Northern Star Newsletter 2/23/2016
Message from Jon
Oil...is the rally for real or not?
The recent boost in the markets has been due to the rally in Oil these past several days. We have seen Oil rally back from $27.10 per barrel to $33.08 on the recent agreement between Russia, OPEC and now, IRAN to all agree to freeze production output at January levels. This has stabilized the speculation and caused a reversal of fortune in the commodity as of late. However, one might argue that this too is a false positive meant to stop the downward slide in oil and thus the bear-market entrenchment of the greater markets. What do you think happens when they agree to return to independent levels of outputs?
So I ask myself what has changed in the technicals of the markets that would require a renewed interest and an expectation to buy? Our short-term indicator has changed from bearish to neutral all the while our mid-term indicator has worsened (see below).
So now what?
It is customary to have the markets rally back after shedding about 12% in excess exuberance these past several weeks but that does not necessarily underlie a strengthening market condition over-all. As a matter of fact, when you consider the fact that our short-term indicator had made over 85 changes in 2015 alone, we are wise to remain cautious here.
The VIX is still above 20 (21.10) leading us to believe that although the fear in the markets have subsided a bit over the past several days, we still have an elevated level right now. Could this change...sure but for better or for worse?
Till we speak again, enjoy the nice weather!
Stocks Post Best Week of 2016
WEEKLY UPDATE - FEBRUARY 22, 2016
Markets closed out their best week of the year last week, buoyed by higher oil prices and positive economic data that reassured some recession worriers. For the week, the S&P increased 2.84%, the Dow grew 2.62%, and the NASDAQ added 3.85%.
After tumbling for weeks, oil prices stabilized close to $30/barrel after several major oil producers-including Saudi Arabia, Russia, Qatar, and Venezuela-announced their willingness to freeze production levels to fight low prices. It's not clear that the deal will go anywhere since other countries are refusing to participate. Since cutting production will only work if all or most oil producers commit to collective action, it's not certain that oil prices have ended their declines. However, the temporary pause was enough to give markets a boost.
A key barometer of prices in the U.S.- the Consumer Price Index - showed that core inflation rose 2.2% over the last 12 months. A modest rise is good news because it shows that there is demand pushing up prices. Demand means that the economy continues to grow. However, the increase is small enough that it's not likely to trigger another interest rate increase by the Federal Reserve any time soon.
On the negative side, the current manufacturing picture is bleak. Two reports released last week show that the manufacturing sector is still contracting, a victim of a decline in global demand for manufactured goods. However, some portions of the sector that depend on domestic demand are doing well.
The official minutes from January's Federal Reserve Open Market Committee meeting show that officials are concerned by how global risks may affect the domestic growth picture. This isn't news to investors, and markets didn't react very much to the release. Overall, the FOMC intends to be cautious in moving ahead with rate increases, though they are holding to their medium-term positive outlook on the U.S. economy. We're not likely to see a rate increase in March or April. Currently, the latest Wall Street Journal poll of economists shows June as the odds-on favorite for the next rate hike. We're not holding our breath.
The week ahead is packed with important economic data, including the second release of fourth-quarter GDP, consumer sentiment, international trade, and consumer spending. Will last week's optimism hold? Possibly, if we get more good news. However, it's likely that we'll see additional volatility in the days and weeks ahead.
Monday: PMI Manufacturing Index Flash
Tuesday: S&P Case-Shiller HPI, Consumer Confidence, Existing Home Sales
Wednesday: New Home Sales, EIA Petroleum Status Report
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, International Trade in Goods, Personal Income and Outlays, Consumer Sentiment
Housing starts drop in January. Groundbreaking on new homes fell 3.8%, surprising economists who expected to see a rise. Seasonal factors like the large blizzard that blanketed the East Coast could be responsible.
Jobless claims fall unexpectedly. The number of Americans filing new claims for unemployment benefits fell last week, pointing to renewed strength in the labor market.
Mortgage applications rise on lower rates. Falling rates on mortgages continue to drive purchase applications and refinancing activity. Applications for home purchases are up 30% over the same period last year.
Home builders may be losing confidence. An indicator of optimism among the nation's home builders shows that though current and future sales expectations are strong, a lack of labor and available lots may be dragging on future building.
Do You Owe Taxes On Your Social Security Benefits?
If you received Social Security benefits in 2015, you may have to pay federal income tax on part of your benefits. Here is how to determine if you need to pay taxes on your benefits:
If you received Social Security benefits in 2015, you should receive a Form SSA-1099, "Social Security Benefit Statement," showing the amount of your benefits. If Social Security was your only income in 2015, your benefits may not be taxable. If you receive income from other sources, you may have to pay taxes on some of your benefits.
A quick way to find out if you must pay taxes on your Social Security benefits is to add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
The three base amounts are:
$25,000 - if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015
$32,000 - if you are married filing jointly
$0 - if you are married filing separately and lived with your spouse at any time during the year
For more information about Social Security or filing your taxes, consult a qualified tax expert.
Tip courtesy of IRS.gov 
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