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Worst GDP In 26 Years?

Investors are bracing themselves for Friday’s market action. It could be nasty after the government releases GDP.

It’s no secret that the number will probably show that the U.S. economy has suffered its worst slump in 26 years -- however hopes are dimming that the data will mark the bottom of the current recession.

"We're in the first quarter and the stimulus has not been enacted," says Jonathan Basile, economist at Credit Suisse in New York. "So we're still going through the abrupt correction to the downside after the shock that the financial crisis gave the economy."

Economists have been ratcheting up their forecasts for the fourth-quarter contraction and now they expect a drop of 5.4 percent on an annualized basis, according to a Reuters poll.

That would be the worst since the first quarter of 1982, when gross domestic product dropped by 6.4 percent, and it would dwarf the 0.5 percent decline in the third quarter of last year.

Sounds pretty bleak, but many investors are hoping the $1 trillion Obama stimulus will get us out of this mess. But will it?

Democrats suggest that spending on infrastructure and other “shovel ready” projects will spark a turnaround much like FDR’s New Deal did in the 1930’s. However Republicans say any stimulus needs to focus on tax cuts.

Pete Najarian and Zach Karabell advocate spending while Jeff Macke and Guy Adami prefer tax cuts.

“I think we need both,” adds Mark Zandi, chief economist at Moodys.com. He feels it takes too long for spending to get into the economy while tax cuts work more quickly.

In fact, Zandi, like many economists think the Obama stilumus plan needs to be larger. Perhaps much larger. “The fact that things are so uncertain means that we need to be more aggressive and if we’re going to err we should err on the side of bigger rather than smaller.”

Jeff Macke doesn’t feel that way. He says, “if you don’t know where you’re going that answer is not – speed up.”

What do you think? Tell us now!





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Trader disclosure: On Jan. 29th, 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 (SDS), (MSFT), (TM); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Karabell Owns (AAPL), (CL), (DRYS), (FCX), (GOOG), (JPM), (NVDA), (NOK), (CINA); Najarian Owns (EEM) Call Spread; Najarian Owns (FCX) & (FCX) Short Calls; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls/Put Spread; Najarian Owns (SQNM) & (SQNM) Short Calls; Najarian Owns (PALM) Calls