So we are about half way through the summer and it looks like the dog days of summer aren’t quite dog days.  The headlines state that it was the best July since 1987 so it’s something to celebate yet the market seriously seems to be at a point of fatigue but yet the valuation if we normalize earnings would still be between 980-1120 based on my analysis earlier this year.    Yet at this point the market’s move seems a bit irrational but at the same time it is a bit rational if it’s foreward looking.

But I heard a good argument about how it would be tough for the US to rebuild the lost consumption from an increase in the savings rate.  I will break it down a bit further into another post about the savings rate but this is a quick and dirty argument.  So let’s start with the 14 trillion dollar GDP which is about 70% driven by consumers so that amount to 9.8 trillion.  So let’s keep the math simple and say 10 trillion.  So the savings rate with peak earnings for 2007 and 2008 was 0.55% and 1.78% by my calculations.  Now let’s compare that to the average that I computed from the savings rate data from the St. Louis Fed was 6.84%.  Comparing just 2008 with the historical average of 6.84% (we just hit 6.9% recently on the last report in May 2009) then that would be about 5% decrease in spending.  Five percent of 10 trillion is 500 billion dollars in lost consumption for this year.  Imagine if savings rates increased more because of reduced credit and employment expectations and don’t forget the reduction in personal wealth.  The government spending is compensating at this point but there has to be another revenue engine for the economy in the future and as far as I can figure out.  Well there is the alternative energy economy that may help but further research in need to figure out what the contribution will be to offset the lose in the decline of the dirty energy economy. But yet the levels of the market at this point aren’t far fetched but in the short term, it just may be.

Well now on to business.  The week ahead we don’t have many major companies reporting but here is a summary is below.  But it seems that Kraft, Proctor & Gamble and Cisco will be the big earnings news to pay attention to as to news on the general economy in general.  I expect Kraft and P&G to be fine while Cisco should be fine as everyone is upgrading their networks 3G networks and working feverousily on their 4G networks.  I don’t expect Kraft or P&G to move the market but Cisco may have an affect on the Nasdaq.  But the biggest news will be initial jobless claims and the jobs report.  That will probably be the biggest mover of the market next week.  I noticed that the last two sessions as opposed to the last couple weeks, the marke thas been selling off so that may be not a good sign but we’ll see.  My portfolio has been suffering on trying to fade the market while my father’s IRA is up almost 30% for this year (his portfolio is holding McDonald’s only by the way).  Chalk another one up for buy and hold.

Monday, August 3:

Humana (HUM), Marathon Oil (MRO), MGM Mirage (MGM), Tyson Foods (TSN), Anadarko Petroleum (APC), Chesapeake Energy (CHK), Principal Financial Group (PFG)

Tuesday, August 4:

Archer Daniels Midland (ADM), CVS Caremark (CVS), Duke Energy (DUK), Emerson Electric (EMR), Entergy (ETR), Tenet Healthcare (THC), Kraft Foods (KFT), Whole Foods Market (WFMI)

*****Personal Income & Spending (June)… Pending Home Sales (June)

Wednesday, August 5:

Baker Hughes (BHI), Dean Foods (DF), Procter & Gamble (PG), Transocean (RIG), Allstate (ALL), Cisco Systems (CSCO), Prudential (PRU), Sunoco (SUN)

***ADP Employment Change (July)… Factory Orders (June)… ISM Services (July)

Thursday, August 6:

Comcast (CMCSA), DirecTV (DTV), Huntsman (HUN),  Thomson Reuters (TRI), CBS Corp (CBS), NVIDIA (NVDA)

***Initial Unemployment Claims (week ended Aug. 1)

Friday, August 7:

Edison International (EIX), Magna International (MGA)

Employment Report (July)… Consumer Credit (June)

This is the first of a weekly posting called Scenarios of the Week which is basically an outline of the possibly events that can dramatically alter the market.

Increased Fighting between Georgia and Russia:

• Rise in Oil prices because of dangers to oil routes
• Commodities rally and general markets fall
• Fall in airlines and transportations

Retails Sales are negative:

• Retailers may still rise because of lowered expectations
• Very little influence on market

China Inflation Date comes in low (expectations are for it to be high):

• Stocks rally due to expectations of continued global growth
• Chinese stocks rally

Dollar Falls in response to huge move:

• Commodities Rise
• Market and Financials Fall

Walmart Earnings on Thursday is Negative:

• Market Sell Off especially retailers

Disclosure: Short COF, GME, MAN, Long – CHK