Suddenly realism is back in fashion on Wall Street and in other parts of the business world. How else do you explain the sharp fall in markets here, in Europe and then the US overnight Thursday?

Or is it fear that profits built from trading furiously since March, often using cheap money from the Fed and other central banks worldwide, might be imperilled by the still struggling economy?

After all the same mixed parade of economic figures and surveys have been released in the past couple of days, higher Australian retail sales and property prices; Chinese and Australian manufacturing OK, as was France’s and Germany’s, but America’s fell a bit in a surprise, but was still quite solid.

European unemployment rose in August, but the rate of increase slowed; Japanese exports fell, but industrial production rose, but at a less convincing rate than expected; European consumer confidence picked up, but Japanese inflation is non-existent; its deflation as consumer prices (excluding food) fell at a record breaking annual rate of 2.4% in the year to August.

Personal spending in America rose in August because of the cash for clunkers car scrappage subsidised boom, which has promptly reversed itself in September with bailed-out giants GM and Chrysler badly hurt.

US unemployment benefits rose a week ago, but long-term jobless numbers eased again, not by much, but enough to continue the slow improvement. Tonight the September jobless and employment figures are released, if they are worse than forecast, markets will sell off.

But all in all, situation normal as the US and the world’s other economies continue to struggle out of the mire of recession. Up to the past week, that flood of figures would have been shrugged off and investors would have powered on chasing share prices higher and ignoring relative valuations and the odd growl of a bear.

But there seems to have been a souring in confidence: US bond rates hit a five-month low overnight with the 30-year security falling under 4% and the 10-year bond retreating to 3.2% as investors continued to buy US Government debt, despite the record amount on issue and being issued. Some analysts say its US and global banks (and some central banks) loading up on US bonds.

The way US bond yields are falling tells us that while there’s still a good deal of confidence about, more and more investors are having finding a safe haven for more and more of their cash.

As a result of this switch in attitude, Wall Street had its worst day since July with a 200-point fall, the S&P 500 was off more, 2.5%; major European markets fell by about 2% in many cases, Australia lost 1% in the last hour of trading Thursday.

Helping kick the US market lower was the realisation (which many knew but ignored), that the cash for clunkers car scrapping scheme was a bit of sleight of hand:

Car sales (and personal spending and retail sales surged in July and August during the scheme). Yesterday we found out that car sales fell sharply in September back to the depressed levels of a few months ago or an annual rate of about 9.1 million.

September saw an annual rate of sales of about 9.2 million, down from the 14.1 million rate in August (driven by the cash scheme) and around 12.6 million in September 2008.

US car sales fell more than 20% in September from a year ago, with GM sales down 45% and Chrysler’s 42%. Ford did a lot better, sales were only down 5% on a year ago and it lifted market share.

Honda’s sales were down 20% in the month; Toyota’s about 13% and Nissan, 7%. All three did well during the clunkers scheme.

The winner though was South Korean group, Hyundai, the sales of which jumped 27% in September after they rose strongly in August because of the scrappage scheme.

Just as foreign makers and small cars were the big winners from the scrappage scheme, Ford, plus foreign makers and small vehicles, were the best performers last month (Ford has more small cars than GM or Chrysler).