The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.

China’s retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI’s emerging-market index lost 1.5 percent, the biggest drop in two weeks.

The Shanghai index trades at 29.39 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 18.9 times profit.

The bond market isn’t buying all the optimism over the end of the global recession.

While the International Monetary Fund said last week the economic recovery will be faster than it forecast in July, investors pushed yields on government debt to the lowest level since April, according to the Merrill Lynch & Co. Global Sovereign Broad Market Plus Index. The gauge, which tracks $15.4 trillion of bonds worldwide, gained 0.73 percent this month, the most since 1.02 percent in March.

Bond yields are lower now than when Federal Reserve Chairman Ben S. Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming, that “prospects for a return to growth in the near term appear good.” European Central Bank President Jean-Claude Trichet said that while the economy is no longer in “freefall,” it faces “a very bumpy road ahead.”

Debt investors can’t see a recovery strong enough to spur central bank interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. will rise above 10 percent in the first quarter (at best…)

After stripping out the effects of the U.S. government’s “cash for clunkers” program to buy new cars, consumer spending was unchanged in July, according to Commerce Department data released on Aug. 28.

“The bond market does not believe we will see rapid robust rates of growth,” said Jeffrey  Caughron, from The Baker Group Ltd.,“The deleveraging of the consumer will act as a drag on growth, which will keep inflation to a minimum and interest rates relatively low.”

BRAIN cancer, diagnosed last May, killed Edward Kennedy on Tuesday August 25th. America’s liberal lion, had been ill and largely out of Senate action for months.

He did not fulfil the ambitions of his dynastic family by becoming president of the United States, as one brother did and as another might have, both victims of the assassin’s bullets, but he became a lion of the US Senate, liked and admired by friends and opponents alike.

Research house Variant Perception highlighted last week how Spanish property prices might be being artificially supported via the role banks play in the valuation process in Spain — the report essentially raising questions over whether assets were being fairly valued or not.

Economist Edward Hugh explains : 

Basically Spanish “escrituras de hipoteca” (or mortgage agreements) require that the “valor de tasacion” as well as the amount secured is specified in the deed. The “valor de tasacion” is in effect the valuation of the property and it is put in the deed so that the amount of the debt can never actually exceed the value of the assets being mortgaged.

However since the banks don’t know when they might need to “exercise” (or recover) the mortgage, they don’t really want to compromise themselves in advance, and the typical way of handling the problem legally is to state in the “escritura” (or title deed) that it is agreed that the “valor de tasacion” for purposes of “exercising” the mortgage will be equal to the total amount of the debt outstanding plus the rolled-up interest.

This is a very convenient solution for the banks, since it gives outsiders the impression that there is what one might call a valuation in the UK or US sense, when what is really involved is simply a formula applied in order to structure legal documentation

In that sense, Hugh points out, valuation processes in Spain differ significantly to those in the UK or US, being as they are the outcome of a machine-like calculating process more than anything else. Meanwhile, he adds, no one in their right minds would ever equate the values arrived at with the sums they would plausibly pay for the assets themselves…

“The most difficult phase for financing is going to be in the first and second quarter of 2010,” said Hartmut Schauerte, the economic state secretary.

“We are working as a government to create instruments that can offset a feared credit crunch or any credit squeeze in sectors of the economy,” he said

Mr Schauerte said firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove “very difficult”…

State support is likely to be concentrated on boosting the capital base of German firms and providing credit insurance for exporters, perhaps to the tune of €250bn to €300bn (£256bn). “If this service fails, we are going to see dozens of credit collapses,” he said.

Axel Weber, Bundesbank chief and a key figure at the European Central Bank, said over the weekend that the economy remained fragile and fundamental problems in the credit system had not been resolved.

So much for last GDP numbers and the “Green Shoots” !!!

Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.

The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

China’s central bank renewed its call for a new global currency in June and said theInternational Monetary Fund should manage more of members’ foreign-exchange reserves. Russian President Dmitry Medvedev last month illustrated his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations.

Is the World ready for a new Supra Currency ? And is US $ ready to lose its status ?

The number of foreclosure notices delivered to homeowners increased nearly 7% from June to July, and are up 32% from July 2008, according to Irvine, Calif-based RealtyTrac’s Foreclosure Market Report.

Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 360,149 US properties during the month, about one in every 355 households.

“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” RealtyTrac CEO James Saccacio said in a statement. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”  (HousingWire.com, August 13)

And remember that June to August are prime-time months for home sales. So the best news of the year for real estate will soon be behind us. As we move into September and beyond, what few gains have been reported of late – in no small part attributable to buying foreclosed properties on the cheap – are going to go into reverse.

La Rentrée will be tough…

Spain’s economy contracted more than forecast in the second quarter, suggesting a recovery in Germany and France has yet to reach a country that was once an engine of growth for the euro region.

Gross domestic product declined 1 percent from the previous quarter, when it shrank 1.9 percent, the Madrid-based National Statistics Institute said in an e-mailed statement today. From a year earlier, it contracted 4.1 percent. The Bank of Spain estimated on July 30 that the economy contracted 0.9 percent in the second quarter and 4 percent from a year earlier.

Spain’s recovery is lagging behind that of other European countries as data yesterday showed the German and French economies both resumed expansion in the second quarter. Battling the collapse of a domestic housing boom and Europe’s highest unemployment rate at 18 percent, Spain is using stimulus measures worth 2.3 percent of GDP to support the economy as it puts builders to work on public projects across the country.

“Until the end of 2010, we definitely see Spain continuing to under perform the rest of Europe,” said Giada Giani, an economist at Citigroup Global Markets in London from BLOOMBERG.

We still have a LONG, LONG way to go in Spain: For sure, we do not see any Green Shots !!!

European central banks agreed to a third five-year cap on gold sales and said planned disposals by the International Monetary Fund could be done within the accord.

The European Central Bank and 18 other banks agreed to sell no more than a combined 400 metric tons of the metal a year through September 2014. That’s less than the annual cap of 500 tons in the current agreement, which expires Sept. 26 said Bloomberg.

Central banks sold 73 percent less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the U.S. and Germany.

Gold is becoming very,very sexy…

Unlike other property busts, this downturn has not been driven by speculative overbuilding but by investors’ overenthusiasm. Commercial property was a popular asset class for much of this decade. Institutional investors who lost a lot of money when the dotcom bubble burst were persuaded that switching from the stockmarket into property would diversify their portfolios and reduce their risk. Cheap finance was plentiful. Investors could indulge in a version of the “carry trade”—borrowing at a low interest rate to buy buildings and counting on the rental yield and capital growth to more than cover their financing costs.

That strategy looked smart when rents and capital values were rising and vacancy rates were low. But as cheap financing has dried up and economies have tumbled into recession, investors have become badly exposed.

Are we going to follow the downturn of the Residential market ? Maybe its a déjà vu…