Lights Out For The US Economy As Its Biggest Cheerleader Hangs Up The Towel

Tyler Durden's picture

When Deutsche Bank's Joey perma-LaWronga finally gives up on his call that has been wrong for about 3 years now, it may be time to i) panic or ii) buy everything with three hands (thank you Fukushima). We are leaning to the former, especially after the upcoming downgrade forces the Fed to launch QE3 in about a month.

From Joseph LaVorgna, Deutsche Bank

Growth recession confirmed; H2 dims; waiting to see jobs

Commentary for Monday: Previously, we highlighted the possibility that the economy was on the brink of a growth recession—a sustained period of below trend growth typically accompanied by rising unemployment. The disappointing Q2 GDP results and downward revisions to the prior three quarters lead us to believe that this indeed is the case. Real GDP in Q2 rose just 1.3%, as personal consumption virtually stalled (+0.1% vs. +2.1% previously). The prior quarters were revised as follows: Q3 2010 (2.5% vs. 2.6% as previously reported), Q4 2010 (2.3% vs. 3.1%) and Q1 2011 (0.4% vs. 1.9%). In light of the softer first half performance of just +0.8% AR, we are making adjustments to our outlook for the second half. We are lowering our estimate of Q3 GDP by a full percentage point to 2.5%; and we are reducing Q4 from 4.3% to 3.0%. These estimates will be subject to further revision pending a couple of near term developments, namely the resolution of the debt ceiling impasse and the outcome of the July employment report. (Although the coming week’s data on ISM manufacturing, construction spending and motor vehicle sales will also be important gauges of activity.) Hence, we are likely to make additional adjustments—potentially sizeable ones—in the relatively near term. For example, if financial conditions tighten significantly in response to a sovereign ratings downgrade or there is a Federal government shutdown, we would make more drastic cuts to growth. We estimate that a 2-3 week shutdown could subtract 1.5% from Q3 GDP growth. A lengthier shutdown could have a significantly more deleterious effect, although we continue to believe that this will not be the case.

Following our discussion from late last week, we estimate the most likely path forward for the debt ceiling at this point in time is a “sweetened” version of the Reid plan, which would presumably entice a sufficient number of moderate Republicans (and most Democrats) to support it—possibly through enhanced spending cuts. In the event that a resolution is not reached, there are a few policy options remaining. It is possible that President Obama could authorize the Treasury to exceed the $14.3 Trillion debt ceiling without congressional approval, potentially citing the 14th Amendment. The President has expressed a strong preference to not use this option, but he has not ruled out the possibility in a crisis scenario. Conversely, if the borrowing limit is not raised, then the Treasury would have to prioritize its payment obligations based on the available funds. Following recent public comments, we expect debt service payments to be at the top of the list—so as to avoid an actual default, which could roil financial markets. Following debt service, there would be some combination of military funding, social security, Medicare/Medicaid, defense contractors, etc. The remaining components would be subject to furlough in a partial shutdown scenario.

The July jobs report takes on heightened significance given the reduced economic momentum now apparent in the GDP data, particularly in light of the soft profile of consumer spending last quarter. We project a +50k increase in nonfarm payrolls (+75k private) and no change to the unemployment rate (currently 9.2%).

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flyr1710's picture

LaVorgna projecting +50k for july payrolls?  that means it will come in negative

oogs66's picture

wasn't he the one saying NFP was wrong last month?  

quasimodo's picture

"Commentary for Monday: Previously, we highlighted the possibility that the economy was on the brink of a growth recession—a sustained period of below trend growth typically accompanied by rising unemployment. The disappointing Q2 GDP results and downward revisions to the prior three quarters lead us to believe that this indeed is the case."

I quit reading after that. There are many third graders out there that knew this was the case long before this guy did.

r101958's picture

I love how they make up these quips: 'growth recession' ......wouldn't contraction be more succinct?

Scisco's picture

Did you not get your newest edition of Newspeak?

Frankie Carbone's picture

War is peace. 

Slavery is freedom

Ignorance is strength

Printing 398K initial claims is good. 

A Great Recession is not a depression. 

A growth recession is not a contraction


Got it. Check. 

Bendromeda Strain's picture

Looks like the downgrade fairy just flew by. I fart in its general direction.

StychoKiller's picture

Due to a "growth recession" in the US Govt, the latest edition of Newspeak has been delayed -- just a transitory phenomena!

Random_Robert's picture

Contraction is a term that most sheep know the definition of.

Recession is a term they see so often in the newspaper that they are mentally conditioned to glide right over it...


Hmmm- it's payday and my bullion dealer is not answering the phone... I wonder what that means?

DeadFred's picture

I read the whole thing. It's still cheerleading. Everything works just right he may come close. Things rarely work out as planned.

Cleanclog's picture

Jobs, housing, debt saturation, and no more credit for consumption beyond means.  

Yep H2'11 through 2020 just don't look that perky.  Great call LaVorgna.  Way to catch up.

johngaltfla's picture

All you have to do is watch the old video from 2007/2008 and you'd realize he missed that mess also. But watching Geithner's twin is amusing.

lizzy36's picture

Because we all need a friday amusment:


ps:tyler, NO QE3 in 2011.

Bam_Man's picture

Lizzie is the new Banzai!

Bendromeda Strain's picture

I wish my brother Tim was here...

HeadintheGame's picture

Here's Joey's Pedigree:

"Joseph A. LaVorgna is a managing director and serves as Chief US economist in charge of US macroeconomic research for Global Markets.  He joined Deutsche Bank in 1997 from Lehman Brothers where he was a Vice President in the Fixed Income Division.  Prior to joining Lehman, LaVorgna was an economist at UBS Securities and he started his professional career at the Federal Reserve Bank of New York in 1992, where he was an economist on the Monetary Analysis and Projections Staff. LaVorgna is a graduate of Vassar College and is a frequent commentator for CNBC as well as various other media outlets.  LaVorgna and his colleagues were ranked #1 in Economics in the 2010 Institutional Investors’ All-Star Fixed Income Team"

He's a typical FED lackey; bought and paid for, as are most of the "Blue Chit" ecoonomists on Wall Street.  For further background you can see this link:

I can imagine these guys all getting together with the Bernank for a little cheerleading session like the ones they have at Wal-Mart stores at the start of each day's business.

Once you have the FED emblem tatooed on your ass, it prevents you from ever thinking clearly, again. 

Zero Govt's picture

a perfect CV for a crone

What LaWronga means by "..a sustained period of below trend growth.." is that reality has arrived and his trend predictions have proved to be delusional

with 'expert' economists like this at the top banks is it any wonder the banks can't see anything coming and are bankrupt

glenlloyd's picture

Joey LaStpupid has spoken.

His commentary seems to be...deflated...

mynhair's picture

Long bond is saying no deal, Howie!  Hope gross Gross is still short.

r101958's picture

"We estimate that a 2-3 week shutdown could subtract 1.5% from Q3 GDP growth."

That ought to tell you all you need to know about the current warped state of the economy. What type of GDP reading would we get if the gov't shut down for 3 months? -5% GDP.....negative growth? Totally broken misdirected system.

karzai_luver's picture

I have not laughed this hard since the O hope and changling was elected!!!!!!!!!!


ROTFLMAO and neither I or the eCONomy is getting up anytime soon.




The amount of statist wet dreamers has become unsustainable.


Have at it bithcessssss.......Muslims to the left of me Mulsims to the right .........


You are either wid us or agin us in the fight of evil and we have killed the ............. whatever.

Bam_Man's picture

"We had to destroy the village in order to save it."

Comay Mierda's picture

I was listening to a "well-respected" economist today on NPR aka Rockefeller Radio.  She said the government should spend more because it will boost GDP.


“Two things are infinite: the universe and human stupidity; and I'm not sure about the the universe.” - Albert Einstein

ElvisDog's picture

Actually, it's easy to quantify. The deficit is 12% of GDP. Cut that and there would be a 12% drop in annual GDP plus a follow-on effect of maybe 6% more. So, 3 months would be 18/4 = 4.5%, close to what you wrote. Shut down for 3 weeks and it would be 1.125%

the not so mighty maximiza's picture

by goverment employees for goverment employees.

mynhair's picture

Oweblahma needs to quit talking about 'no silver bullets'.  He may find out different.

SheepDog-One's picture

Regular ol lead and copper bullets are just fine with me.

Silver Dreamer's picture

"Conversely, if the borrowing limit is not raised, then the Treasury would have to prioritize its payment obligations based on the available funds."

Isn't that exactly what all of us as individuals have to do on a regular basis already?  It's about time our government lived within its means too.

mynhair's picture

Goobermint has no frame of reference, though.  Be like having the E-trade baby run things.

Oh, it already is.

LongBalls's picture

But if they have to prioritize spending then they don't need as much money from you. Debt controls.

Xibalba's picture


mynhair's picture

It's saying there will be no deal, so no more supply.

Xibalba's picture

One would think that supply is just around the corner for those when they get downgraded, no?

mynhair's picture

No.  The supposed downgrade is really meaningless.  Was an article yesterday on the effects.

SheepDog-One's picture

Joey Bagodonuts! Alas, we hardly knew ye...

TruthInSunshine's picture

Joe Lavorgna jumped the Loch Ness Monster in a NASA Space Shuttle, riding shotgun with Sasquatch, with Elvis Presley & Hitler in the back seat, on a moonshot, bitchez.

PulauHantu29's picture

The Doctor Speaks....listen to him:

Many baby boomers now looking to sell out have to realize they are selling to a “poorer” generation.  Many are coming out with student loan debt levels that already rival that of a mortgage.  Given that many of the older generation run the money fountains (i.e., bank CEOs, politicians, the Ben Bernank) the focus is on protecting the problems of their generation.  Yet this narrow focus has only provided basically low mortgage rates and a false mantra that “real estate always goes up” but we now have many people waking up to this nonsense.  We no longer live in a cheap fuel world.  Younger generations may prefer mobility instead of the white picket fence dream which is rare to begin with in landlocked Southern California.

CrankyOldCreditGuy's picture

actually, if he is finally throwing in the towel, that may be the ultimate contrary indicator.....

slewie the pi-rat's picture

hey, crank_itGuy!

you know, unhnn,...people who fade my calls are extremely wealthy!

i wouldn't trust joe to be anything ultimate, here;  i don't care how much money he has lost.  he is out of his element. 

imagine the goobermint actually not being able to borrow any more money for a while.  say, forever.  now, there are gonna be some peeps in the civil service there who are gonna know exactly what they need to do to pull this off in their bailiwicks.  b/c they will apply common sense and rational thought.  the rest of the people will have no idea what is ging on, since they have never seen that appraoch before in goobermint. 

i think joe is in an analogous situ.  as an economist, he is a member of a profession which is subject to group delusional thinking.  they want to forecast next quarter GDP and the first question they ask is:  what would the professor like to hear? 

then, they have a little 3-sigma seance and joe has a 95% chance of coming out w/in .2% of the concensus.  just "randomly" which gives him the stats edge. 

joe finds dissonance humbling, i would say.  but such is life on the brink of the brinkmanship of a bona-fide growth recession.

what tf.  give the guy a break!  you know how these fat tails make the average guy look like he's never seen a black swan before, ever!

or consider 6 moronic sophomores taking a make-up test.  nobody studied, nobody knows shit, and they all cheat.  they all end up with the same answers.  the preofessor grades on an easy curve and they all experience new success as student achievers!

scratch_and_sniff's picture

He was bullish since 2008? jesus, what a clown. What mad bastard was bullish in those 3 years? pff, this world.

dwdollar's picture

Let's try to look past the BS.  If Q1 was +.4%, then the real numbers are negative for Q2 and probably for Q3.  We are technically in a recession right now, but of course, they won't admit that until QE3 is in full force.

RobotTrader's picture



Long bonds now in vertical meltup mode.

Is Bill Gross finally throwing in the towel on his bond shorts?

Man, that's gotta hurt.....

Bam_Man's picture

Price stability, bitchezzzzzz!

r101958's picture

......and the real fundamentals are.....what?

Dr. Engali's picture

People getting in ahead of qe3. watch the selling on the news when they announce it.

TickingTimeBomb's picture

Glad to see the biggest con and shill finally give up after the non-stop pump job of the market and the economy over the last couple years. Complete shill who deserves to be burned at the stake for his purposeful misdirection of the American public. 

RobotTrader's picture



Gold still strong, despite the shellacking of the XAU today.

Its a giant battle.  Which is the safer haven?  Gold or Uncle Gorilla notes??

Tough call..

r101958's picture

Gold looks a lot better and doesn't have flea ridden hair.