How Bad Will It Get?


With no bailout, is a recession inevitable at this point? Of course, nothing is certain but death and taxes but right now the economy isn’t looking too rosy, that’s for sure.

If you watch the show regularly you know we often turn to MKM partners chief economist Mike Darda for insights.

In Monday’s Wall Street Journal, he writes, “(a government bailout) almost surely will not prevent a recession.”

Last week Darda first told Fast Money about his concerns. Specifically, he didn’t like the looks of the credit market and was keeping a close eye on the Libor/OIS spreads. “The 2-year swap spread is above 160 bps,” he said at the time. That’s a level not seen in 20 years,” and signals just how unwilling banks are to lend to one another.

And in just a few days the situation has gotten even worse with the gap growing wider yet. "This kind of stress reflects fear and a lack of trust among banks which will be reflected in the real economy with a lag,” he writes in the Journal.

Darda thinks we’ve probably been in a mild recession for the past 8 or 9 months.

“We know already that Q3 real consumption expenditures are running 1.6% below the Q2 average. This will be the first quarter of negative consumer spending since 1991,” Darda explains on Fast Money. In other words, the consumer recession is already here and it’s going to get worse.

“The question is how much deeper does it get?” Darda says. "The longer the credit markets stay dislocated the deeper we’re going down.”

Bottom Line: Forget the soft landing, Darda thinks a recession is all but inevitable. Now it's a matter of how severe it will be. "I think it will be worse than 1991 and 2001 but not as bad as the really sharp recessions we saw in the 1970’s and certainly not as bad as the Great Depression,” Darda concludes.

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Trader disclosure: On Sept 29, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT); Adami Owns (AGU), (BTU), (GS), (INTC), (MSFT), (NUE); Najarian Owns (AAPL) and (AAPL) Puts; Najarian Owns (BIIB) Calls; Najarian Owns (GS) Call Spread; Najarian Owns (MS) and (MS) Puts; Najarian Owns (NCC) Call Spread; Najarian Owns (WB) Put Spread; Najarian Owns (XLF) Straddle; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (DVN); Finerman's Firm Owns (IMCL) Call Spreads; Finerman's Firm is short (IYR), (IJR), (SPY), (MDY), (IWM), (COF), (SPG, (BBT); Finerman's Firm Owns (BIIB) Calls with wires