DOW: Oversold Bounce Time.

The Yen Carry Trade: Will They Put It Back On?

U.S. June Personal Spending Rises 0.1%; Core Prices Up 0.1%

" Consumer spending in the U.S. increased in June at the slowest pace in nine months as near-record gasoline prices and falling home values forced Americans to cut back.

The 0.1 percent rise in spending followed a 0.6 percent increase in May, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation rose less than forecast. "

Source: U.S. June Personal Spending Rises 0.1%; Core Prices Up 0.1% (http://www.bloomberg.com/apps/news?pid=20601087&sid=a8.tDAi8zqwg&refer=home)

U.K. Consumers Cut Back on Beer, Shoes as Mortgage Crunch Looms

" About 2 million discounts will end during the next 18 months, the council said. The wave of refinancing threatens to slow consumer spending, which has boosted U.K. economic growth almost every quarter for the past decade, and may hurt stocks of retailers such as Tesco Plc and Marks & Spencer Group Plc. "

This is the exact same thing as in the US. The teaser rates are coming to an end with the same consequences...

" Ben Craster says he'll be drinking less beer this summer, and Christine Baines is cutting back on clothes and cosmetics. They're among the millions of Britons preparing for a mortgage crunch. "

UK home owneres went on a borrowing and spending binge that rivals the one in the US.

" Britain's borrowing binge has helped keep its economy growing for 60 consecutive quarters. The ratio of consumer debt to income in the U.K. is 1.62, the highest in the G-7, according to the National Institute for Economic and Social Research in London. "

This excess has to unwind. Real estate prices will fall sharply, but the debt burden will remain. The economic consequences will significant and it will take many years to work this debt off.

" Surging house prices have buoyed consumer spending as home- owners borrow against the value of their properties. Central bank policy makers, led by Governor Mervyn King, said the economy may cool, "possibly quite sharply,'' later this year, according to minutes of the July 4-5 rate meeting. "

Source: U.K. Consumers Cut Back on Beer, Shoes as Mortgage Crunch Looms (http://www.bloomberg.com/apps/news?pid=20601109&sid=ajbnu9l2U8XA&refer=home)

Cheapest Stocks in 16 Years Draw Investors Amid Rout

What a great headline... until you read the article.

" Investors are preparing to snap up shares of telephone, health-care and computer companies after last week's $2.1 trillion global stock market rout left U.S. equities the cheapest in 16 years. "

Cheapest in 16 years? Easy money right? But wait, cheapest by what measure and why?

" The benchmark for American equity is valued at 15.5 times estimated profit, the lowest since January 1991, according to data compiled by Bloomberg. "

So its PE ratios we're talking about. More specifically forward PE ratios. Stocks are cheap based on current estimates of future earning's when compared to current prices. What if the 'E' part of the PE ratio is a little optimistic? These estimates are for growth far above trend and were made after record earnings growth over the last few years. A reversion to the mean alone would suddenly make a cheap market quite expensive. An actual recession, perhaps sparked by the capitulation of an over extended consumer, would really blow up this 'cheapest stocks' argument.

Where are the risks? With the largest real-estate correction since the 1930's and credit markets all shook up, where are the risks? Which surprises are most likely? To the upside or to the downside?

Factor in the possibility of a lost war in Iraq and things don't look nearly that 'cheap'.

Source: Cheapest Stocks in 16 Years Draw Investors Amid Rout (Update5) (http://www.bloomberg.com/apps/news?pid=20601010&sid=aAQku6WcPB90&refer=news)