Thursday, February 2, 2017

Rescue My IRA: January 2017 Results

Here we are two weeks into the Trump administration, and even though we’ve seen a little rally since November, I believe the market is facing headwinds from two factors. As I’ve continued to write since last fall, I believe that we’re in for a cyclical consolidation and possible recession this year, which is why I’ve increased my cash reserves in Rescue My IRA.

The first factor is the inevitable return to the mean after the 8-year recovery that followed the Great Recession of 2007.  The second is the impact from Trump’s plans for the American economy/GDP, based on what we already know: a reduction in consumption due to increased healthcare costs for the general public, and limited wages increases; a reduction in the rate of growth of the government contribution to the economy; and increasing interest rates due to increased federal deficit spending (that's what happens when expenditures are roughly the same but revenues are reduced due to tax cuts) - the net effect will be to crowd out or defer private sector investment. 

The near-term downside of the Rescue My IRA cash reserve strategy is that there is less money working for me in the market.  This month that fact explains why the S&P 500 and SPY benchmarks exceeded the RMI return – 1.79% vs. 0.62%, respectively.  As I wrote last month, for the early months of 2017, due to the large cash reserve I am holding, I expect that the account will lag the benchmarks, no matter whether the market is up or down. 

That said, here is the benchmark data for the account during January:     

Account Status:
·        Total Account Value, 1/31/2017: 185,945.12, up from the December close of $183,945.32
·        Total Cash Reserve, 1/31/2017:  $65,605.08, or about 35%
·        Core Stock Positions (as of 1/31/2017):  AAPL (100 shares), CMCSA (100 shares), CTL (300 shares), DIS (100 shares), FB (100 shares), GE (200 shares), GM (200 shares), IP (200 shares), KO (200 shares), MAS (300 shares), MDLZ (200 shares), MOS (200 shares), WRK (100 shares), XLV (100 shares)
·        Cash Secured Put (CSP) positions (as of 1/31/2017):  FB 125 3 Feb 2017

Performance Metrics:
·        Option Premiums Collected (net, month of Jan):  $617.94 (0.34%)
·        Capital Gains Collected (net, month of Jan):  -$545.65 (-0.30%)
·        Dividends Collected (recognized on the ex-date): $30.00 (0.02%)
·        Estimated Interest on Cash Reserve: $0.20
·        Total, Absolute Return:  $102.49 (0.06% absolute return, estimated annualized return 0.67%) 
·        S&P 500 Index 2017 year to date performance as of 1/31/2017: 1.79%
·        SPY ETF year to date performance as of 1/31/2017:  1.79% 
·        Rescue My IRA year to date performance as of 1/31/2017: 0.62%

Next Month To-dos: 
In keeping with past practice, during 2017, whenever a return percentage is shown in the monthly forecast, it is calculated using the December 31, 2016 account valuation.  Also, the forecast and actual returns are always calculated on a “net of commissions and fees” basis, since these are costs that lower the amounts I receive. 

For February, there are six positions that will go ex-dividend, yielding an estimated $439.50 in dividends, or about 0.24% of the account’s January 1 value.  There are two February in-the-money positions and the rest are in back months.  For sensitivity analysis, if the two Feb ITM positions, IP and MOS are called away, the dividend take reduces by $147.50, and the overall yield is reduced to 0.16%. 

At the start of the month, there were eight positions with expirations in February.  Two of those have already been rolled out at the time of this writing, and I unwound a third position for a loss on February 1.  At this time Rescue My IRA has February in-the-money positions in CMCSA, FB, MDLZ, MOS, and IP, and a February out-of-the-money position on XLV.  The unwound position was QCOM, which was a loss; at this time the net of stock gains forecast is -$379.85, or 0.21% of the January 1 value.     

For now, these estimates add up to a return of about 0.19%, or 2.22% annualized.  At the end of the month, that is sure to change, because there will be a decent amount of options activity due to all the position exits.  I will keep about 65% of the account value in stocks – that is a moderate outlook for me, not quite bearish, but certainly aware of and managing potential risks in the market.      

That is the January update.  Until next month, happy trading!

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