What U.S. Investors Should Do About Syria

NEW YORK ( TheStreet) -- The ineptitude of U.S. foreign policy in the Middle East is truly staggering. Following in the footsteps of former President George W. Bush's debacle in Iraq, President Obama seems hell-bent on a regime change in Syria, an eventuality that would make that Middle Eastern nation less stable, less humane, less democratic and more dangerous to U.S. national security. All the while, Obama's policy is damaging the U.S. economy and causing irreparable harm to U.S. influence and prestige in the Middle East region and around the world.

In the face of this situation, to speculate about potential damage to the S&P 500 or the Dow Jones Industrial Average almost seems vulgar. But, unfortunately, taking care of one's wealth will appear uncouth at times.

So let's get to it. The first step is to actually gain a reasonably objective (i.e., non-partisan) understanding of the situation. Then, one can strategize about what one should do as an investor.

Remembering the U.S. Experience in Iraq

I hate to repeat this hackneyed phrase, but it is so true, in this case: "Those who forget history are condemned to repeat it."

The U.S. intervened militarily in Iraq ostensibly on three grounds: 1) To eliminate a threat to U.S. national security. 2) To promote democracy and stability in the Middle East. 3) To promote human rights in Iraq, particularly of minority groups.

So let us make a summary cost-benefit analysis of the U.S. policy in Iraq. On the cost side of the ledger, hundreds of thousands of Iraqi and American lives were ruined and trillions of dollars of U.S. and Iraqi wealth were lost. But what was the benefit? Regardless of political persuasion, the following are historical facts about whether -- and to what extent -- the U.S. obtained its stated objectives in Iraq:

  1. National security. Iraq was never a serious threat to U.S. national security -- even if it had been true that it possessed chemical weapons. So no benefit to U.S. national security could have been attained from a non-threat, even if everything had gone right. Tragically, Iraq actually poses a greater threat to U.S. national security today than it did before the invasion, as a result of the rise of extremism within Iraq as well as the relative strengthening of Iran's (America's declared arch-enemy) influence within Iraq and the region.

  2. Middle East stability. Iraq and the Middle East as a whole are demonstrably more unstable today than prior to the U.S. invasion.

  3. Democracy and human rights. Iraq is less of a liberal democratic society today than it was prior to the invasion. Elections do not guarantee liberty, justice or democracy in any meaningful sense. Never have; never will. Post-Sadaam Iraq is just one more case study, proving to be a humanitarian and democratic disaster for Iraq's minority groups including Christians, Jews as well as many Muslims.

Obama Imitating Bush

Obama apparently wants to imitate the Bush disaster. The parallels are uncanny.

The reasons stated for a military intervention in Syria are almost exactly the same: U.S. national security; Middle East stability; the promotion of a regime change in the direction of democracy and human rights. And it is already obvious that Obama is achieving the same sort of results that Bush did.

  1. National security. Syria poses no serious national security threat to the U.S. The Assad regime and its weapons may pose a threat to opposition groups within Syria (including jihadists), but not to U.S. national security. Even if Assad were so stupid as to commit a hostile act against the U.S., America could very swiftly take care of this puny threat with full moral justification and backing from the international community.

    What about threats posed by Syria to Israel? Syria poses no more danger than virtually any other major Middle Eastern nation does to Israel (they all have conflicts with Israel), nor is it any more of a threat than it was one, five or 10 years ago.

    Furthermore, the current regime poses considerably less risk to Israel than virtually any Syrian successor regime that can realistically be imagined. Israel and the Assad regime have coexisted for many decades; there is nothing to suggest that the danger to Israel posed by the Assad regime has increased relative to historical norms.

  2. Middle East stability. As much as some Americans may not like to admit it, the Assad regime represents the best chance for the most stability that can be hoped for in Syria at the present time, given Syria's state of economic, social, cultural and political development. A post-Assad Syria would look much like the post-Sadaam disaster in Iraq today (sectarian and ethnic civil war) and the post-Mubarak catastrophe brewing in Egypt. The Assad regime represents the best chance of keeping this religiously and politically fractious nation together and avoiding a civil war and potential holocaust.

  3. Democracy and human rights. While the Assad regime is hardly model of modern sensibilities with regards to human rights, it represents the best chance that Syria's ancient Christian population, its Jewish population, political secularists and Muslim moderates have to evolve into an ethnically diverse liberal-democratic nation over time, based on the rule of law. It is unrealistic to think that the establishment of liberal democracy can occur in Syria in anything other than a gradual evolutionary fashion that will take at least two or three generations' time.

    The overthrow of the Assad regime will almost certainly represent a set-back on this path and entail the massacre and mass emigration of Syria's sizable Christian population, just as occurred in Iraq and is currently happening in Egypt. Gruesome attacks on Syria's Christian population by Islamist anti-Assad groups have already begun.

Obama is trying to draw a distinction between his Syria policy and Bush's Iraq policy by saying that he "won't put boots on the ground in Syria." This argument is so wrong-headed, it beggars belief.

First, from the point of view of Syrian internal stability, it really does not matter whether the Assad regime is overthrown with the help of U.S. troops or with the help of cruise missiles. The destabilizing political consequences for the Middle East and the humanitarian cost for Syria's minority populations will be the same -- potentially even worse without the restraining influence of U.S. troops. Second, from the point of view of U.S. national security, not placing boots on the ground to secure Syria's chemical weapons (remember that securing WMD stockpiles was the prime justification for boots on the ground in Iraq) would gravely endanger U.S. national security, as those weapons will likely fall into the hands of U.S. and Israeli enemies in the event of the sort of chaotic civil war that is likely to follow the collapse of the Assad regime.

Loss of U.S. Influence

The U.S.'s inept handling of the situation in Syria is handing a major diplomatic victory to the Putin regime in Russia -- a regime which poses a far greater threat to U.S. national interests than the Assad regime ever has. It is also strengthening the hand of Iran and China, regimes that also pose a far greater threat to U.S. national interests than the Assad regime in Syria ever has.

More general, the belligerent fumbling and bumbling of the Obama administration is causing massive damage to U.S. standing and prestige around the world. It also indirectly harms the political and social standing of U.S. companies such as Exxon ( XOM), Chevron ( CVX) and Schlumberger ( SLB), which have important economic interests in the region.

Conclusion

After ruining the lives of hundreds of Americans through death and injury, while squandering trillions of dollars' worth of U.S. wealth, America has evidently not learned its lessons from Iraq. The ongoing US-sponsored disasters in Egypt and Libya have apparently not provided enough warning either.

President Obama seems hell-bent on repeating the fundamental errors Bush made in Iraq and the ones he made in Egypt and Libya, making Syria less stable, less humane, less democratic and more dangerous to U.S. national security.

Obama is accomplishing all of this while handing out major diplomatic victories to regimes that truly threaten U.S. national interests, such as Russia, China and Iran. And to top it all off, the Obama administration is following in the tradition of George W. Bush by damaging the U.S. economy and causing massive harm to U.S. influence and prestige in the Middle East region and around the world.

What should Obama actually do, then?

As far as the chemical weapons are concerned, Obama should hand the job over to the U.N. Assad will not dare use chemical weapons with bumbling U.N. inspectors supervising stockpiles and swarming the country with detective hats and magnifying glasses on the lookout for other WMD.

As far as the desire for regime change, forget it. The alternatives are worse. The smartest policy for the U.S. would be one of deepening economic and cultural ties with the Assad regime in the hope that the U.S. can gradually influence political and societal change over time via the sort of incremental cultural changes that inevitably come with deeper economic and social ties.

What should investors do? Nothing.

Syria is not relevant to the value of the U.S. equity market. The only way Syria would matter at all is if one of three things happened: First, some sort of major terrorist reprisal against the U.S. or U.S. interests from a desperate Assad regime. Second, a devastating attack on Israel or some other major emergency situation that led to U.S. boots on the ground. Third, the spreading of military hostilities with other interested nations such as Iran or Russia.

The probabilities of any of these scenarios materializing are minor, in my view. Therefore, from an expected return point of view, there is nothing that U.S. investors can, or should, do about this.

For example, if you ascribe a probability of 20% to any one or more of the three risks mentioned actually materializing (which is way too high, in my view), and one hypothesizes a consequent hit to market value of as much as 20% (which is absurdly high), the impact on current expected market value would only be 4%. In practice, such an adjustment in a price target for the S&P 500 makes no sense, as it is indistinguishable from technical "noise."

Therefore, save your time worrying about the impact of Syria on your investments and write your congressman and the Obama's office instead. Tell them you are an independent voter that voted for them in the last election, that you are disappointed in them as a result of current Syria policy, and that you promise to definitely vote for the opposite party in the next election, if they do not reverse policy now.

That might have more beneficial impact on your portfolio than trying to speculate about how the highly volatile, unpredictable and relatively unimportant (from the point of view of market value) the Syrian situation will impact the U.S. stock market.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
James Kostohryz has accumulated over twenty years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the US's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.

View Kostohryz's LinkedIn profile and connect with him here; follow him on Twitter here and Google+ here. When connecting, be sure to identify yourself as a reader from TheStreet.

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