Goldman today upped its probability forecast for a recession in 2008 from 30% to 40%-45%.
Top Gun also updated our extremely complex, computerized, mathematical, algorithimic, dynamic stochastic, recession model and upped our recession probability from 99.999998% to 99.999999%.
Look: I might be wrong but how do you trade on a 40%-45% probability?
That means that most likely that’s not going to be the outcome (55%-60%) i.e. their forecast implies there won’t be a recession and so if there is one, their forecast is wrong.
So how do you position yourself? I guess you hedge and haw and this and that. Sure. I do that too.
But why not just make a call one way or the other? If you’re wrong, you’re wrong but at least it clarifies your investment strategy going forward.
Of course, you always want to diversify and invest in a way that reflects the possibility you are wrong. Prudence is the name of the game in investing, as in life.