Our new interactive ETF Trends tool lets investors monitor ETFs across asset classes from a trend and timing perspective.  Ten days ago on December 8th, we noted that a number of commodity ETFs had moved into extremely oversold territory.  A snapshot of these oversold levels is shown below from the 8th:

Since then we’ve seen an upside mean reversion trade for those commodity ETFs that had gotten oversold.  While most of them are still oversold as of today, they have rallied higher from their recent depths.  At the same time, the few commodity ETFs that were on the overbought side have moved down into neutral territory.

Try out our ETF Trends tool with a Premium or Institutional membership using our 2018 Annual Outlook sign-up special.

In last week’s B.I.G. Tips report on Retail Sales for the month of November, we noted that the internals of the report were “suggesting strength in the housing sector.”  That idea was confirmed in the just-released December Homebuilder sentiment survey from the NAHB.  While economists were expecting homebuilder sentiment to increase slightly from 69 to 70, the actual increase was much higher to 74.  To put that reading in perspective, going all the way back to the report’s inception in 1985, there have only been six other months where the index was higher, and they were all back in 1998 and 1999.  In other words, homebuilders are currently more optimistic than they were at any point during the housing bubble that peaked in 2005.

Looking at the internals of this month’s report, practically every metric was strong.  Present and Future sales, as well as Traffic all saw healthy gains, with both Present Sales and Traffic surpassing their highs from the bubble.  In terms of regional sentiment, we also saw healthy gains in every region except the Northeast where sentiment dropped by a rather large eight points.  This leads one to ask if this is the first example of side effects of the GOP tax plan showing up in economic data.  Given the generally high real estate taxes in this part of the country, it is expected to be among the most negatively impacted by the plan working through Congress.

The chart below shows the regional breakdown in sentiment over time.  Here, it is interesting to note that the only region of the country where sentiment is higher than its peak at the bubble is the Midwest.  The South (75 vs 77) and Midwest (85 vs 91) are relatively close, but not quite there, while sentiment in the Northeast remains well off its prior highs (53 vs 74).  As a final note with regards to the large drop in sentiment for the Northeast, we would note that November’s reading did see a big spike, so December’s decline may have just been a little bit of giveback.  Even still, the implications of the tax bill certainly aren’t going to have a positive impact on sentiment in the Northeast in our view.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

Machine Learning

The Future Is Bumpy: High-Tech Hedge Fund Hits Limits of Robot Stock Picking by Bradley Hope and Juliet Chang (WSJ)

A skeptical take on the viability of using machine learning to pick stocks that outperform; unlike algorithms at quant funds written by humans, only the machine knows why it’s doing what it does. [Link; paywall]

AlphaZero AI beats champion chess program after teaching itself in four hours by Samuel Gibbs (The Guardian)

While machine learning may not be working well in financial markets yet, it’s done extremely well in more bounded environments like the world of chess. [Link]

Crypto Chronicles

Crypto money-laundering bust alert [siren] by Alexandra Scaggs (FTAV)

The DoJ unsealed an indictment this week against a 27 year old long Island woman who used loans, credit cards, and crpotcurrency to attempt to fund ISIS. [Link; registration required]

EU agrees clampdown on bitcoin platforms to tackle money laundering by Francesco Guarascio (Reuters)

Following the US action earlier this week, EU nations and parliamentarians reached a deal to make money laundering via the blockchain harder. [Link]

Retail Commodity Transactions Involving Virtual Currency by Commodity Futures Trading Commission (Federal Register)

In a proposed rulemaking that could make the operation of some bitcoin exchanges subject to regulatory oversight, the CFTC takes steps to lay down ground rules for transactions in crypto. [Link; 23 page PDF]

Bitcoin Made This Man (Briefly) One of the Richest People in America by James Mackintosh (WSJ)

CEO of Crypto Co (CRCW) was a billionaire on paper when illiquidity and the crypto craze drove the pinksheets stock to nearly $4 billion overnight. [Link; paywall]

Don’t get caught up in blockchain hype by Robbie Mitchell (Apnic)

A good rundown of what blockchain is actually useful for, in plain English. The list is much shorter than you might think based on all of the hype. [Link]

Tech Company Blog Posts

AIM will be discontinued on December 15, 2017 (AOL)

Venerable and ubiquitous messaging application AOL Instant Messenger is being discontinued, the end of an era for chat apps. [Link]

Hard Questions: Is Spending Time on Social Media Bad for Us? by David Ginsberg and Moira Burke (Facebook)

In a major move, Facebook has admitted that some research shows negative effects of social media. [Link]

Policy

Tax “reform” and America’s transfer union by Matthew C. Klein (FTAV)

Some interesting data work on the effective tax rates of states, and the effective subsidies granted to state and local governments, as well as the distribution of federal employment expenditures. [Link; registration required]

Natural Disasters

Sin Luz: Life Without Power (WaPo)

A massive audio-visual assessment of the ongoing struggles for Puerto Rico, which is still undergoing the longest and largest blackout in American history. [Link; auto-playing video]

Alpha-Bets

Alphabet wants to deliver Internet access via laser beams by Ron Amadeo (ArsTechnica)

Alphabet’s X Lab has signed an agreement with the state government of Andhra Pradesh in India to provide internet services via laser. [Link]

Math

Colorized Math Equations by Kalid Azad (Better Explained)

An awesome way to think about mathematical concepts, making instruction and deduction much more intuitive. [Link]

Cheese

A Premium for Velveeta? by Jeff Wilson (Bloomberg)

Bad news for processed cheese fiends: the key input (barrel cheese) trades at a 25 cent per pound premium over the traditional stuff on the CME futures markets. [Link]

Have a great Sunday!