What's on voters' minds? The economy, stupid

Dan Cobb, a 60-year-old retiree from Soddy-Daisy, Tenn., will vote with his wallet in the 2008 presidential election.

His retirement portfolio is down more than 8% this year due to the weak economy and resulting stock market slide. He wants the next president to wear the hat of investor-in-chief and help stop the bleeding.

"I am worried about the erosion of my investments," says Cobb, who views the economy as the top issue in the election. "We need (the next president) to rejuvenate the economy and financial markets."

Cobb isn't the only one focused on pocket-book issues as the race for the White House heats up. The entire investment community is, too. The big reason is that stocks are down sharply in 2008. Thursday, the Standard & Poor's 500 index sank to its lowest since September 2006, leaving it down 11.2% for the year.

Wall Street is experiencing financial distress amid the worst housing market since the Great Depression and a drastic drying up of credit. That double-whammy has the economy on the brink of recession. Thus, investors are scrutinizing the potential market-moving policies of the three remaining candidates: Republican John McCain, who wrapped up his nomination this week; and Democrats Hillary Clinton and Barack Obama.

"When the economy is not functioning well there is greater clamoring for reforms and changes," says UBS strategist Thomas Doerflinger.

Indeed, the interests of Wall Street's masters of the universe and Pennsylvania Avenue's political power brokers are intersecting to a degree not seen in years. Nearly nine out of 10 investment advisers (84%) at Charles Schwab — the folks who manage money for individual investors — said the economy was the "decisive" issue in the upcoming election, topping the war in Iraq by more than 20 percentage points.

Daniel Clifton, an analyst at Strategas Research Partners, says this election is the most important one for investors since 1980, when Ronald Reagan swept into office on a pro-business platform after the stock and business malaise of the 1970s. The campaign also harkens back to 1992, when Bill Clinton captured the White House with the help of the catchy slogan, "It's the economy, stupid," says Allan Sinai, chief global strategist at Decision Economics.

The next president is faced with major economic challenges. Stocks are flirting with a bear market. A recession is looming. Home prices are falling. Foreclosures are up sharply. Jobs are harder to come by. Oil fetches more than $100 a barrel. Inflation is worsening. And one-time fledgling economies such as China and India have become legitimate competitors to U.S. business in a world that has truly gone global.

All these headwinds are interconnected, complex and potentially toxic to a portfolio. How the next president deals with them could determine if they are resolved in an investor-friendly fashion.

"This election is about leadership," says Sinai. "The next president must come to grips with the notion that, despite the U.S. still being a great economic power, we are suffering from an erosion of our economic and financial power in the global economy."

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