Manufacturing in China, the world"s fastest-growing major economy, contracted for a second straight month in August, according to a survey of purchasing managers.

The Purchasing Managers" Index was a seasonally adjusted 48.4, unchanged from July, the China Federation of Logistics and Purchasing said today in an e-mailed statement.

Since July, Chinese policy makers have put extra emphasis on sustaining the economy"s expansion rather than cooling inflation. Growth has slowed for four quarters and Vice Commerce Minister Gao Hucheng said last week that weakness in global demand will weigh on China"s exports for the rest of the year.

"This suggests economic growth will continue to slow," said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong.

The output index rose to 48.7 in August from 47.4 in July, while the index of new orders fell to 46 from 46.2. The index of export orders climbed to 48.4 from 46.7.

The index of input prices dropped to 57.8 from 71.3, "which may mean that producer prices have already reached a peak," said Lehman"s Sun.

In the past week, the energy markets have sold off steeply, even in the face of as-still-unknown damage from (a weaker than expected) Hurricane Gustav. If you were reading theoildrum.com of late, you have seen Kinetic Analysis Corp periodic updates on modeled damage/shut in production to Americas oil and gas facilities. Tonight another hurricane (of sorts) was announced in the financial press when CNBC reported that Ospraie, a $4 billion hedge fund partially owned by Lehman Brothers (and a major energy player), is closing it"s doors after being down nearly 40% in 2008 following a -26% August. While this example is possibly unrelated to the current energy market meltdown, it serves as a good example of what may be a continued theme in natural resource markets - their small size in relation to the nominal amount of dollars seeking financial returns. ...

I believe that based on fundamental deterioration in oil and gas fundamentals (e.g. hard to find, costlier to procure, etc.) that we are in a long term higher high, higher low, environment for energy prices, one not caused by speculators but by more people wanting something that is less available. However, speculators have a great deal of impact in very short time horizons.

I have no idea what Ospraie"s positions were other than the CNBC mention of bad bets in natural gas and copper, but in the letter to shareholders tonight, manager Dwight Anderson said this:

"The losses were primarily caused by a substantial sell-off in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past ten to twenty years."

We can surmise they were doing well along with everyone else until the end of June, which means they were likely very long everything, from energy futures to energy equities. Funds like Ospraie are usually levered at least 3 to 1. Peter Thiel"s Clarium Capital, one of the largest similar funds, has routinely had about 3 billion under management but is often reported to be carrying positions worth 9-12 billion. In general it"s nigh impossible to measure or quantify how these funds move price around when they start liquidating. What"s certain is that other players are sucked/forced into the moves, and the entire event gets magnified.

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