It would be great to be smart and visionary, especially like all those self-professed economic Einsteins whose crystal balls uncannily tell them precisely where the economy is going. Right now, their choices are bountiful. Take your pick: a soft landing, a hard landing, a rough landing, an accelerating economy or maybe a recession.

If you’re confused, get in line.The answer is, of course, that no one really knows. It’s like handicapping the horses. The key is to decide which supposed Einsteins are actually economic buffoons, calculate the probabilities of the likely scenarios, and then take it from there.

Easier said than done, but Wachovia Securities’ chief investment strategist, Rod Smyth, has taken a shot.He has come up with four economic scenarios, calculated the chances of each occurring and assessed their investment implications.

Would you believe one scenario actually raises the possibility of $1.50-a-gallon gas? I figure that’s about as likely as the Republicans sweeping the upcoming midterm elections. Still, our strategist has undertaken an intriguing investment exercise.

A soft landing, that is to say, GDP growth of 2% to 3%, is what he considers the most likely scenario with a 50% probability. This outlook — which is Wall Street’s most prevalent one — aligns itself with Wachovia’s forecast of economic growth decelerating to an annualized 2% in the fourth quarter. In this scenario, housing weakness, higher interest payments, and relatively high (but not rising) energy costs crimp disposable incomes and hence discretionary spending, lowering overall economic growth over a few quarters.However, this does not lead to a significant amount of defaults as job and income growth remains steady and continued strong business spending prevents a deterioration of real GDP below 2%.

Under this scenario, Mr. Smyth thinks investors should overweight stocks and underweight bonds. He would also expect earnings to decelerate from the mid-teens to the mid-single digits and would favor high quality, less cyclical, larger cap stocks.

His second most likely economic course — a rough landing of 1% to 2% GDP growth — is viewed as a 30% probability.Here he thinks growth could fall below 2% over next few quarters if the housing decline affects consumers more adversely than he anticipates. This would constitute year-over-year price declines in many markets and difficulty making interest payments, leading to higher default rates. Clear signs of consumer distress would cause cutbacks in consumer spending, potentially leading to a worsening job market. Further decelerating consumer and business spending would likely cause the Fed to cut rates.

The investment implications: Mounting evidence that this scenario was unfolding would ultimately lead to Fed easing and short-duration bonds initially outperforming stocks as investors fretted about a recession. However, as soon it looked as if rate cuts were going to have a positive effect on the economy, stocks would begin outperforming again.

A hard landing of less than 1% GDP growth or a recession is rated a 10% possibility. The difference between a rough landing and a hard landing, as Mr. Smith sees it, is the extent of systemic risk in the mortgage rate. He points out that if defaults were to rise to a “tipping point” — such that the number exceeded expectation — then debt structures collateralized with these mortgages might face liquidation. While the strategist believes this is a low probability event, he notes the severity of such an occurrence could be large because the business of packaging and reselling mortgages has been one of the fastest growing segments of financial markets in recent years.

More broadly, the value of derivative contracts based on mortgage and other debt pools has exploded to $26 trillion, seven times higher than a few years ago. What’s more, the economic fallout from such liquidations would probably rival what occurred after the savings and loan scandals of the early 1990s and the collapse of the technology bubble in early 2000.

The investment implications: A hard landing would clearly favor bonds over stocks, 10-year Treasury yields would likely fall toward 4% and the Fed would revert to an easing mode. High quality stocks would see significant relative outperformance, but absolute prices would likely fall.

The final economic route — a reacceleration of economic activity with 3%- plus GDP growth — is also given a 10% probability. In the second quarter, the economy grew at a 2.9% annualized rate after rising 5.6% in the first quarter. Mr. Smyth thinks it’s possible, but unlikely, that this could be the extent of the slowdown and that economic growth could accelerate from here. The most likely catalyst for a reacceleration, he believes, would be a decline in energy prices with the average gasoline prices falling to $1.50-a gallon nationally. In turn, energy costs would do a lot to offset weaker consumption due to the housing slowdown.

In a reacceleration scenario, Mr. Smyth reckons 10-year Treasury yields would likely rise to the upper end of his 4.5% to 5.5% forecast range from the current level of around 4.6%. As such, the Fed, it’s thought, would likely remain on hold with a tightening bias and despite the potential for short and longterm interest rates, stocks would react positively, and perhaps even break out to the upside if core inflation didn’t also reaccelerate. With economic reacceleration, Mr. Smyth believes investors would be less concerned about a mean reversion in earnings and margins, which would tend to favor lower quality, more cyclical and smaller cap stocks.

If our strategist’s various outlooks leave you perplexed and remind you of one of those impossible crossword puzzles, what’s new? That’s the way it always is on Wall Street.

dandordan@aol.com