Last week was long on news that could cement some important long-term trends. First off was the meeting of OPEC members in Algiers. This wasn’t a formal OPEC summit; rather it was billed as a way to gather ideas prior to a formal summit scheduled for next month. But surprise, surprise (actually, not a surprise if you’ve been reading our updates), OPEC countries agreed to cut production. Just as I expected, the cut was relatively small, about 750,000 barrels a day. The exact details of the cuts are not yet available.

The meeting shows clearly that OPEC has come together, and, most notably, that the intense rivalry between Iran and Saudi Arabia has abated. Most credit the meeting of minds to the Saudis’ need to get oil prices out of the pits and back to a level where they can begin to balance their budget. Moreover, the Saudis aren’t alone: almost every major oil producer in the world needs prices above $60 and in some cases above $100 to balance government budgets.

But there’s a lot more to it than that. This is a complex world that is devolving into a bipolar world with two power centers, America in the West and China in the East.

As I’ve argued before, one reason both OPEC and Russia were pumping at capacity was to ensure that future production would have a home and buyers in the East. China has become the arbiter of how easy it will be to have that home. China has been importing huge amounts of oil in the past two years, and it has been storing a good deal of it in every nook and cranny it can find. All those small barren islands that China is claiming and defending? It is indeed acting to protect the motherland – but not in the way you might think. Rather, China is using those outposts to store critical resources, and oil is one of the most critical resources around.

China is also on its way to becoming the world’s biggest oil refiner. It’s no coincidence that when OPEC was furiously pumping, China liberalized and set free its so-called teapot refineries. Within a relatively short time China will be the center of the most important oil trading hub. Oil futures will likely begin trading in Shanghai. The contract or benchmark will consist of various blends of Eastern oil roughly in proportion to what China and its refineries have accumulated during the period of OPEC and Russian manic pumping.

If China’s grab for control over oil in the East might sound worrisome, it has a positive side for us. China’s leaders don’t want to see the West on its knees, because that would hurt China, too. So the kind of major run-up in oil prices that in the past has unfailingly led to recessions and market crashes here is very likely not in the cards. And this means the current bull market may still have a bit more life left. At the very least, it suggests a major bear market doesn’t lurk just around the corner.

Two other notable events in the past week both occurred, fittingly, on Oct. 1, which is China’s National Day celebrating the founding of the Peoples Republic of China (PRC). One was the official entry of the yuan into the SDR. The second was the beginning of a transfer of control over the Internet from the U.S. (under the aegis of the Department of Commerce) to an international consortium. And you don’t have to be a genius to realize that China, with its lead in supercomputers, will be first among many in this consortium.

An ancillary piece of news last week may also reinforce China’s role in the world. That’s the decision by Theresa May setting a time – the end of March 2017 – by which Britain will begin Brexit discussions. The rhetoric around the decision is that Britain hopes to get special consideration from the E.U. that will let Britain continue to enjoy trade relationships within the E.U. while not participating in the free movement of workers. That clashes sharply with what the E.U. is likely to agree to.

As I write this, the markets seem to be predicting that Britain faces an uphill fight, with the pound trading below its lowest close in over 30 years.

How does China fit in? A Britain without special E.U. concessions is nothing more than a large island in search of trading partners. One that comes immediately to mind is – you guessed it – China. Britain out of necessity will have to turn to China, and this has numerous positive implications for the Beast in the East. These range from control of financial trading to possibly control of British energy distribution.
In sum, it was a very good week for China. But that doesn’t mean it was a terrible week for America. Indeed, this morning good news arrived in the form of better-than-expected statistics on both the factory front and the auto front. America is growing, even if growth isn’t all that fast. And as noted above, what would be the biggest threat to the U.S., a sudden and sharp spike in oil prices, is probably not in the cards. Luckily for us, a sharply weakened America is not in China’s best interests. China is for China, and at least for now a relatively strong America furthers that goal.

We have no changes in our portfolios. Stay with well-priced growth and solid dividend growers. And keep reminding yourself that insurance has never been more necessary, meaning you should hold some gold.