For many, the violence that erupted in the Caucasus region last weekend seemed like a resurgence of the Cold War we long thought was over. Russia's support for the tiny regions of South Ossetia and Abkhazia, who were attempting to remain separated from the sovereign nation of Georgia, seems to have turned into an excuse for a full-scale Russian attack and invasion of Georgia itself.

Georgia, of course, is America's friend in Eastern Europe. We sponsored their admission into NATO, despite Russian protests. Russia has been making life difficult for the Georgians for years. However, this is not 1960 any more. We suspect today's events are less about a conflict between capitalism and communism and more about a fundamental change in the world's dynamics that is occurring today.

You may recall that the Cold War was cold because of a policy known as Mutual Assured Destruction (MAD). The threat of nuclear retaliation (and the end of life on this planet) kept the East and West from going into all-out battle with each other. That threat still exists today.Read more...

As you are no doubt aware, the recent weakness in oil prices began in late August, just after oil set a record high near $70. Since then, oil has retreated some 20%. Meanwhile, stocks (after a brief tumble in October) have pulled themselves together and rallied to the point that last week they bettered their July peak.

We believe the recent strength in stocks is the result of oil’s pullback. What’s more, we expect it will continue a little longer, especially since oil prices could fall a few more dollars before hitting a bottom in the low $50s sometime in the next few weeks. That would equate to a 27% correction, comparable to other corrections we’ve seen in recent years. It is, however, about as low as we think oil will go.

As we said last week, one of the factors pushing oil prices down this autumn has been open spigots at the Strategic Petroleum Reserves in the U.S. and the rest of the OECD. Last week, however, crude oil inventories were revealed to have fallen by two million barrels (they were expected to rise by 1.6 million barrels). Gasoline supplies also fell. So we suspect the supply/demand situation regarding oil is beginning to tighten once more.

Along these lines, we were especially alarmed by two developments last week in the Middle East.Read more...