For the week, the Dow shed 0.3% (down 12.3% y-t-d) and the S&P500 declined 0.5% (down 12%). The Transports fell 1.9% (up 10.6%), while the Utilities rose 2.3% (down 11.3%). The Morgan Stanley Cyclical index dropped 2.2% (down 12.5%), and the Morgan Stanley Consumer index declined 1.6% (down 5.6%). The small cap Russell 2000 fell 2.1% (down 3.7%), and the S&P400 Mid-caps declined 0.8% (down 5.0%). The NASDAQ100 declined 1.3% (down 7.4%), and the Morgan Stanley High Tech index fell 1.9% (down 7.6%). The Semiconductors sank 2.7% (down 10.3%). The Street.com Internet Index lost 1.0% (down 4.6%), and the NASDAQ Telecommunications index dipped 0.8% (down 1.0%). The Biotechs were hit for 3.5%, reducing y-t-d gains to 8.3%. The Broker/Dealers sank 3.2% (down 29.8%), and the Banks lost 3.2% (down 27.7%). With Bullion rallying $37, the HUI Gold index jumped 8.7% (down 16.3%).

One-month Treasury bill rates fell 6 bps this week to 1.69%, and 3-month yields sank 17 bps to 1.70%. Two-year government yields added one basis point to 2.40%. Five-year T-note yields increased 3.5 bps to 3.135%, and 10-year yields rose 3 bps to 3.87%. Long-bond yields were unchanged at 4.465%. The 2yr/10yr spread increased 2 bps to 147 bps. The implied yield on 3-month December '09 Eurodollars rose 3.5 bps to 3.69%. Benchmark Fannie MBS yields declined 2 bps to 5.94%. The spread between benchmark MBS and 10-year Treasuries narrowed 5 to 207 bps. The spread on Fannie's 5% 2017 note narrowed 15 bps to 66 bps, and the spread on Freddie's 5% 2017 note also narrowed 15 bps to 66 bps. The 10-year dollar swap spread declined 2.25 to 72. Corporate bond spreads were mostly wider. An index of investment grade bond spreads widened 7 to 141 bps, while an index of junk bond spreads declined to 567 bps.

August 22 - Bloomberg (Gabrielle Coppola): "U.S. corporate bond sales slowed to the lowest level in seven weeks as the extra yield investors demand to own investment-grade bonds rather than government debt reached record highs. Borrowers raised $2.82 billion, compared with $16 billion last week and $28 billion in the same time last year."

Investment grade issuance this week included 3M $850 million, Bank of New York $750 million, and Duke Energy $500 million.

I saw no junk, convertible, or international dollar issuance this week.

German 10-year bund yields rose 5 bps to 4.22%. The German DAX equities index fell 1.6% (down 21.4% y-t-d). Japanese 10-year "JGB" yields declined 1.5 bps to 1.44%. The Nikkei 225 sank 2.7% (down 17.3% y-t-d). Emerging markets were mostly on the defensive. Brazil's benchmark dollar bond yields increased 1 bps to 5.93%. Brazil's Bovespa equities index rallied 3.0% (down 12.6% y-t-d). The Mexican Bolsa fell 1.7% (down 9.0% y-t-d). Mexico's 10-year $ yields added one basis point to 5.67%. Russia's RTS equities index was smacked for 4.7% (down 25.7% y-t-d). India's Sensex equities index declined 2.2%, boosting y-t-d losses to 29%. China's Shanghai Exchange index dropped 1.9%, with 2008 losses rising to 54.3%.

Freddie Mac 30-year fixed mortgage rates declined 5 bps to 6.47% (up 2 bps y-o-y). Fifteen-year fixed rates fell 7 bps to 6.00% (down 12bps y-o-y), while one-year ARMs rose 11 bps to 5.29% (down 55bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 13 bps this week to 7.40%.

Bank Credit jumped $39.7bn to $9.431 TN (week of 8/13). Bank Credit has expanded $218bn y-t-d, or 3.7% annualized. Bank Credit posted a 52-week rise of $703bn, or 8.1%. For the week, Securities Credit surged $29.3bn. Loans & Leases gained $10.4bn to $6.937 TN (52-wk gain of $533bn, or 8.3%). C&I loans declined $2.0bn, with y-t-d growth of 7.9%. Real Estate loans advanced $9.3bn (up 2.1% y-t-d). Consumer loans slipped $1.7bn, while Securities loans gained $10.9bn. Other loans dropped $6.1bn.

M2 (narrow) "money" supply expanded $7.0bn to $7.728 TN (week of 8/11). Narrow "money" has expanded $265bn y-t-d, or 5.8% annualized, with a y-o-y rise of $434bn, or 5.9%. For the week, Currency dipped $0.3bn, and Demand & Checkable Deposits sank $24.4bn. Savings Deposits jumped $27.8bn, and Small Denominated Deposits increased $6.8bn. Retail Money Funds declined $2.7bn.

Total Money Market Fund assets (from Invest Co Inst) declined $1.5bn to $3.573 TN, with a y-t-d increase of $460bn, or 23.3% annualized. Money Fund assets have posted a one-year increase of $796bn (28.7%).

There was little Asset-Backed Securities (ABS) issuance this week and no CDO issuance. Year-to-date total US ABS issuance of $120bn (tallied by JPMorgan's Christopher Flanagan) is running at 26% of comparable 2007. Home Equity ABS issuance of $303 million compares with 2007's $216bn. Year-to-date CDO issuance of $18bn compares to the year ago $266bn.

Total Commercial Paper outstanding jumped $40.5bn this week to $1.787 TN, pushing y-t-d totals to a $1.8bn gain. Asset-backed CP rose $24.6bn last week to $749bn, reducing 2008's decline to $23.7bn (4.7% annualized). Over the past year, total CP has contracted $255bn, or 12.5%, with ABCP down $320bn, or 29.9%.

Fed Foreign Holdings of Treasury, Agency Debt last week (ended 8/20) increased $10.9bn to $2.406 TN. "Custody holdings" were up $349bn y-t-d, or 26% annualized, and $419bn y-o-y (21.1%). Federal Reserve Credit expanded $4.6bn to $888bn. Fed Credit has expanded $14.1bn y-t-d (2.5% annualized) and $36.0bn y-o-y (4.2%).

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $1.287 TN y-o-y, or 22.6%, to $6.973 TN.

Global Credit Market Dislocation Watch:

August 22 - Bloomberg (Kevin Hamlin): "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. 'If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,' Yu said... 'If it is not the end of the world, it is the end of the current international financial system.'"

August 19 - Bloomberg (Jody Shenn): "Freddie Mac, the second-largest U.S. mortgage-finance company, sold five-year reference notes at its highest yields over benchmarks in at least 10 years as demand from Asian investors fell. The $3 billion of debt... was priced to yield 4.172%, or 113 bps more than U.S. Treasuries of similar maturity... The... company last sold five-year notes in May at a yield of 3.751%, a spread of 69 bps."

August 20 - Bloomberg (Dawn Kopecki): "Fannie Mae and Freddie Mac's success in repaying $223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bailout. Fannie... has about $120 billion of debt maturing through Sept. 30, while... Freddie has $103 billion... Rolling over the debt 'is the single most important factor to their ability to remain liquid,' said Moshe Orenbuch, an analyst at Credit Suisse... 'So far, they've been able to do that.' Investors in Asia, the biggest foreign owner of Fannie's $3 trillion of bonds, are reducing their share of purchases, potentially increasing the need for Paulson to make good on his pledge to backstop the companies. 'This whole backstop mechanism was set up so the actual need for it could be avoided,' said Mahesh Swaminathan, a mortgage strategist for Credit Suisse... 'The market is testing the Treasury's resolve.'"

August 19 - Financial Times (Paul J Davies): "The gloomier outlook for corporate debt in the US and Europe is turning a spotlight on another banking business that exploded during the credit boom, growing from next to nothing into a trillion-dollar industry in little more than four years. Repackaging credit derivatives to create leveraged investments was a tiny business in the early years of this decade, but between late 2003 and the middle of last year analysts estimate that between $1,000bn and $1,500bn worth of these deals were sold. The products in question are synthetic collateralised debt obligations. Now, after a year of highly volatile credit markets and with rating agencies under pressure to tighten up their standards across complex structured products, there is growing talk about how to deal with a problem that has the potential to be very expensive. The systemic increase in risk premiums or spreads in credit derivatives markets means that the values of synthetic CDOs could be less than 50 cents in the dollar, even if the underlying portfolio is relatively high quality, according to analysts at Lehman Brothers."

August 19 - Financial Times (Francesco Guerrera and Aline van Duyn): "Battered US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push banks' funding costs higher and curb their profitability, say bankers and analysts. The banks' need to raise capital to offset mounting credit related losses is forcing them to pay higher interest rates to entice investors... Mohamed El-Erian... said: 'If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.' Last week, financial groups including Citigroup, JPMorgan Chase and American International Group borrowed almost $20bn in new long-term debt, paying some of the highest premiums yet to lock in funding... Adding together 10 of the biggest bank borrowers, Dealogic said that maturing bonds totalled $27bn in August, $52bn in September, $23bn in October, $20bn in November and $86bn in December."

August 19 - Bloomberg (Esteban Duarte): "The European Central Bank said it increased lending to banks in Europe last week. The ECB loaned banks 476 billion euros ($697bn) through monetary operations, compared with 460 billion a week earlier... It said 176 billion euros were lent in the main refinancing operation and 300 billion euros in longer-term auctions."

August 19 - Bloomberg (Shamim Adam): "A large U.S. bank may fail in the coming months as the global credit turmoil continues to hurt financial markets, said Kenneth Rogoff of Harvard University, a former chief economist at the International Monetary Fund. 'The worst is yet to come in the U.S.,' Rogoff said... 'The financial sector needs to shrink. I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job. We're really going to see a consolidation even among the major investment banks.'"

August 18 - Bloomberg (Bryan Keogh): "Companies have sold $9.1 billion of high-yield, high-risk bonds since the end of May, the slowest U.S. summer since 1994, according to JPMorgan Chase... Sales of speculative-grade debt in 2007 from June through August totaled $29.7 billion..."

August 8 - Dow Jones: "There were no recorded European high-yield bond deals in the first half of 2008 as the primary market remains virtually frozen in the wake of the credit crunch, European High Yield Association data showed... The lack of activity compares with the EUR35 billion of high-yield bonds issued in the first half of 2007... The EHYA data also showed that leveraged loan issuance fell to EUR35.3 billion in the first half of 2008 from EUR187.7 billion in the first half of 2007."

August 22 - Bloomberg (Mark Pittman and Shannon D. Harrington): "Midwest Bank Holdings Inc. Chief Investment Officer Don Wiest is wagering U.S. Treasury Secretary Henry Paulson will rescue him from a failing $67 million stake in Fannie Mae and Freddie Mac. Melrose Park, Illinois-based Midwest and banks from Philadelphia-based Sovereign Bancorp to Frontier Financial Corp. in Everett, Washington, own preferred shares in the beleaguered mortgage-finance companies that have lost more than half their $35 billion value since June 30... 'I guess we are betting on Paulson,' Wiest, 54, said. 'We have to believe that his plan carries the day somehow.'"

Global Inflation Turmoil Watch:

August 19 - Bloomberg (Nasreen Seria): "Zimbabwe's inflation rate surged to a record 11.2 million percent in June, the highest in the world, after almost a decade of recession worsened food and fuel shortages. Inflation accelerated from 2.2 million percent in the previous month... The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash... 'The economy is in complete meltdown,' Victor Munyama, an economist at Standard Bank Group Ltd., Africa's biggest lender, said... 'There is a shortage of foreign exchange and they don't have the resources to import raw materials to sustain production. That's the bottom line.'"

August 19 - Bloomberg (Mark Gilbert): "Rising prices and increases in joblessness are making life more miserable in the euro area, the U.S., the U.K. and Japan. The chart of the day shows their misery indexes, calculated by adding together the unemployment rate and the annual rate of inflation... Japan's index is at its highest level since November 1990, while the U.K. index hasn't been this high since August 1997. Misery in the euro area is the worst in four years. Economist Arthur Okun, an adviser to U.S. President Lyndon Johnson, came up with the misery index in the 1960s. 'It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country,' according to the miseryindex Web site..."

August 19 - New York Times (Seth Mydans): "Even the ghosts are suffering from inflation in Vietnam this year. August is the month when Buddhists provide the hungry ghosts of the dead with food and wine and cigarettes and paper offerings that represent the good things in life - cars, houses, motorbikes, stereo sets, fancy suits of clothes. But like everything else in Vietnam, these brightly colored offerings have risen steeply in price and shopkeepers say people are buying fewer gifts to burn for the dead than ever before. With inflation rising to 27% last month - the highest in Asia - and food prices rising to 74% above those a year ago, Vietnam is suffering its first serious downturn since it moved from a command economy to an open market nearly two decades ago."

August 21 - Bloomberg (Paul Okolo): "Nigeria's annual inflation rate rose for the fourth consecutive month in July to 14%, the highest level since November 2005, on gains in food prices."

August 20 - Bloomberg (Maria Levitov): "Russian inflation reached 9.5% in the year through Aug. 18..."

Currency Watch:

The dollar index declined 0.5% to 76.805. For the week on the upside, the Canadian dollar increased 1.4%, the South African rand 0.8%, the Swedish krona 0.6%, the Norwegian krone 0.3%, and the Euro 0.1%. For the week on the downside, the South Korean won declined 1.2%, the British pound 0.8%, the New Zealand dollar 0.6%, the Australian dollar 0.6%, and the Swiss franc 0.6%.

Commodities Watch:

Gold recovered 4.7% to $823 and Silver 5.5% to $13.59. September Crude increased 89 cents to $114.59. September Gasoline added 0.3% (up 15.9% y-t-d), while September Natural Gas fell 2.9% (up 4.8% y-t-d). September Copper jumped 4.2%. September Wheat gained 5.0%, and August Corn surged 10.7%. The CRB index gained 3.3% (up 10.1% y-t-d). The Goldman Sachs Commodities Index (GSCI) rose 1.7% (up 16.6% y-t-d and 46.6% y-o-y).

China Watch:

August 19 - Bloomberg (Kevin Hamlin): "China's government is considering spending as much as 400bn yuan ($58 billion) to stimulate the economy and may ease monetary policy this year, said Frank Gong, head of China research at JPMorganChase... Measures would include tax cuts, stabilizing capital markets and supporting the housing market... Since July, Chinese policy makers have put extra emphasis on sustaining growth rather than cooling inflation... 'The top leadership is carefully considering an economic stimulus package,' Gong said."

August 20 - MarketNews International): "China's enterprise commodity price index... moderated for a second month in a row, easing to 9.4% year-on-year in July from the 9.5% rate recorded in June, according to the People's Bank of China. For the first seven months, wholesale prices rose 9.5% year-on-year..."

August 19 - Bloomberg (William Bi): "China's Sichuan province will need 37 million tons of steel and 370 million tons of cement to rebuild towns, roads and factories damaged by the nation's most powerful earthquake in 50 years, the local government said."

August 19 - Bloomberg (William Bi and Li Xiaowei): "China's Sichuan province will need the equivalent of 27% of the country's annual cement output to rebuild after the nation's worst earthquake in more than five decades, the local government said. The southwestern province will need 370 million metric tons of cement and 37 million tons of steel in the next three years, Vice Governor Huang Yanrong said today... Over a trillion yuan ($146 billion) is needed to rebuild Sichuan... 'Both investment scale and consumption demand will be expanded' with the rebuilding, Huang told reporters..."

India Watch:

August 19 - Bloomberg (Kartik Goyal): "India's central bank may have to further raise interest rates as inflation at a 16-year high damages the government ahead of elections due by May, according to the finance ministry's top economist. 'The political system doesn't tolerate inflation beyond a certain point,' the ministry's Chief Economic Advisor Arvind Virmani said... 'Monetary policy has to focus on inflation...' 'The government's focus now is clearly on inflation control,' said Ramya Suryanarayanan, an economist at DBS Bank... 'Inflation hurts the poor more disproportionately and has a political significance in India.'"

Unbalanced Global Economy Watch:

August 19 - Financial Times (Christopher Mason): "In the early days of the US credit crisis, Canada remained confident that commodity prices and stable consumer spending would allow it to escape the worst of the downturn in spite of the ties that link the two economies. But this confidence is waning as evidence grows that the gloss is coming off the Canadian economy... 'There are troubling signs that we are beginning to see the economy buckle," said Douglas Porter, deputy chief economist at BMO Capital Markets....More than 80% of Canadian exports go to the US... Housing starts were down nearly 14% in July from the previous month, home resale values have fallen in the past two months..."

August 19 - Dow Jones: "U.K. inflation expectations soared to a 16-year high in the third quarter, underscoring the risk that above-target price growth could damage the credibility of the central bank's inflation target. Barclays Capital's BASIX survey found that the median rate of inflation expected by respondents over the next 12 months was 4.7% - up from 4.4% in the second quarter and the highest level since January-March 1992."

August 20 - Bloomberg (Jennifer Ryan): "Britain's government budget surplus shrank in July as the economic slump sapped tax receipts, putting Prime Minister Gordon Brown at risk of breaking decade- old borrowing rules. The 4.8 billion-pound ($8.9 billion) surplus was the smallest for the month since 2005... In the first four months of the fiscal year, the deficit was 19.1 billion pounds, 10.7 billion more than a year earlier."

August 19 - Bloomberg (Gabi Thesing): "German producer-price inflation accelerated to the fastest pace since October 1981 last month... Prices for goods from newsprint to plastics increased 8.9% from a year earlier after rising 6.7% in June..."

August 20 - Wall Street Journal (Anna Molin): "With a slowdown in Denmark's property market pushing the country to the brink of recession, some banks in the country face an uncertain future as credit losses and write-downs on loans to property developers eat into earnings. Denmark's smaller banks have been the main victims, with at least two teetering near collapse. But several industry participants warn the troubles could soon make a bigger impact on the region's larger banks and, in the longer term, lead to more mergers among the top dozen or so financial institutions."

August 19 - MarketNews International: "New Zealand producer prices rose at their fastest pace in more than 20 years in the second quarter... Producers' input prices, the cost of goods and services excluding labor at the farm and factory gate, rose 5.6% on the previous quarter, output prices were up 3.5%..."

Bursting Bubble Economy Watch:

August 19 - Bloomberg (Timothy R. Homan): "Prices paid to U.S. producers in July rose double the amount economists projected and increased the most in 27 years from a year earlier... The 1.2% increase in the producer price index followed a 1.8% jump the prior month... Producers paid 9.8% more for goods from July 2007, the biggest year-over-year gain since June 1981..."

August 20 - Associated Press: "The Tennessee Valley Authority has approved its largest electric rate increase in more than 30 years. The 20% hike will affect millions of customers across the TVA's seven-state region. The change will raise monthly bills between $15.80 and $19.80 for the average residential customer beginning Oct. 1."

MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:

August 19 - Bloomberg (Jody Shenn): "Collateralized debt obligations experienced so-called events of defaults at a faster pace in early August, with a commercial-mortgage CDO joining the list, according to JPMorgan Chase... Seven mortgage-linked CDOs experienced default events, indicating even the senior-most classes may not be repaid in full... Monthly additions to the $229 billion of defaults since mid-2007 peaked with 47 in February, the report said. 'Unwind fears,' including concern that CDOs will dump their holdings, have pushed asset prices lower, the report said. Typical yields on AAA rated slices of collateralized loan obligations over the London interbank offered rate are at a record 2.25 percentage points, up 1.30 percentage point this year, the report said... 'We have been expecting the next wave of EODs to come with further downgrade activities on the horizon,' the analysts... led by Chris Flanagan wrote. CDOs repackage assets such as mortgage bonds, loans and derivatives into new securities with varying risks. CLOs repackage buyout loans and other high-yield corporate debt."

Real Estate Bust Watch:

August 20 - Bloomberg (David M. Levitt): "U.S. Commercial real estate prices fell for a fourth straight month in June, bringing values to 11.8% below their October 2007 peak, Moody's said... Prices of office, retail, industrial, and multifamily properties all fell as measured by the Moody's/REAL Commercial Property Price Indices, and each was the largest decline since Moody's started tracking them separately in 2000..."

August 21 - Bloomberg (Peter Woodifield): "London developers are adding the equivalent of 160 trading floors of office space in the main financial district in the next two years. Their timing couldn' be worse. Prices for offices in the City of London have plunged 25% since last August, the biggest drop since 1992..."

GSE Watch:

August 19 - Bloomberg (Maria Ermakova): "The Russian government has earned more than $1 billion over the past six months by investing in Fannie Mae and Freddie Mac bonds, Interfax reported, citing Finance Minister Alexei Kudrin."

Speculator Watch:

August 20 - Bloomberg (Tomoko Yamazaki and Komaki Ito): "Hedge funds worldwide declined in July... according to Eurekahedge. The Eurekahedge Hedge Fund Index, which tracks the performance of 2,407 funds that invest globally, declined 2.3%, based on preliminary figures..."

August 20 - Wall Street Journal (Jenny Strasburg): "Andor Capital Management LLC, a hedge fund controlling about $2 billion in assets that was spun off from Arthur Samberg's Pequot Capital Management Inc. in 2001, is closing down and returning money to investors... Andor's stock fund has lost money this year amid the market turbulence that has caused troubles for many hedge funds."

August 22 - Bloomberg (Miles Weiss): "Hedge-fund manager David Tepper bought $2.4 billion of oil and gas stocks in the second quarter, shifting 79% of his U.S. equity holdings into energy from less than 1% three months earlier. Tepper, who runs Appaloosa Management... acquired new stakes in 18 energy companies.... Stanley Druckenmiller's Duquesne Capital Management LLC in Pittsburgh, Daniel Loeb's Third Point LLC and Jeffrey Altman's Owl Creek Asset Management LP also loaded up on energy stocks in the quarter, according to SEC filings. 'A lot of funds have been caught long on crude,' said Peter Fusaro, chairman of Global Change Associates...that tracks 700 hedge funds that make energy- related investments."

Muni Watch:

August 19 - Associated Press (Bill Kaczor): "Florida Gov. Charlie Crist said... he plans to tap reserves to cover part of a predicted $1.47 billion state budget deficit, but not the entire shortfall. State economists Friday issued a new forecast that reduced their revenue estimate for the current budget year by $1.8 billion..."

August 20 - Wall Street Journal (Tom Herman): "And to think they used to call it 'Taxachusetts.' On Election Day, Massachusetts will vote on whether to eliminate its state income tax. Advocates hope victory in a place long thought of as a free-spending liberal bastion will pave the way for similar initiatives in other states over the next few years. Critics insist a yes vote would lead to fiscal disaster. While Americans are focusing on the presidential and congressional races, voters in Massachusetts and other states will decide the fate of dozens of state and local tax and spending issues."

California Watch:

August 19 - Wall Street Journal (Justin Scheck): "California's months-long budget standoff hit a low Sunday night when an emergency State Assembly meeting failed to produce a compromise between Democrats and Republicans over how to compensate for a shortfall exceeding $15 billion. At issue is the Democrats' proposal to make up for the deficit largely by increasing taxes on California's wealthiest residents -- a plan that Republicans oppose. In a vote Sunday, not a single Assembly Republican voted for the plan to raise $6.7 billion in revenue largely through income-tax increases. Republicans account for 32 of the assembly's 80 seats, but California requires that two-thirds of the legislature approve the budget. 'We're fundamentally saying 'no tax increases,' said Mike Villines, the Assembly Republican leader. If the tax standoff continues, California state workers could have their pay reduced to minimum wage, and the state could be forced to take out high-interest loans to fund ongoing operations."

August 19 - DataQuick: "The number of Southern California homes sold last month edged up to its highest level in more than a year as bargain hunters swept up foreclosure properties in affordable neighborhoods... 'What we're looking at is a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages. What we're still not seeing is this level of distress spreading to more expensive or established neighborhoods,' said John Walsh, MDA DataQuick president. The median price paid for a Southland home was $348,000 last month, down 2.0% from $355,000 in June and down 31.1% from $505,000 for July 2007. That peak of $505,000 was reached in March, April, May and July of last year."

August 20 - DataQuick: "Bay Area home sales eked out their first year-over- year gain since early 2005 last month... Sales of distressed properties played a major role in most areas logging annual sales gains last month. Foreclosure resales... made up 33% of all resales. That was up from 29.9% in June and 4.2% in July 2007. Foreclosure resales ranged from 4.6% of the resale market in San Francisco to 65.9% in Solano County."

August 19 - Bloomberg (Dan Levy): "San Francisco Bay Area home sales rose in July for the first time since 2005 and the median price fell... 29.3% to $470,000, the lowest since March 2005."

New York Watch:

August 19 - Bloomberg (Henry Goldman and Michael Quint): "New York's Legislature will meet today at Governor David Paterson's request to consider a menu of spending cuts totaling $1 billion aimed at narrowing a $6.4 billion budget gap anticipated next fiscal year. While the Democratic-controlled Assembly favors higher income taxes for millionaires, Republicans who control the Senate say they are against any increase and oppose cutting health care, education or the workforce. Paterson has asked lawmakers to trim expenditures in the $121.3 billion budget before weighing higher taxes. 'What we're going to find out in the very near future is that we may have to do all of these things,' Paterson said... The state's fiscal situation is 'more dire' than at any time since the Great Depression of the 1930s, he said."

August 20 - Bloomberg (Michael Quint and Henry Goldman): "New York Governor David Paterson and leaders of the state legislature agreed late last night on a plan to cut spending by $1.14 billion next fiscal year and help shrink a projected $6.4 billion budget deficit.... Declining tax collections from banks and securities firms have created what Paterson called New York's most serious financial crisis since the 1970s."

Crude Liquidity Watch:

August 19 - Bloomberg (Alex Nicholson): "Russia's federal budget took in almost 40% more money from taxes through July as the world's biggest crude oil and natural gas producer benefited from high export prices. The budget received 2.7 trillion rubles ($110 billion) in taxes in the first seven months of the year, a 39.6% increase compared with the same period in 2007..."

August 19 - Bloomberg (Maria Levitov): "Gulf Cooperation Council states must work to bring down inflation if they are to complete monetary union by 2010, said Nasser Saidi, chief economist at the Dubai International Financial Centre... 'Inflation should be the priority item on the agenda,' Saidi said... Once monetary union is achieved the Gulf central bank should adopt inflation targeting and create the monetary tools to achieve its goals, he said."

August 21 - Bloomberg (Matthew Brown): "The Middle East had the highest hotel occupancy and average room rates in the world in the first half of the year, Deloitte & Touche LLP said. Occupancy was 75.3% in the first half compared with 68.7% in the previous six months... The average room rate rose 14.1% to $180."