We Are Living in a Material World

An emerging trend of absurd art (and more)... My latest example might seem similar, but it's very different... $247,000 for the right to touch a tungsten cube... Another look at our 'undying love for useless baubles'... The crypto crowd is falling in love with tangible items... We are living in a material world... A massive sea change is coming over the next decade...

We've uncovered an emerging trend worth watching here in the Digest...

In short, I (Dan Ferris) have written a lot about weird, sometimes non-existent art objects selling for thousands – or even tens of millions – of dollars over the past couple of years.

It started back in December 2019 with the $120,000 banana duct-taped to a wall. Then, in March of this year, an artist known as "Beeple" made $69 million at auction for a digital-only collage of 5,000 images – thanks to the non-fungible token ("NFT") craze.

And more recently, I've covered a pair of "invisible" pieces of artwork... In June, an Italian artist got paid $18,000 for a 25-square-foot box of nothingness. And finally, a month ago, I told you all about a Danish artist who took $84,000 in cash and ran in exchange for a piece called, well... "Take the Money and Run."

Of course, the insanity hasn't just been isolated to the art world... For example, in the October 22 Digest, we discussed Digital World Acquisition (DWAC).

That's the special purpose acquisition company ("SPAC") planning to buy former President Donald Trump's social media company... You know, the company that has no products yet but is currently valued at more than $2 billion in the stock market. (Perhaps a lot of folks read my rant, though... The still-to-be-created company was valued at $3.4 billion just 11 days ago.)

I've offered all these stories as evidence that the financial markets and other arenas today are driven by speculation that often borders on – and frequently crosses into – the realm of pure gambling.

Today, I want to share a story that might seem similar at first... But in the end, I believe that you'll realize an important underlying reason why it's actually pointing in a very different direction than non-existent art objects and businesses.

Indeed, this example is a harbinger of what I believe will be a massive sea change in the markets over the next decade...

The story begins with the auction of an NFT on the OpenSea marketplace.

The auction ended around 6:27 p.m. Eastern time last night, with a winning bid of 56.9 Ethereum tokens... That amount of crypto was worth around $247,000 at the time.

The NFT gives its new owner the right to visit and touch a cube of tungsten in its permanent home at the Midwest Tungsten Service headquarters in Willowbrook, Illinois. The auction winner can only touch the cube once a year... And if the NFT is auctioned off again, the new winner has to wait an entire year from the last visit by the previous winner.

It's the largest such cube produced by the firm, an industry leader that traces its roots back to 1958... Tungsten is incredibly dense, and the 14.545-inch cube weighs 2,001 pounds!

And even more noteworthy... the cube was created for the sole purpose of selling the NFT.

The cube was just minted 12 days ago. It happened soon after Neeraj Agrawal of crypto-policy think tank Coin Center posted a fake Bloomberg headline on his Twitter account on October 12...

Bloomberg never published an article with that headline, but it doesn't mean Agrawal was completely off base... He was 100% correct about crypto traders buying tungsten. A real Bloomberg story three days later pointed out this trend...

Crypto traders have contributed to a 3x to 6x surge in sales of small tungsten cubes, which weigh several pounds despite being only a few cubic inches.

Agrawal is also right about tungsten cube buyers' motivations... Folks have become fascinated with the density of that material. It's just plain fun to hold something in your hand that is so small but weighs so much.

The current fascination with tungsten cubes is nothing new...

Midwest Tungsten General Manager Kevin Anetsberger told Bloomberg that the tungsten cubes "go viral" every now and then due to their density. He also noted that the firm has gotten better at staying supplied enough to handle these surges...

Indeed, when the Bloomberg piece was published in mid-October, the author of the article included a screenshot of Midwest Tungsten's 4-inch cube – weighing 41.6 pounds and priced at $3,199.99... It showed the product as "currently unavailable" on Amazon. However, I checked And it's now available for purchase.

Another Bloomberg piece, published on October 19, noted that enough tungsten is produced globally to make 35 million 2-inch cubes per year. In other words, it sounds like there's plenty of tungsten to go around if you feel compelled to get your cube on.

The tungsten-cube craze calls to mind my February 26 Digest, in which I noted our 'undying love for useless baubles'...

I used the word "useless" sarcastically to show how the unproductive nature of objects like gold bars and tungsten cubes captures our imagination... And in gold's case, this characteristic also makes it an excellent store of value. As I wrote...

No other animal in the world has use for unproductive inanimate objects the way that we do.

Go into the average American home... It's loaded with art, knickknacks, keepsakes, and all types of useless objects owned and displayed for the pure pleasure of doing so.

That is why gold will never disappear as a store of value.

Legendary investor Warren Buffett called gold "unproductive" in his 2011 letter to Berkshire Hathaway shareholders. He concluded that the only reason to buy it is in hopes that someone else will pay you more for it later – the well-known "greater fool" theory.

But the thing is, he got it wrong...

It's true that gold is an unproductive asset. If you make a pile of it and come back 100 years later, the pile will not have changed. However, that's precisely the point... It's why gold has been a brilliant store of value for at least 5,000 years.

The easiest way to understand the appeal of gold and tungsten is simply to notice that they're both tangible... The current fascination with tungsten cubes is based solely on the experience you get by holding one in your hand. As one particularly poetic Amazon review said...

Those that have not held the cube in their hands and mouths will not understand.

(Yeah, I'm thinking the same thing you are. Mouths?!?! Anyway...)

So in my view...

Humans will always value gold for the same reason the crypto crowd has fallen in love with tungsten cubes...

We're drawn to gold by its color, sheen, and inertness. The last trait, of course, puts it in the elite group of substances that don't change much (if at all) over long periods of time.

Meanwhile, tungsten's appeal is its density... It's a mind-altering experience to hold a 4-inch cube in your hand that weighs roughly 42 pounds.

The heaviness takes you by surprise the first several times you pick it up. You realize how rarely you encounter any material of such high density. It's just not common on Earth.

Before either gold bars or tungsten cubes are anything else, they are shiny objects of endless fascination. They're unproductive baubles first... and useful in other ways second.

In fact, I contend that they're valuable primarily because they are unproductive baubles.

Our desire to own and interact with tangible objects of fascination will never go away...

Crypto buyers of tungsten cubes have learned for themselves how that immutable human need is absolutely not satisfied by the digital world... You can't hold NFTs, streamed songs, or online photos in your hand – except indirectly via your phone or computer. Those things all speak to our human souls, too, but in a totally different way than tangible objects.

As pop icon Madonna reminded us in the 1980s, we are living in a material world.

Gold, tungsten, silver, and other tangible objects of fascination bridge the gap between all that exists only in our minds and all that exists outside of our minds and ourselves. When we touch gold or tungsten, we feel like we're holding the whole universe in our hands.

After reading more than 1,300 words, you might be wondering what any of this has to do with investing...

You're reading the Digest for our insights into the financial markets, after all.

Well, the thing is, it has everything to do with where I believe asset prices are headed over the next 10 years. Here's what I mean...

Remember, according to Bloomberg, the crypto crowd is the group of folks going gaga for tungsten right now. The right to physically visit that giant tungsten cube in a southwestern suburb of Chicago probably wouldn't exist if not for NFTs. And it was auctioned off on the largest NFT marketplace (OpenSea) and priced in Ethereum tokens.

The folks behind the auction made it as intangible as they could. But in the end...

They sold the winner's right to take however many trains, planes, and automobiles it takes to move their corporeal frame from wherever they are in the world to the village of Willowbrook, Illinois, for the sole purpose of touching the metal cube with their hands.

When we put it that way, it doesn't sound a lot different from crossing the U.S. in a covered wagon to pan for gold. As you can see, it's all about something tangible in the end.

Crypto backers are openly celebrating the irresistible lure of tangibles for the pure pleasure of holding them in their hands...

Given how profoundly different that experience is from "stacking sats" (crypto-speak for accumulating small amounts of bitcoin over long periods of time), the most ardent bitcoin bulls might want to reconsider their oft-repeated refrain that "gold is dead."

It ought to feel absurd to say, "Gold is dead... but tungsten is alive and well."

The truth, of course, is more subtle... The world is big enough for cryptocurrencies, precious metals, and countless other vehicles for payments, savings, and wealth preservation. The idea that one asset precludes all others is too simpleminded.

Maybe that's how people learn to think when the U.S. dollar accounts for roughly 60% of global currency reserves and 80% of global transactions, though... I doubt most folks ever consider how such a state of affairs might have altered their worldview.

Before we wrap up today, I must make one thing abundantly clear...

By suggesting that crypto buyers have demonstrated an appreciation for the unique joys of tangibles via tungsten cubes... I'm not calling a top in the crypto market.

As I've told you more than once in the Digest, I recommended bitcoin to my Extreme Value subscribers in early 2020. They're up more than 500%, and I'm not telling them to sell.

But sure, even if bitcoin is a long-term holding in my view, there are plenty of signs of excess in crypto (just like everywhere else in the global financial markets these days)...

A recent example is the new "Squid Game" crypto coin, inspired by the hit series from streaming giant Netflix (NFLX). It rose 230,000% to more than $2,800 last week... and then crashed nearly 100% to less than half a cent yesterday as an apparent scam.

In another example, some anonymous person apparently borrowed the equivalent of $532 million in Ethereum, sold an NFT of a crude digital picture to themselves for that amount, and then immediately offered it for sale again at more than $1 billion.

In a regulated securities market, that type of behavior is banned. "Wash trading" is forbidden because it can artificially inflate prices and suggest higher demand than reality.

But in the unregulated crypto world, a sign of excess like that can happen.

With examples like that, I have no doubt that – one way or another – a huge washout of excess from the crypto market will occur at some point.

At the same time, though, it's still a crucial part of our future... In the years ahead, the crypto space will continue to be the site of huge innovations in payments, contracts, and many other important areas – including some beyond finance.

In the end, the tungsten-cube craze is symbolic of a larger wake-up call...

Nobody takes technology for granted these days... But everybody takes the tangible underpinning of our modern world for granted.

After all, the big backup of ships that need access to (especially U.S. West Coast) ports is nothing but a massive wake-up call to the whole world... It's reminding us how important these mostly ignored assets by investors are to our way of life. The same thing goes for empty supermarket shelves and the rising prices of food, fuel, and housing.

We're taking the most basic, tangible necessities of life for granted.

But with the tungsten-cube craze, I hear the growing drumbeat of a massive sea change in the financial markets over the next decade or so...

The last decade was dominated by a nearly exclusive focus on technology and the magic of the intangibles underlying it (consisting mostly of software). That's about to change...

The next decade will see growing investor interest and increasing capital flows into tangibles. That includes both the basic necessities of life and the unproductive assets that capture our imaginations, without which humans would become "dull, sluggish" creatures "barely energetic enough to obtain a bare subsistence," as philosopher Eric Hoffer put it in his 1971 book, First Things, Last Things.

I have no doubt that we need much more investment in everything from roads and seaports to food, fuel, and housing... which, in turn, will bring renewed interest in "unproductive" tangibles like precious metals, art, collectibles, and land. No matter how much we depend on software, cryptos, or other intangibles in our daily lives, we will never eliminate our need for tangibles... They're just two sides of the same coin that is human nature.

To me, the tungsten-cube episode is a sign of things to come... The massive capital flows into technology will be diverted into the production of precious metals, base metals, food, fuel, and other important tangibles.

We might all look back a decade from now and realize the latest craze in tangibles started with crypto. If that happens, I'll be sure to remind you yet again of our undying love for useless baubles.

New 52-week highs (as of 11/1/21): Bath & Body Works (BBWI), Black Stone Minerals (BSM), Biotricity (BTCY), CBOE Global Markets (CBOE), Costco Wholesale (COST), CVS Health (CVS), Comfort Systems USA (FIX), Formula One Group (FWONA), SPDR S&P Regional Banking Fund (KRE), LendingClub (LC), Liberty SiriusXM (LSXMA), McDonald's (MCD), Nestlé (NSRGY), ProShares Ultra QQQ Fund (QLD), Construction Partners (ROAD), Silvergate Capital (SI), ProShares Ultra S&P 500 Fund (SSO), Suncor Energy (SU), Thermo Fisher Scientific (TMO), AMERCO (UHAL), United Rentals (URI), ProShares Ultra Semiconductors Fund (USD), and Vanguard S&P 500 Fund (VOO).

In today's mailbag, we're sharing more e-mails about my "free speech" thoughts in Friday's Digest – plus my responses to a couple of folks. A few subscribers also wrote in about my colleague Kim Iskyan's Digest on the current labor shortage in America. Tell us what's on your mind at feedback@stansberryresearch.com.

"Bravo. Bravo. Bravo." – Paid-up subscriber Warren F.

"Dan, it's great that you spoke up about free speech. I am sure that you have observed some nastiness from being in Vancouver, [Washington,] hearing all the Portland stuff, and now living in semi-rural Eagle Point.

"I enjoy reading your stuff... keeps me on my toes. I am of the age (82) where I am selling systematically on the way up. For every $1,000 my investments go up, I sell $300. Within the past year, I have paid off my mortgage and 'HELOC' so I am out of debt (other than the 30-year bonds I am short). And now, I'm starting to accumulate some cash.

"My wife says I never tell her of the good things and only mention things that I see as negative. So in keeping with my style, I will tell you of two things that I question in your October 29 Digest...

"While the put/call ratio is very low, it is not because fewer puts are being purchased. I think it is because so many calls are being purchased. The large denominator is overwhelming the numerator. It is not necessarily a lack of put-buying that makes the ratio historically low. And, yes, despite my point, the low ratio is a sign of exuberance.

"I would like an explanation of your statement: 'Consider a business that earns a 30% return on invested capital ('ROIC'). In a period of 10% inflation, that ROIC would get cut down to 20%.'

"To me, that does not naturally follow... Are you assuming that the business has all its costs increase and that the revenue does not increase? Won't businesses adjust to the condition? Granted, some businesses have more pricing power than others, but few, if any, will have their ROIC decline in proportion to the amount of inflation.

"I agree that we are in a bubble of sorts. It's being caused by the crazily low interest rates worldwide. And when inflation is recognized as more than 'transitory,' rates will go up. That would reduce the value of equities, especially those where earnings growth is being discounted far into the future. Because some of us have expected rates to rise for half-a-dozen years, I wonder whether higher rates are already somewhat discounted in the market.

"Yes, some day the stock market will again go down significantly. We don't know what the black swan will be. I tend to doubt that it will be inflation because we are all so aware of inflation. [But] you are correct that you and I can't predict what will cause the turning point. I like your advice to diversify and be prepared." – Paid-up subscriber Bill H.

Dan Ferris comment: Bill, thanks for the long, detailed note. And of course, thanks for reading. Now, to your points...

It doesn't matter if call-option buying rises a lot or put-option buying falls a lot. They are identical phenomena, reflecting a lack of bearishness relative to bullishness. Only the relationship matters – and as I noted on Friday, it's at an extreme level right now.

As to your second point, I don't view inflation as the uniform, easily manageable phenomenon you represent... nor can all businesses pass all rising costs along to customers.

Margins get squeezed. Returns fall. You wake up one day and some important cost at the center of your business has soared overnight... That's the reality of dealing with inflation.

There's a reason why the 1970s are the only period going back to the mid-1950s when the S&P 500 Index traded consistently below 15 times earnings. It's because businesses are worth less when inflation is ripping through the economy at a torrid pace.

If what you suggest is true, inflation would be rather benign and barely noticeable. Yes, that has mostly been true over the past few decades... but not anymore. Most folks' standard of living falls as inflation gets worse.

The belief that inflation won't destroy equity values is a great sign of complacency about it. We're nowhere near "everybody believing" inflation is a problem. If we were, I doubt the S&P 500 would be trading at the most expensive valuation in its history... Of course, even I would admit that stranger things have happened and will continue to happen.

"Despite the fact that you, Dan Ferris, are one of my favorite Stansberry stock analysts, I totally and unequivocally disagree with your assertion about the left going haywire with its speech. You wrote the following in your most recent Digest...

Today, when it comes to speech, the left has gone haywire. It's no longer supporting civil liberties and intolerance. And even worse, it's (often violently) in favor of suppressing them.

"Dan, you must be referring to the right! I'd like you to present some examples of how the left has gone haywire with its speech. Talk about haywire speech... Fox News uses the most blatantly hateful reporting wreaking of lies I've ever seen in my lifetime. Only Trump is worse.

"It's unfathomable, disgusting, and disgraceful how you can adhere to what you wrote in the Digest about the left without referring one time to the lies used by Trump and all his minions on a daily – and even hourly – basis! Those people are destroying not only the Republican Party but more fearfully our democracy.

"If it continues, we can all say goodbye to civil liberty, intolerance, and our democracy as we know it today. Get real, Dan. You are way off base with your political ideas at the moment!" – Alliance member Al V.

Dan Ferris comment: Al, I envy you... because it seems like you never watch TV news or read any newspapers or magazines.

I don't know how you pull that off, but you are clearly doing it... That's because it's impossible to watch 30 seconds of CNN or any other lefty news source without getting an earful of "woke" lunacy – much of it a direct assault on free speech.

Now, at the same time, you can't watch 30 seconds of Fox News without getting all the right-wing talking points, most of which are way off base as well.

It's like watching two groups of kids fight over whether cookies and cream is a better ice cream flavor than mint chocolate chip... It's all pointless noise to which you have insisted upon sheepishly contributing.

You shared part of what I said in last Friday's Digest. But here's more from that essay...

I often say there's no difference between the "right" and the "left" side of the political aisle.

By that, of course, I'm talking about modern liberals and conservatives.

That's still true. But the two sides go to extremes on many different issues...

Today, when it comes to speech, the left has gone haywire. It's no longer supporting civil liberties and intolerance. And even worse, it's (often violently) in favor of suppressing them.

Can anyone find the part where I said anything good about the right (Republicans)?

No, you can't... yet, Al, you spent nearly your entire e-mail ranting about Trump, the right, Fox News, Republicans, etc. Again, none of whom I have ever expressed anything but disdain for in the Digest.

Your e-mail is typical of our time... You hear what you want to hear, take everything against your tribe as a personal attack, and stick slavishly to your side of the heavily polarized political spectrum.

As for the left, there are roughly 4,000 degree-granting institutions in the U.S., according to the Department of Education. Find me 40 – just 1% – that aren't filled with woke modern liberal ideas and blatant hostility to free speech... just 40 out of 4,000.

But we all know you can't do that... Woke liberal ideas are a cancer that hijacked academia long ago.

Anybody who thinks that is a controversial statement is too uninformed to participate in this conversation.

One final point, though, Al... You're right. My political views are off base to anybody who thinks the modern left-right axis is defensible or that both sides aren't equally repugnant.

Thanks for the e-mail... and for the chance to get more off my chest today.

"[Kim,] your analysis is missing two key things that can help explain why the unemployed aren't getting back to work...

"1) It simply hasn't been long enough since the 'stimmy' checks and the unemployment checks stopped. It needs 6-9 months before we'll see the unemployed come back to jobs.

"2) The evictions haven't started in earnest." – Paid-up subscriber Tom L.

"Yes, we are having [a labor shortage]... It does not help that for people under the $70K threshold, the government sends you a check for $300 to $600 for each kid under 18, just pop out kids, and never have to work again.

"States stopped the extra money ($300 weekly) but did not CUT OFF benefits for those who leave jobs, so no incentive to get off [your butt] and find work.

"Plus, you can just go down to welfare office and apply, food stamp office and apply, and God knows what other forms of assistance. There is no reason to work with all the free crap around.

"The day of reckoning is coming, the supply chain is a hair breadth from collapsing all together, and when that happens, all Hell's going to break lose. I ain't no prepper, but we are stocking up on things which will be impossible to find when it does." – Paid-up subscriber Monty B.

"I was one of the 4.3 million who walked away (quit) my job at 62 and was fortunate enough to have planned it financially. The company I had worked for for the past 22 years in a management position, required us to discuss the merits of holding a door open for another human being following you through the door and what are the merits of that act offending them?

"Since when is holding a door open for someone else considered offensive to them? I guess by today's standards it is not the polite thing to do anymore. That was the straw that broke the camel's back. I had enough WOKENESS. I'll let the young crowd figure it out without me." – Paid-up subscriber Mark S.

Good investing,

Dan Ferris
Eagle Point, Oregon
November 2, 2021