How Bad Is It Going To Get?


Wall Street gets another glimpse at the state of the economy on Tuesday. How bad is it going to get?

At 8:30am the Commerce Department releases revised data on third-quarter gross domestic product.

Analysts estimate the economy likely shrank at a 0.5 percent annual rate from July to September, more than the advance estimate of 0.3 percent - and the biggest slump since the 2001 recession.

“It’s very hard to forecast right now” says Joe Lavorgna, Deutsche Bank chief economist on Fast Money. “We’re in uncharted territory.”

As you might know gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. And LaVorgna is clearly concerned about our economic health.

He tells the traders, “if you look at bank’s willingness to lend, it’s cratering and that’s a bad sign. The last time it happened was the second quarter of 1980 and GDP fell 8%."

"The problem is where we're going from here."

He thinks 2009 all comes down to the automakers. "If the automakers go under we're toast," adds LaVorgna. "You're going to be looking at double digit unemployment simply because the economy can't handle the hit to output."

What’s the bottom line?

According to CNBC's Patti Domm, after crunching numbers Joseph LaVorgna came up with a worst case scenario for GDP to shrink by 8 percent in the fourth quarter after the third quarter's decline of 0.3 percent. His forecast though is for a 4.5 percent decline.

Shrinking 8 percent?

"It's definitely possible. The bulk of it is likely to be capital spending and inventories. Consumer spending will be down again," said LaVorgna. In a note, he wrote: "The primary reason we have not shifted to that extreme view, at least not as of yet, is due to a projected collapse in inflation this quarter, led by what we expect to be at least a 0.6 percent decline in October headline CPI and a roughly 4 percent decline this quarter compared to a nearly 7 percent increase last quarter.

The Trade

And if you're trying to find a trade amid all this information LaVorgna tells Fast Money, "I think the debt markets reflect that scenario but not the equity markets.” Not yet.

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Trader disclosure: On Nov.24, 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 (UUP), (WMT), (MSFT); Macke Is Short (TM); Seymour Owns (AAPL), (BAC), (ETFC), (F), (MER); Seygem Asset Management Owns (VIP); Finerman's Firm Owns (DNA) Calls; Finerman's Firm Owns (DSX), (MSFT), (XLF); Finerman's Firm Is Short (USO), (GNK), (EGLE), (BBT), (COF), (IYR), (IJR), (MDY), (SPY), (IWM), (RTH); Terranova Owns (DIS)

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