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Clinton-Obama Dispute: Why Wall Street Should Take Note

Friday, 27 Jul 2007 | 5:09 PM ET

The world of business and finance may consider the fight between Barack Obama and Hillary Clinton over foreign policy, which emerged at this week's YouTube debate, as irrelevant to their concerns. That view is wrong.

It's true that, in a narrow sense, neither Wall Street nor the investor community has a direct stake in the back and forth over whether either prospective Democratic president would agree to face to face meetings with Hugo Chavez or Fidel Castro or other anti-American tyrants. The Obama-Clinton sparring was quintessential political sparring.

Yet, it was sparring that could affect the trajectory of the 2008 race. Anything that moves the needle on who's likely to become the next president by definition makes it an issue for investors to follow. And there's reason to think Hillary Clinton'schances of becoming presidential took a small step forward this week.

Barack Obama is a very formidable candidate for the Democratic nomination--just check the Federal Election Commission's donation records. He has a strong claim to become the candidate of change in a year when voters are plainly looking for change. But the first term senator has a steep hill to climb in order to prove that he has the knowledge and experience to handle the presidency and more specifically the role of commander in chief.

Appearing shaky on top-level diplomacy makes that hill steeper. And that is the impression Obama left as a result of his debate answer on meeting with the unsavory foreign leaders in question, which was followed immediately by Clinton's refusal to commit to such meetings.

Afterward, Obama's advisers said he'd been misunderstood and actually had the same position as Clinton's. Later they shifted gears, arguing that her more cautious stance resemble a "lite" version of President Bush's refusal to hold such meetings at the cost of American influence. whether either stance will prove effective is unclear.

More promising was Obama's use of the contretemps to hit Clinton anew for having voted for the Iraq war, which Obama had spoken out against at the same time. That's a difference on which Obama holds the high ground among Democratic voters, and reiterating it could brighten a line of distinction Clinton has worked to muddy.

This is hardly the end of the argument; we are rapidly approaching the fall stretch run of the primary campaign. But for now, the behavior of both campaigns on this foreign policy argument suggests that Clinton ends the week stronger than she began it. Given the edge that polls indicate any Democratic nominee will bring to the general election, that worth Wall Street's notice as they prepare for the policies on other issues--from taxes to spending to health care--that will emerge from the White House in 2009.

Questions? Comments? Write to politicalcapital@cnbc.com.