public impatient for recovery threw out a once-popular incumbent president. But the seeds for rapid 1990s growth had already been sown by a very loose Federal Reserve policy under Chairman Alan Greenspan.

Mr. Greenspan was combating deflation pressure from the 1987 stock market crash and total collapse of the nation’s savings and loan industry. His Fed of the early ’90s was frequently criticized for “pushing on a string” by flooding the money supply. The consensus was that low interest rates alone couldn’t bring a recovery.

By mid-1993, however, it was clear the critics were dead wrong. Despite a tax increase passed in 1993 to balance the budget (sound familiar?), the US economy came roaring back.

In fact the acceleration was so rapid that the Fed was forced to ratchet up interest rates in 1994.

There are plenty of things that could delay or derail a repeat of 1992 this time around–a fiscal cliff for one. But if the worst is averted and growth does come on, Canada’s going to have more than its share of beneficiaries, from ultra-safe real estate investment trusts to leveraged oil and gas producers and the Canadian dollar itself.

The real beauty is you can bet on that possibility–even as you prepare for the worst-case scenario–just by buying stocks of strong Canadian companies. And you’ll get the highest dividends in the world as you wait for what materializes in these undeniably interesting times.