"The markets seemed on the verge of a major sea change," says economist David Smith. In his Cyclical Investing Quarterly, he offers a fascinating review of his concerns for the risks that lie ahead.

"Recent economic data provides considerable foundation for Main Street fears and little support for Wall Street hopes.

"Two of the economy's mainstays, housing and autos, continue to tank and consumers are being squeezed between falling real incomes and rising cost of living – notably in energy and food, the two components eliminated from the 'core' inflation indices by those who claim inflation is 'under control.'

"The consequences of these economic stresses can be seen in falling consumer confidence, weak consumer spending, rising bankruptcies among retailers and defaults among un-creditworthy borrowers.

"The knock-on effects include a global crisis in the financial sector, a pullback in U.S. business spending,
mounting layoffs and an uptrend in unemployment, all of which, in my view, pretty much puts the nail in the coffin of the Goldilocks scenario.

"This view is seconded by chief executive officers in the financial-services industry, who placed the likelihood of a recession at 88%, with one in three putting the odds at 100%.