The markets are at the wildest they've been in a full decade. December was the worst month for both the Dow Jones Industrial Average and the S&P 500 Index since the Great Depression.
For a time, if the market dropped a few points, we'd laugh when the financial news brought out the "Markets in Crisis" graphics for what was just noise.
But things have gotten more serious. Repeatedly losing 600, 700, or 800 points in a day on the Dow makes for real worries.
A lot of people are talking about a coming recession and weakening economy, but that's all perception at this point. All the numbers tell us that the economy is still doing well.
Today, the economy is phenomenal. You wouldn't know it from watching the stock market, but we're running about 1% above our potential.
The pundits ignore the real warning sign today... debt.
Our federal deficit has exploded. We're running counter to the normal cycle. Typically when the economy booms, we pay down our debts. But today, we're not putting money aside for the bad times, and we're not paying down the debt...
Instead, we're squandering these good times when we should be using them as an opportunity to control our spending.
It's a historic and destructive divergence. My team and I worry there's no turning back. And I'm rarely worried.
This won't get fixed soon. You can't trade the federal deficit on a stock exchange. But this spending has its consequences... If we continue spending counter to the cycle in this way, trust in the United States – and its dollar – will begin to erode.
Depending on how badly that faith erodes... it could have terrible consequences for our economy and Americans' quality of life.
That's why next week, I'm airing an Urgent Market Briefing on Wednesday, January 23.
If you're concerned about what has caused the recent volatility in the markets...
And if you're interested in learning how to protect and grow your nest egg in 2019... it is critical that you attend.
Q: What about frozen vegetables? Can E. coli survive when frozen? If so, does microwaving kill E. coli? – J.K.
A: Frozen vegetables have roughly the same risks as fresh. While freezing can kill some of the bacteria, it mostly just causes them to become inactive. Once you thaw those veggies, the bacteria will start growing again.
As for using your microwave, that kills the bacteria just as it would on a stove or in an oven. The key is the heat and to cook frozen vegetables thoroughly by following the recommend cooking time on the package.
Q: You discussed stops regarding stocks; do you have suggestions regarding stops on options. I have struggled with knowing when to cut losses on options. – D.R.
A: Stop losses are an essential part of my options-trading strategy. In Retirement Trader, I recommend that people set stop losses between 20% to 25%.
Let's take a look at an example... In this case, we'll use a 25% stop loss for a covered call.
Say you sold May $25 covered calls on stock XYZ. You bought shares of XYZ for $25 and, because you're selling calls, you collect a premium of $1. That means your total outlay – basically what you spend to open the trade – is $24 (the $25 stock price minus the $1 you received in call premium).
Remember, though, that you are buying 100 shares for every call option you sell against the stock. So the total cost of your trade is $2,400.
To figure out the stop limit, just take the combined value of the position and multiply it by 75%.
In this case, the combined value was $2,400 (cost of the shares minus the premium income)... $2,400 multiplied by 75% is $1,800. This gives you an $18 stop loss.
Now, because you'll have to buy the call back to close out the trade, you have to take that into your calculation.
Let's say that the option is trading for $0.25. You'd need to spend $0.25 to buy back the option. So you'd want to close the trade if shares hit $18.25 to account for that $0.25.
The most important thing to remember is to sell when you hit your stop.
Q: The discussion/debate/argument is never ending in the family regarding coconut oil. Please share your words of wisdom about using coconut oil in both cooking and as a dry skin relief. Your reply may not end debate but will add well respected opinion. – E.E.W.
A: Over the last couple of years, lots of readers have asked about coconut oil. Here's my take: Coconut oil got a bad rap in recent headlines, but folks also overhype the benefits...
Coconut oil is a source of saturated fat, which increases inflammation. But not all saturated fats are the same, like fats that come from natural sources. That's why I've said before that you shouldn't limit foods like avocados, whole milk, and red meat just because of the saturated fats.
On the other hand, you have some folks touting coconut oil as a sort of miracle cure. We've seen a few promising studies that suggest coconut oil reduces inflammation in cases of arthritis and bowel disease, but we're still cautious. We want to see more long-term human studies.
Also, coconut oil isn't a good choice for cooking. The "smoke point" when dangerous chemicals form is too low for coconut oil. Regular olive oil is much safer to use when cooking. Read about it right here.
As far as dry skin goes, several studies find that coconut oil is an effective way to treat it. One small 2008 study even found that coconut oil reduces symptoms from eczema. The problem some people have is that coconut oil clogs their pores. So, it's usually best to avoid putting it on your face.
Editor's note: Our offices are closed for Martin Luther King, Jr. Day next Monday. Expect your next Health & Wealth Bulletin issue on Tuesday, January 22.
What We're Reading...
- Did you miss it? What the trade war means for your portfolio.
- Something different: How to see this weekend's super blood wolf moon.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
January 18, 2019