Don Coxe: Syria and Russia may have saved Obama - and the bull market

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Don Coxe, a contributor to Globe Unlimited's Inside the Market, is chairman of Coxe Advisors LLP and is an advisor to several commodity funds. He has been consistently ranked as a top portfolio strategist and received a lifetime achievement award from Brendan Wood in 2011. He'll join Inside the Market for a live discussion Thursday at 1 p.m. (ET).

Historians write about Hinges of History where a major trend is reversed - often with totally unforeseen consequences. This week's scheduled Congressional votes about President Barack Obama's proposed air strikes on Syrian chemical weapons facilities are almost surely on hold after Monday's dramatic announcements of a new willingness of Syria and Russia to work with the United Nations to sequester the nation's chemical weapons - without actually admitting they have them or have ever used them.

What matters most to investors is not what might happen to Bashar al-Assad if Mr. Obama failed to convince Congress to back his controlled attacks, but what would happen to the already-beleaguered Obama Presidency. All polls show that voters overwhelmingly oppose the strikes, and Obama's chance of getting House of Representatives support was, according to all surveys of members' intentions, roughly as likely as a Chicago Cubs World Series win.

That humiliation, coming just before the next round of tough bargains on national debt and sequestration renewals, would have stiffened Republican spines for brutal blows at an already-weakened President.

The Snooper Chief apparently couldn't assemble convincing evidence for a dubious world that Mr. al-Assad had gassed hundreds of children despite operating a global spy system that, in scale and intensity, make Big Brother's fabled operations in 1984 seem like mere peeping tomism. Why does he need to invade the privacy of all Americans, let alone the confidential communications of world leaders friendly to the U.S., if he can't get hard data on a dictator?

If he had been hung out to dry by Vladimir Putin and Mr. al-Assad, then Americans and investors in U.S. stocks would be facing a grim possibility - a failed Presidency with three more years of mounting despair. The politics of Washington have been deteriorating since the mid-term election of 2010 in which the Republicans won control of the House of Representatives, and, perhaps more importantly, won governorships and statehouses on a grand scale. Although Mr. Obama won re-election against the politically tone-deaf Mitt Romney in 2012, and his party barely kept its majority in the Senate, his power was seriously eroded by Republican gains elsewhere. Unfortunately, he chose to ignore the changed dynamics and he embarked on confrontation with Speaker John Boehner and the House Republicans, claiming that he had won a mandate from the people.

The result has been a series of mini-crises over the debt ceiling and taxes, and a growing desire in the House to rein in the President's resort to over-regulation to achieve his agenda by means other than legislation.

Mr. Obama's popularity at home and abroad had been declining steadily before the Syrian crisis erupted. In retrospect, his popularity peaked when he won the Nobel Peace Prize. But a defeat on a national security issue would probably send his approval rating into Stygian depths.

We know all about failed Presidencies. There were three of them in the Stagflationary Seventies. First, the grim and paranoid Richard Nixon, who closed the Gold Window, fuelling the rush to global inflation that ignited a runaway gold bull market. Next, the well-meaning but ineffectual Gerald Ford, who was defeated by the well-meaning, defeatist Jimmy Carter. Had Ronald Reagan not defeated him, (and had Margaret Thatcher not defeated Labour), inflation would have continued - and the Cold War could conceivably have lasted long enough for Putin to become the boss of the USSR.

There is never a good time for a failed Presidency, but this one would come at a time when Ben Bernanke, the major player in rescuing the nation - and the world - from the financial collapse was on his way out.

The rescue of the global financial system in 2008 was largely accomplished by Mr. Bernanke, partnering with leading central bankers in Canada, Britain and the euro zone, while working - frequently under extreme pressure - with Hank Paulson and other Bush Administration officials. The new President moved smoothly into control and performed creditably thereafter, working with Larry Summers and Tim Geithner. But the superstar of the saviour team was Mr. Bernanke, trusted by every central banker and Wall Street crisis manager who mattered.

Historically, the succession of leadership at the Fed proceeds amid calm and gentlemanly back-room discussions and the candidate is duly presented and approved by the Senate.

Not this time.

First, Mr. Obama broke the code by stating publicly that Mr. Bernanke had stayed around too long. This most political of Presidents thereby kicked off a vigorous and increasingly indecorous and politicized debate about the two putative favourites—Janet Yellen, Fed vice-chair, and Larry Summers, an elitist with a resume that includes experience in the White House, Harvard, and Wall Street. Unfortunately, the debate on their merits hasn't been focused on the Fed's papering of the land with zero-rate paper or tapering its breakneck pace of acquisition of Treasurys and mortgage-backed securities. Any hint that one of the candidates might be concerned that the Monetary Base is soaring at the rate of a Tomahawk missile arouses fury that nothing must be done to normalize rates. But policy principles are getting the back door to feminist fury, with demands that Ms. Yellen get the job because she's a deserving woman, while Mr. Summers should be disqualified because he lost the Presidency of Harvard by making "inappropriate" comments about feminine science skills. Summers is, opponents declare, too close to the Street.

Thanks to Mr. Obama, the decorum of the past has become a mere memory of a supposedly unenlightened century. He has managed to pollute the pristine well of independence at the Fed - a key to the Fed Chairman's soft power. Mr. Bernanke's successor will doubtless lack the discretion for creative and prudent policymaking that was the basis of the mystique, magic and mojo his predecessors generally enjoyed.

Furthermore, if Mr. Obama were humiliated on Syrian policy at a time when opposition to his signature program - Obamacare - kept climbing while his approval rating kept sinking, Republicans would sniff the blood in the water and harass him mercilessly - with grim consequences for bonds and stocks.

Obama programs and regulations have done enough damage to the U.S. economy that the S&P bull market is imperiled. But even gold investors should give a sigh of relief if he manages to escape with some of his charm and confidence intact, and with most Americans still believing their country can eventually find its way.

Recently, the euro has displayed remarkable strength against the dollar, and stock markets in Europe and Japan have been outperforming Wall Street.

When history turns on a major hinge, political and economic power relationships are transformed. Investment principles of risk and reward that worked previously must therefore be revised. Being on the wrong side of history is dangerous to an investor's financial health.

The outcome of this off-hand peace proposal remains unsure, but it surely represents a positive outcome for all parties - and a brilliant about-turn by the President. If you were rooting for Obama to get a well-deserved lesson from Congress this week about the limits of Presidential power, be careful what you wish for.