Stocks were up sharply through the week as the indexes hit new all-time highs.
Meanwhile, the U.S. dollar suffered steep selling. Notice, the dollar has been sliding for the entire month of September even though the Fed is about to raise interest rates again.
By driving down the U.S. dollar, the financial powers can drive oil prices higher in order to push the broad market to new highs, as crude oil prices push near $71 a barrel again.
It is pretty clear that OPEC is doing its best to keep oil prices above or near $70 a barrel going into the mid-term elections to hold up the stock market.
Goldman Sachs, which has a long history of talking out of both sides of its mouth, recently showed a number of studies indicating how risky the stock market has become and it is in dangerous territory - where recessions tend to develop.
Several big banks and research houses have put out warnings of a looming recession and a potential bear market on the horizon given inverting yield curves, extreme overvaluations, trade wars, skyrocketing debt, etc.
However, Goldman Sachs on Wednesday said there is only a 36% chance of recession in the next three years, a figure well below the historical average - so, no worries, according to a banker!
"There has been increasing investor interest in the chance of a recession in the U.S. over the next few years... Our model paints a more benign picture," said GS economist Jan Hatzius.
This is rather inconsistent with its recent study put out just a few weeks ago, that Hatzius is perhaps unaware of.
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Historically, in particular the last seven times when the yield curve has inverted, a recession has followed. Maybe this time is different (and it could be), but there are way too many red flags waving for us to listen to a Goldman Sachs economist, who never correctly called the last recession!
After the mid-term elections, with the Fed inverting the yield curve, the economic cycle will contract and the demand for oil ought to plunge.
Between now and 2020, the Fed is projecting six more rate hikes, while the market expects four more rate hikes. With $21.49 trillion of national debt skyrocketing higher and higher, attempting to pay this debt is going to break something soon.
There are the Goldman Sachs of the world, who would want to downplay this event and say we still have three years or more before the economy begins to feel the effects of an inverted yield curve, but history says otherwise.
Today's stock market is 63% more expensive than it was in the past six yield curve inversions (on average), which makes the current situation far more risky.
In the dotcom bubble, it took only one month for the stock market to drop into a bear market after yields inverted.
In spite of what you hear on the news, corporate balance sheets are not in good shape.
Notice from the above chart that when corporate debt has approached "credit cycle peaks", recessions develop. We are there now!
The bulls remain in charge and momentum/passive investors are still looking like the smart ones, but I think you will soon see that the GDP (growth), inflation, and profits are about to stall.
To your wealth,
Dennis SlothowerEditor, Stealth Stocks Daily Alert and Wall Street's Underground Profits
Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club, Stealth Stocks Daily Alert, and Wall Street's Underground Profits. For more about Dennis, check out his editor page.